Uganda will not immediately adjust the configuration of its oil production programme in response to the $25 billion Lamu port project and oil refinery on the Kenyan coast. This is regardless of its likely implications for the economic viability of a small domestic or regionally oriented production plan.

Instead, it is proceeding with its original plans that include a refinery whose cost is estimated at $2 billion. The EastAfrican has learnt that a study for the infrastructure that will connect the various oil wells to a central processing facility is already complete, while another one for a pipeline that will carry refined oil products to the market is ongoing.

“We have a policy that we follow. We need information [on the proposed] Lamu [port in Kenya] so that we know the impact it can make on Uganda, but I think we have done enough research so we shall stick to our oil and gas policy,” Ernest Rubondo, the Commissioner for Petroleum Exploration and Production said about Uganda’s reaction to the joint project between Kenya, Sudan and Ethiopia.

Uganda’s stance is supposedly informed by a desire to maximise national value from the country’s oil and gas resources according to the Ministry of Energy.  The buzz around the proposed Lamu port comes at a time when speculation was rife that Kenyan Prime Minister Raila Odinga’s whistle-stop meeting with President Yoweri Museveni just over a week ago was aimed at reassuring Kampala over the developments in Lamu that saw Nairobi, Juba and Addis apparently edge Uganda out of the deal.

It has since emerged however, that Mr Odinga was in Kampala to develop a common position ahead of a proposed summit of IGAD member states in light of recent bombings of Juba’s oil fields by Khartoum.

Alternative

Both Khartoum and Juba are IGAD members. A fortnight ago, South Sudan, Ethiopia and Kenya inaugurated development of the massive Lapsset Corridor project that will see the construction of a modern port in Lamu, a Kenya-South Sudan oil pipeline, a railway line and highway connecting the two countries through Ethiopia and an oil refinery.

The development will give newly independent South Sudan an alternative export route for its crude oil, currently the subject of a stranglehold and alleged pilfering by Khartoum.

(Read: South Sudan comes to town shopping for Lamu pipeline)

Although it is early times, Lapsset is the first indicator that earlier warnings by experts that Uganda may do well to consider the possible impact of future developments in the region’s oil and gas sector before settling on a course of action, may hold water.

The worst case scenario for Uganda would be the development of large refineries on the East African coast whose economies of scale from refining domestically produced or imported crude could make Uganda’s oil uncompetitive.  

Ministry of energy officials however insist that the East African Community had already endorsed Uganda’s pipeline to the East African coast and the inland refinery that would be jointly developed by partners states.

“The East African Community took the decision for us to build a pipeline and we shall stick to it irrespective of who does what in the region,” said Ministry of Energy spokesperson Bukenya Matovu.

Uganda, Kenya and the DR Congo also signed a memorandum of understanding in 2010 to co-ordinate oil exploration and development in the Albertine Graben. 

“There is no harm in having two oil projects in the East African region. The economies can sustain both of them at the same time but it may affect the profits of the players,” said Mr Rubondo of the Lamu port project.

In the meantime, Uganda has hired a transaction advisor, to guide the government on its participation in development of the refinery and is going ahead with studies on the transportation and storage of petroleum commodities within Uganda.

Fichtner MEI Oil and Gas, a German engineering firm, has completed a study of the pipeline that will carry crude from the fields to the refinery. The study cost $350,000 and is now under review by the government.

The second part of the study, which covers distribution and storage facilities for petroleum products — gasoline, diesel, kerosene and jet fuel from the refinery has commenced and is expected to be complete by the end of 2012, said Mr Rubondo.

This study is being undertaken by a Canadian firm CPCS Transcom Ltd. This study that will take 6-8 months also examines the feasibility of a pipeline to carry the petroleum products from the refinery to the market centres.

While earlier plans by South Sudan had involved a limb that would interface with Uganda’s oil export infrastructure, the variance in focus between export of crude and refined products now puts this in doubt.

“Uganda’s insistence is to ensure that our oil gets value addition in comparison to pumped out crude. Lamu is a critical point but it is too early in terms of infrastructure development to discuss at this stage,” said Ugandan legislator Capt Mike Mukula who has been privy to high level discussions between Uganda and Kenya on regional infrastructure.

According to Mr Mukula, Uganda’s strategic entry to the Lamu project would be the railway line from Gulu to Sudan but it is still in doubt whether the gauge’s on the Ugandan side would conform to what Juba is developing.

“Uganda will eventually come on board but not yet because we have Mombasa,” said Mr Mukula.