Rwanda Oil Pipeline: Feasible, Profitable, and Necessary

UNCLAS KIGALI 000961 SIPDIS SIPDIS SENSITIVE DEPARTMENT FOR AF/C DEPARTMENT PASS USTDA: EEBONG DEPARTMENT PASS USTR: WJACKSON DEPARTMENT PASS COMMERCE: RTELCHIN DEPARTMENT PASS OPIC: BCAMERON E.O. 12958: N/A TAGS: EFIN ECON PGOV EINV ENRG ETRD EPET BTIO RW SUBJECT: Rwanda Oil Pipeline: Feasible, Profitable, and Necessary ¶1. (SBU) Summary. On October 9, Energy and Communications Minister of State Albert Butare opened a workshop to review the United States Trade Development Agency (USTDA)-funded findings on the extension of an oil products pipeline from Kampala to Rwanda. The report clearly supports extension of a pipeline to Rwanda, but not to Burundi. There are worrisome signs the government of Rwanda (GOR) might single source the contract. The Mission will urge an open and transparent tender process. End Summary. ¶2. (U) With the goal of reducing the cost of oil for end consumers, USTDA funded an economic feasibility study to determine whether the future demand for oil products would support the construction of a pipeline to deliver oil products from Kenya, where they arrive at the port of Mombassa, to Rwanda and Burundi. Currently oil products are transported to Kigali and Bujumbura via road from an oil depot in Eldorat, Kenya. An Eldorat-Kampala pipeline has been approved and is in the initial phases of design, albeit behind schedule. ¶3. (U) The consultants from Science Application International Corporation (SAIC) conducting the study concluded that extending the pipeline from Kampala to Kigali would be economically feasible as long as the overall white oil consumption grows at an average of 7.8% per year. The proposed pipeline would deliver white oil products such as gasoline, diesel, jet fuel, and kerosene as opposed to heavy fuel oil which is mainly used for industry. . The other key assumptions upon which the positive conclusion were based include a steady inflation rate of 2.5% and a sustained real economic growth of 4% per year (Note: average inflation over the past few years has been 6% and the average gross domestic product growth over the past few years has been 6%. End Note). If the assumptions are correct, the pipeline benefits to Rwanda will be extensive: less wear and tear on the roads, greater security of supply, and most importantly, access to cheaper fuel. ¶4. (SBU) The Eldorat-Kampala pipeline is planned as a public-private partnership (PPP) between the Kenyan and Ugandan governments and the Libyan company Tamoil. Yussuf Uwamahoro, Coordinator of Energy Projects at the Ministry of Infrastructure, expressed to EconOff the government of Rwanda's (GOR) desire to award the project to Tamoil to expedite the completion of the pipeline. However, the SAIC consultants underscored the importance of avoiding potential monopolies in crucial industries such as energy. In fact, the consultants explained that the operational coordination of pipelines is not complex and that it is very common to have different owners for different segments of oil pipelines. ¶5. (U) Given existing cost structures, the project analysis did not support extending the pipeline from Kigali to Bujumbura. Minister Butare expressed his concern to EconOff for how this conclusion would be perceived by the Burundians, especially considering that the USTDA-funded study was granted to and administered by the GOR. However, the Burundian Ambassador to Rwanda was present at the workshop and expressed no misgivings at the data (showing that it would be cheaper to truck oil products from Kigali to Bujumbura than to build and operate a Kigali-Bujumbura pipeline). ¶6. (U) The governments of Kenya, Uganda, and Rwanda have created a joint coordinating commission to oversee these studies, and eventually, the pipeline. Yussuf Uwamahoro reported that the governments plan to have a memorandum of understanding (MOU) signed by November of this year. This MOU would cover the preparation of the terms of reference for the next phase - a technical feasibility study, the procurement of consultants, and oversight of the entire process. Several representatives of Tamoil attended the conference and already appear to be lobbying for the GOR to single-source the contract to them. ¶7. (SBU) Comment. The results of the study support pipeline construction to Kigali and would benefit the Rwandan economy as energy is a major cost of doing business in the country. Effective implementation of the pipeline will depend on Ugandan government commitment to extend the pipeline from Eldorat to Kampala - a project which is behind schedule and might be impacted by the recent discovery of oil deposits in Uganda. The Mission will urge the GOR to use a transparent bidding process open to all interested parties. SIM