How badly did Libya want the Kenya-Uganda oil pipeline deal?

Nov 01, 2006 01:00 AM

by Angelo Izama

Libyan President Muammar Gaddafi must be feeling like a jilted suitor. Behind the scenes details are emerging from Nairobi on how Libya went the whole nine yards and more to hang on to the deal to extend the Kenyan oil pipeline to Uganda.
At a cost of close to $ 100 mm (about Sh 180 bn), the deal does not come cheap even if Tamoil East Africa, the local business arm of Tamoil Africa, outbid its closest competitors to secure the contract. Tamoil is the Libyan state owned oil-trading company run through holding companies in Europe.

It appears that despite Libya's financial muscle, the signing of the deal, which was first conceived in May 1995, has dragged on for months. A new date, November 6, has now been set to put pen to paper. Initially, 23 firms were attracted to the deal, which eventually boiled down to a stiff competition between China Pipeline Construction Company and Tamoil East Africa.
The Libyans, however, surprised their competitors by quoting the lowest project cost. Libya has been negotiating like a love-sick groom whose passion to go home with his bride has been frustrated at each and every turn by in-laws ganged up to make impossible demands.

A highly placed source within the Joint Coordinating Commission, the panel negotiating with Tamoil on behalf of Kenya and Uganda, has passed on documents to this writer to show that the Libyans dug deep into their pockets to keep the deal. Ironically, the process of the deal has been littered with various allegations that Tamoil did not have money, the one thing, which the Libyans have plenty of. The JCC appears to have been troubled by the low project costs Tamoil and its partner Skodaexport had projected.
The JCC demands on the Libyan company seem designed to finally indemnify the two governments should Tamoil fail to deliver. Examined closely, these demands show how suspiciously Tamoil has been treated, with or without justification.

Before even signing the deal, the Libyans, responding to sometimes extreme conditions, put up millions of dollars above the project cost to hold on to the venture. Altogether, the financial indemnity sought by the JCC is close to a whopping $ 300 mm, close to three times the project cost.
The company responded to some of the exorbitant demands in a letter to the JCC dated October 20. The Libyans supplied a Deed of Guarantee to show that their parent company, Oilinvest Holdings, was indeed a part of them even when financially suave minds are aware that Libya has been trading its billions of oil money through Oilinvest through 20 years of US sanctions against Gaddafi.

Secondly, the Libyans supplied an Irrevocable Letter of Credit from the Libyan Foreign Bank to the JCC worth $ 78.2 mm, the full cost of the project. This means if the company defaults, the JCC can seize this cash. But this was not enough, a letter from Stanbic Bank (U) was also thrown in to say the bank was ready to finance the project and a performance bond of another $ 1 mm was deposited from the Libyanowned Tropical Africa Bank in Kampala.
This still fell short of what the JCC needed, so Tamoil showed confirmation of receipt of $ 100 mm from Libya Africa Investment Portfolio (LAIP). This fund was created by Gaddafi to fund his Africa investments and reportedly holds $ 5 bn.

But the demands did not stop there, Tamoil's bankers had to show that they had another $ 200 mm ready for the company. Regardless of this harsh treatment, Libya remained interested in the project. The Libyans were even asked to supply a list of staff that were retained to work on the project.
What was it that technocrats spent months finding out about Tamoil and its partners? Reliable sources claim one of the reasons for the severe conditions imposed on Tamoil was the interest of its closest challenger for the deal, China Petroleum Pipeline Engineering Company.

Backed by the Chinese government, this company also does technical work on Kenya's current pipeline under contract with the Kenya Pipeline Company. Not surprisingly, KPC and its boss George Okungu, who are the technical advisors of the JCC, have been suspected by some Tamoil officials of a Chinese bias.
This logic, would suggest that the stringent conditions imposed on Tamoil were somehow being brewed by KPC hoping that the Libyans to abandon the deal for the Chinese. It didn't happen but has clearly caused some discussion in Nairobi and Kampala.

Other sources claimed that President Mwai Kibaki was repeatedly lobbied by Mary Wambui, his close associate, to support the Tamoil exit. Others say that Tamoil and the KPC/China alliance are on separate sides of Kenya's political divide meaning that the eventual winner of the deal may funnel money into Kenya's political competition. Energy projects are capital intensive after all.
In the final analysis negotiators from both governments would have been put in a position to weigh the strategic alliances produced by giving the deal to either Libya or China. Observers can claim that as with war, all is fair in business competitions but some would hasten to add that the Oil Pipeline project once again showcases the darker side of doing business in Africa even for powerful parties, like the Libyan government.

The project is of a more strategic value to Uganda, keen to exploit her own oil resources. It would appear that this vested interest, including the historically close relationship between the Libyan and Ugandan Presidents, seemed not to have imposed itself on the humps and bumps on the road to Tamoil's acquisition.
It also mirrors the troubling trend of public procurement mired in allegations and counter allegations of graft and influence peddling that has ground other deals in the energy sector in Uganda.

How much further will the Libyans go before the project is finally complete?
That remains to be seen. Interested parties should however study this deal to learn better what it takes to do business in Africa.

Source: The Monitor
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