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Uganda’s First Oil Sees Setback As Players Quibble Over Tariffs

Tullow Uganda

Uganda may be getting its first whiff of the so-called oil curse, as the government on Wednesday announced that production on a major oil pipeline may see a delay as its investors hold out for a higher tariff, beyond the $12.20 per barrel tariff originally agreed upon.

Uganda’s crude oil reserves are 6.5-billion-barrels-strong, and promise to bring Uganda prosperity—if it can manage to escape the resource curse, that is.

The 1400 km Uganda-Tanzania pipeline in question will run from Hoima, Uganda, to Tanzania’s Port of Tanga. The financing for the project will come 70% from the governments of Tanzania and Uganda, with the remaining 30% from Tullow Oil and CNOOC. France’s Total also co-owns part of Uganda’s oilfields, and may be negotiating for a stake in the pipeline project.

Uganda chose the Tanzania route for its oil pipeline over a perhaps riskier one through neighboring Kenya, who also has discovered oil and is anxious to move ahead with infrastructure projects. But this Tanzania route was chosen, the Uganda government says, on the basis that the tariff would not exceed $12.20 per barrel.

The renegotiations will likely delay final investment decision for the $3.5-billion pipeline project until June 2019—the previous date for the FID was by the end of 2018, but the project has already seen delays prior to that.

Part of the challenge Uganda will face in moving its oil to market is the viscous, waxy nature of its oil, which requires an insulated, heated pipeline that will keep the oil above 50 degrees Celsius so it will continue to flow.

The expected delay in pipeline will also delay first oil from Uganda. Still, Uganda is eyed as being an oil hotspot despite its challenges, which include its landlocked position; viscous, waxy oil; and civil protests.

By Julianne Geiger for Oilprice.com

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