East African countries close ranks in a bid to exploit oil, gas deposits

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BR KENYAOIL Bloomberg Cranes unload clinker from bulk carrier ships and into waiting trucks on the dockside at Mombasa port in Kenya. Photo: Bloomberg

Kenya, Uganda and Tanzania plan to allocate money in their annual budgets to spur investment in infrastructure to exploit oil and natural gas from deposits that companies including Tullow Oil are developing.

Ugandan and Kenyan oil discoveries, made in 2006 and 2012 respectively, and new gas finds off the coast of Tanzania that have boosted reserves have seen east Africa become a frontier for petroleum exploration.

The three countries, along with Rwanda, which are all members of the East African Community (EAC), will today present their budget statements for the financial year starting on July 1.

Development

“If there is one thing most EAC partner states agree upon – it’s infrastructural development,” Ahmed Salim, a senior associate based in Dubai for research consultancy Teneo Intelligence, said.

Kenya is building a port in Lamu in the country’s south-east linked to a proposed pipeline to export crude, while Uganda expects to select a company by December to build and operate the country’s first oil refinery. The neighbours aim to start oil production within three years.

Tanzania, which already produces natural gas for domestic consumption, this year wants to complete construction of a gas pipeline from its south to the commercial hub of Dar es Salaam on the coast.

Higher spending on infrastructure may require governments to boost borrowing. Kenya plans to sell an inaugural euro bond this month to raise as much as $2 billion (R21.3bn) for infrastructure, while Tanzania may sell its first sovereign debt this year and next year, according to the country’s President Jakaya Kikwete.

“East African budgets will be closely watched for attempts at fiscal consolidation amid hydrocarbons discoveries across the region,” said Razia Khan, the head of African economic research at Standard Chartered in London, referring to the need for countries to control deficits and debt accumulation.

Kenya may become the EAC’s first oil exporter by 2016 as Tullow and its partner, Canada-based Africa Oil Corporation, explore the South Lokichar basin, where they have found an estimated 600 million barrels of crude.

Tullow said in February that Kenya considered the start of oil production and exports a “national priority”.

Lamu port

Construction of the first three berths at the planned port in Lamu, which would add to Kenya’s main harbour in Mombasa, was scheduled to be completed next year at a cost of $664 million, according to the Kenya Ports Authority.

In Uganda, Tullow, France’s Total and China’s Cnooc are developing oil fields and have agreed with the government to help construct a refinery and export pipeline.

The country holds an estimated 3.5 billion barrels of oil, the fourth-largest reserves in sub-Saharan Africa, from which commercial production may start in 2017.

Uganda is considering four bids to construct a 60 000 barrel-a-day refinery from companies including Marubeni based in Japan and a group of investors led by China Petroleum Pipeline Bureau.

Negotiations of the contract may be concluded in the final quarter of this year, according to Uganda’s Energy Ministry. The refinery was a “major priority” in the current budget, according to the country’s Finance Ministry.

The International Monetary Fund expects Kenya’s economy to expand by 6.3 percent this year, Tanzania 7.2 percent, Uganda 6.4 percent and Rwanda 7.5 percent. Burundi, which is the fifth member of the EAC, sets its budgets on a calendar year. – Bloomberg


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