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Cablegate: Rwanda Oil Pipeline: Feasible, Profitable, and Necessary

VZCZCXYZ0008
RR RUEHWEB

DE RUEHLGB #0961 2950835
ZNR UUUUU ZZH
R 220835Z OCT 07
FM AMEMBASSY KIGALI
TO RUEHC/SECSTATE WASHDC 4808
INFO RUEHNR/AMEMBASSY NAIROBI 1031
RUEHDR/AMEMBASSY DAR ES SALAAM 0977
RUEHJB/AMEMBASSY BUJUMBURA 0166
RUEHKM/AMEMBASSY KAMPALA 1733
RUEHFR/AMEMBASSY PARIS 0347
RUEHKI/AMEMBASSY KINSHASA 0306
RUEHDS/AMEMBASSY ADDIS ABABA 0139

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

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