Uganda has revised its oil and gas volume projection downwards and pushed forward production timelines due to a delay by investors to make final investment decisions for both the pipeline and upstream project.
A disparity over pipeline tariffs emerged during the host government agreement (HGA) negotiations between Uganda and joint venture partners Total E&P, Tullow oil Uganda and China National Offshore Oil Company.
The HGA is an agreement entered between a host government on the one side, and the project investors on the other, relating to the implementation of the project in the specific territory.
Two HGAs are expected to be signed between joint venture oil companies and Uganda and Tanzania separately.
The agreements include the different government obligations, investor duties, environmental obligations, other relevant standards and procedures, as well as required stability clauses with respect to development, construction and operation of the project.
While the government maintains it must have the least cost route to pump the crude from Hoima to Tanga in Tanzania, it emerges that the oil companies are introducing different financial models, each with a different bearing on the final tariff, thereby prolonging the discussions.
Energy minister Irene Muloni explained that this costing element was what informed Uganda’s decision to abandon the Lamu port route.
While Ms Muloni was careful not to let out information that could jeopardise the negotiations, sources knowledgeable of the economics of pipelines told The EastAfrican that a high tariff on the pipeline would reduce profits accruing from the upstream production, which is at the heart of the matter for Uganda.
According to the production sharing agreements, Uganda expects a higher return from upstream production. These include a share of the profit from the oil and royalties.
At the start of production, Uganda will take between 60 per cent and 65 per cent of the profit oil, but that is expected to reach 70 per cent as production progresses. The remaining shares will belong to the oil companies.
On the other hand, oil companies expect to make more economic returns from the crude oil export through a pipeline running from Hoima in western Uganda to Tanga in Tanzania.
Uganda will take a 15 per cent share in the pipeline, Tanzania takes 5 per cent and the rest goes to the oil firms.
A Front End Engineering Design study shows that it will cost $3.55 billion to build a 1,445km pipeline with a confirmed tariff at $12.2 per barrel.
“First oil was expected in 2020, and so we required joint venture partners to make a financial investment decision in December 2017 or at worst 2018, but that has not happened and so first oil shifts to 2021-2022,” said Muloni.
Latest energy ministry data also shows that Uganda’s oil volume in place has reduced to 6 billion barrels down from 6.5 billion barrels after a re-appraisal.
Volumes of recovery stand at 1.4 billion barrels. Earlier studies had put it between 1.2 billion and 1.7 billion barrels.
Ms Muloni said that the same studies now reveal that the oil resources are only in 10 per cent of the Albertine Graben and not 40 per cent as stated before.
She said that the country expects a fresh round of licensing and an official announcement will be made during the East Africa Oil conference in May.