Tanzania, Uganda sign deal on $3.5bn oil pipeline

Tanzania and Uganda have officially signed an agreement for the construction of a 1,445-kilometer crude oil pipeline that will connect Uganda's oil fields to Tanzania's port of Tanga. The $3.5 billion project marks a significant milestone in the energy sector of East Africa, with the presidents of both countries in attendance at the ceremony. CNBC Africa had the opportunity to speak with Abdullah Samad Abdul Rahim, Co-founder and Chairman of the Association of Tanzania Oil and Gas (ATOGS) to gain insights into this crucial development. The journey towards the realization of this pipeline project has been a long and arduous one, with discussions and negotiations dating back to 2016. Several obstacles, including fiscal, tax regime, and regulatory disagreements, once led to the suspension of the project. However, recent developments indicate that these hurdles have been successfully overcome, paving the way for the commencement of this transformative venture. One of the key factors driving the urgency of the project is the substantial infrastructure improvements that have been made in both Tanzania and Uganda. The increased focus on enhancing connectivity and facilities underscores the strategic importance of the pipeline for both nations. The frequent high-level engagements between the leaders of Tanzania and Uganda, technical discussions, and engagements with investors have all played a crucial role in advancing the project to its current stage. The economic benefits that accompany the pipeline project cannot be understated. It is estimated that around 18,000 jobs will be created locally, predominantly in Tanzania, where the majority of the pipeline infrastructure will be situated. A critical aspect highlighted by Abdul Rahim is the assurance of local job creation. Historically, similar projects in the region have been criticized for favoring foreign labor over domestic employment opportunities. However, with a strong regulatory framework and the commitment of Tanzanian President John Pombe Magufuli to prioritize local participation, the project aims to maximize the benefits for the Tanzanian population. The financing of the $3.5 billion project is a complex yet critical aspect of its execution. While local financing will play a role in funding the venture, it is expected to be a combination of contributions from various stakeholders in the banking sector. Given the scale and risk involved in such a substantial project, diversifying the sources of funding is essential to mitigate financial vulnerabilities and ensure the project's sustainability. The allocation of financing between Tanzania and Uganda has been a topic of discussion, with a recent agreement stipulating a 60-40 split in favor of Tanzania. This division is based on financial models and mutual agreements between the two countries. Additionally, a joint venture will be established, involving an EACOP (East African Crude Oil Pipeline) special purpose vehicle that includes the national oil companies of both nations. This collaborative approach aims to ensure equitable distribution of dividends from the project. Addressing concerns about the distribution of costs, Abdul Rahim emphasized the economic rationale behind the allocation, with Tanzania bearing a larger share due to the significant risk and investment involved in infrastructure development. The substantial length of the pipeline within Tanzanian territory, coupled with the associated costs of road construction and upgrades, justified the 60% contribution from Tanzania. Both countries recognize the reciprocal nature of investments and the need to balance risks and rewards in such strategic endeavors. In conclusion, the Tanzania-Uganda oil pipeline project represents a transformative initiative that has the potential to reshape the energy landscape of East Africa. With a robust regulatory framework, strong governmental support, and a collaborative funding approach, the project is poised to not only enhance regional energy security but also stimulate economic growth and job creation in the respective countries. The partnership between Tanzania and Uganda stands as a testament to the power of cross-border cooperation in driving sustainable development and prosperity in the region.