Political instability in Libya is beginning to take a heavy toll on the progress of the Kenya Uganda oil pipeline — one of the most critical regional infrastructure projects in East Africa.

Correspondence seen by The EastAfrican shows that Kenya and Uganda have now insisted that they will delay any equity injection into the joint venture with Libya’s Tamoil East Africa Ltd until after the project has taken off the ground.

The two governments have also demanded that the Libyans pay off landowners along the way leave of the project.

When the parties first signed a Heads of Agreement in January 2007, the understanding was that Kenya and Uganda would each inject 12.5 per cent in equity into the company.

It was also agreed that the two East African countries would contribute land on the way leave as part of their equity contribution.

In Kenya, the Ministry of Lands has released the compensation schedules for parcels of land along the project’s way-leave to be acquired through easements and outright land acquisition.

The submitted schedule contains about 2,107 formally and informally subdivided plots with an estimated total compensation cost of Ksh520 million ($6.19 million).

The tough conditions given to the Libyans by Nairobi and Kampala are a reflection of growing impatience about a project that was supposed to have been commissioned more than three years ago.

The success of the multimillion-dollar project is especially critical for Kampala, which must urgently prepare to start pumping oil from its yet to be built refinery to Kenya —the largest economy in the region, and destined to be the biggest export market for Uganda’s refined oil.

Following discovery of oil in Uganda, Kampala has demanded major alterations of the original designs for the pipeline.

In May 2008, the Libyan company submitted a front end engineering design for a 10-inch diameter uni-directional pipeline that was approved by both Kenya and Uganda the JCC in June 2008.

But Kampala now wants a redesign of the pipeline to provide for future reverse flows between Kenya and an inland refinery Uganda is constructing.

Already, the Libyans have submitted an updated design recommending the construction of a 12-inch diameter reverse flow pipeline.

Started with pomp and fanfare and touted as among the top priority infrastructure projects in the region, the pipeline has been dogged by major delays.

While the heads of agreements were signed as far back as January 2007, it has taken an inordinately long period for the Libyans to move to the so-called final investment stage.

Environmental impact assessment certificates and licences from NEMA Kenya and NEMA Uganda issued in 2008 expired in July last year.

An inter-governmental agreement between Kenya and Uganda that is a conditional precedent for the project to move to the next stage is yet to be signed.

Other agreements still pending include an implementation agreement for the construction phase, between Kenya, Uganda and Tamoil, a shareholders agreement between the joint partners and incorporation of the joint venture company (JVC); neither have the parties concluded the crafting of memoranda and articles of association for the joint venture company.

The way-leave acquisition process, which was being undertaken by the governments in collaboration with Tamoil, is substantially complete. 

A feasibility study undertaken in 1999 by Penspen Ltd and a complementary study undertaken in 2001 by Nexant Ltd established that the uni-directional pipeline from Eldoret to Kampala was economically and financially viable and technically feasible.