Kenyan Oil-Pipeline Accord With Uganda Paves Way for Exports

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Kenya and neighboring Uganda agreed on the route of a planned oil pipeline, ending months of debate on the link that will export crude from companies including Tullow Oil Plc.

The pipeline will pass through the Lokichar basin in northern Kenya, Manoah Esipisu, spokesman for Kenyan President Uhuru Kenyatta, said Monday by phone from the Ugandan capital, Kampala. The countries had also discussed building the link through southern Kenya and the capital, Nairobi. The agreed design will be the cheapest to develop, according to an e-mailed statement from the Ugandan presidency.

Tullow has found oil in both countries, with Uganda estimating finds at 6.5 billion barrels and Kenya at 600 million barrels. The planned $4.5 billion pipeline to the Indian Ocean will allow the U.K. company to start exports from joint ventures with Africa Oil Corp. and Total SA. China’s Cnooc Ltd. is also a partner in Uganda. While oil was discovered in Uganda in 2006 and four years later in Kenya, both are still in the planning stage of commercial development.

“The fact they eventually agreed on a route is good news for the likes of Total, Tullow and Africa Oil because the Kenyan and Uganda project can eventually go forward,” Stephane Foucaud, an analyst at FirstEnergy Capital LLP in London, said by e-mail. The companies didn’t immediately comment.

The pipeline will run for about 1,500 kilometers (930 miles) from Uganda’s Hoima district through Lokichar and on to the Kenyan coastal town of Lamu. Proponents for the southern route cited security concerns in the north, where bandits and Islamist militants have carried out attacks.

Security Guarantees

The export project remains subject to financing and security guarantees from Kenya, the Ugandan presidency said in the statement on Monday. Transit fees will be the equivalent or cheaper than what would be charged for alternative routes and cooperation hinges on the project being developed without further delay, according to the statement.

The governments also agreed on building a reverse-flow pipeline that will carry imported petroleum products from Kenya’s port of Mombasa through Eldoret to Kampala, it said. Moving in the opposite direction, the pipeline will take fuel from a refinery in Uganda to the Kenyan coast.

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