Tamoil wins Eldoret-Kampala oil pipeline bid

Jul 24, 2006 02:00 AM

Tamoil East Africa has won a long-running bid to finance and extend the oil pipeline from Eldoret to Kampala at a development cost of $ 72 mm.
The 320- km pipeline will be a build, own, operate and transfer (BOOT) venture after a period of 20 years. When contacted, Mr Godfrey Mugabi, Tamoil East Africa's operations/commercial manager told that the Joint Coordinating Committee (JCC) should have awarded the contract long ago to the best consortia had it not been for counter petitions from one of the bidders.

The award letter said: "We are pleased to inform you that following the evaluation of bids, the proposal by Tamoil Group was found to be the most economically advantageous. This is therefore to invite your consortium to come for negotiations to be held at the Ministry of Energy and Mineral Development boardroom in Kampala beginning August 17, 2006 at 9.00 a.m."
The letter, dated July 21, 2006, and signed by the two permanent secretaries from the ministries of energy of Uganda and Kenya, said the award of the project will depend on successful negotiations and agreement.

A JCC meeting that was held on July 18, 2006 in Nairobi, awarded the extension contract to Tamoil. Another source who has been privy to the award process confirmed the award of the deal to Tamoil. Mr Fred Kabagambe-Kalisa, Uganda's permanent secretary for the ministry of energy and mineral development together with his Kenyan counterpart, Mr Patrick Nyoike, head the JCC and the two formed part of the group that awarded the tender.

Tamoil beat off stiff competition from MISA-Madhvani International South Africa/Shell Uganda and China Petroleum Pipeline Engineering Corporation to win the 320-km extension deal, which has been delayed by controversies. At the initial stage of the bidding process, 23 firms expressed interest, with 12 getting past the pre-qualification stage, out of which only six submitted the financial and technical proposals.
After the technical evaluation process, bids belonging to Petronet East Africa, Zakhem/ARB and Energem Petroleum Corporation were dropped and that left three groups in the running for the approximately $ 120 mm extension contract.

The last controversy to hit the bidding process was the one involving Petronet East Africa and the powers that were handling the bidding process. Petronet had complained to PPDA Uganda and its equivalent in Kenya for having unfairly excluded them from the process.
The petitions on either side were however dismissed and the JCC left to proceed and award. In March 2006, Petronet petitioned the two governments when the consortia called for administrative review complaining about influence peddling, flouting of bidding rules and a host of irregularities in the process.

That setback was however handled when the Petronet East Africa bid was dropped at the second technical evaluation stage after both Transnet (South Africa's largest transport and logistics company) and the Ministry of Public Enterprise of South Africa disowned it.
Tamoil East Africa's Mugabi said his company had scored the required mark of more than 70 % in the technical proposal so as to progress to the next phase. The requirement in the bid documents was that for anyone to progress after the technical bids were opened, they had to attain a 70 % score and above. It is at this stage that Petronet, after a re-evaluation was eliminated after they had passed with a score of 55 %.

At the opening of the financial bids stage, the JCC looked for the bidder with the best proposals on the cost of development of the pipeline, the internal rate of return and the tariff the developer would charge other marketers for the use of the pipeline. Tamoil proposed a tariff charge of $ 20 for every ton of oil transported through the pipeline with an internal rate of return of 21 % at a development cost of $ 72 mm.
MISA/Shell proposed a tariff charge of $ 23.9 with an internal rate of return of 14.5 % at a development cost of $ 135 mm, while China Petroleum Pipeline Engineering Corporation, proposed a tariff charge of $ 24.1, an internal rate of return of 16 % at a development cost of $ 125 mm.

The internal rate of return signifies the return to the taxpayer for investing jointly with the winner. The higher the internal rate of return, the better for any investor. Mugabi said Tamoil's proposals on the scorecard mean that both the Ugandan and Kenyan taxpayer will not be hit hard, as both taxpayers own a 24.5 % stake with the developer owning the remaining 50 %.
Tamoil East Africa belongs to the Tamoil Group, whose holding company, Oilinvest (Netherlands) is a major player in the oil industry. Since its incorporation, the group has developed both its refining and marketing activities in Europe and has now moved into Africa. Tamoil has operations Switzerland, Germany, Spain, the Netherlands, Italy and France with operations in North Africa and East Africa as well.

The main reason for coming up with the idea of extension was to ease the transportation of oil from Kenya to landlocked Uganda, Rwanda, Burundi and the Democratic Republic of Congo. The pipeline will inevitably go a long way in reducing wear and tear on the roads, reduce risks associated with road transport and inevitably facilitate stabilisation of fuel supplies in Uganda.
When pressed about the ability of Tamoil to handle such a project, Mugabi explained that Tamoil's bread is oil and butter is pipeline development and management. The company owns and manages more than three pipelines in Europe.
"As a business we are committed to the development and growth of the two economies and if the project was awarded to us, this is the beginning of a very secure and versatile Tamoil brand in the region," Mugabi said.

The project was supposed to begin sometime in 2004 but it has been beset by delays attributed to the bilateral nature of the programme, with national interests clouding what should essentially be business decisions. The Kenya Pipeline Company (KPC) has been providing technical expertise to the Kenya and Uganda governments on the projects implementation and will take up a 24.5 % stake in the 8-millimetre diameter pipe.
There is more reason now than ever to extend the pipeline following discoveries of significant quantities of crude oil west of the country. Analysts say when Uganda starts to drill its own oil, it will need an oil pipeline to transport it to the refinery in Mombassa. They said even if Uganda were to establish its own refinery, it will still need a pipeline to deliver the oil cheaply to Mombassa.

Source: East African Business Week
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