Oil Sector In Jeopardy As China Refuses To  Fund Uganda’s Railway Project

Oil Sector In Jeopardy As China Refuses To Fund Uganda’s Railway Project

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By Frank Kamuntu

The future of Uganda’s oil production is bleak after China refused to fund the Standard Gauge Railway, which had been looked at as one of the alternative transportation means for crude oil once production starts in 2022 in the Albertine Graben.

This is because construction of the Oil Pipeline seems to be taking longer than it was expected to take and there is uncertainty about whether it would have been completed by 2022.

As a result, the governemnt of Uganda will begin renovating its century-old rail network this month to boost bulk cargo transportation, after failing to secure USD2.2Bn in Chinese funding for the +Sandard-gauge Rail Line.

This disturbing revelation was made by Charles Kateeba, the Managing Director of the state-run Uganda Railways Corporation, on Tuesday this week.

“Due to lack of maintenance over the years, most of the network is now in disuse,” Kateeba said, adding that “We shall replace some areas which have been either removed by vandals or are badly worn.”

The renovation will be carried out in phases over several years and cost at least 241 million Euros (USD267 million)

The European Union has already given Uganda a grant of 21.5 million Euros and the railway corporation is talking to international development lenders for the rest of the money needed.

Former colonial power Britain built the meter-gauge, 1,266 km (790 mile) railway network a century ago, mainly to trasnspory copper, cotton, coffee and other commodities from Uganda.

But the network fell into disrepair during years of political upheaval and economic instability.

Currently the old, dilapidated engines hiss and clatter as they trundle between crumbling platforms, pulling drab carriages behind them. In many places, grass has grown over disused or missing tracks.

French firm Sogea-Satom will undertake the works, which include installing rocks ballast on sections, re-laying of tracks, flattening sections and repairing about 500 freight wagons.

It should be noted that Bulk cargo transporters have been eager for cheaper transport and were disappointed when China did not offer funding for the Ugandan section of the Standard Gauge Railway (SGR) regional project.

It was originally designed to connect Kenya’s Indian Ocean seaport of Mombasa to a vast hinterland including Uganda, South Sudan, Rwanda and Burundi.

Kenya has developed a section of the SGR from Mombasa to Nairobi with funding from China, but had to fund an expansion itself.

Ugandan authorities have been negotiating with China for more than five years, hoping for funds to construct its own SGR branch in vain.

But Kateeba said several factors, including Uganda’s delayed oil production delayed the credit deal.

Uganda discovered 6 billion barrels worth of crude oil more than 12 years ago in the west, but disagreements between the government and oil firms over tax and development strategy have repeatedly delayed production.

China’s CNOOC (0883.HK) Co-owns the fields with other firms. The Ugandan government now says it expects production to start by 2022 at the earliest.

“If oil production had begun,” Kateeba said, “economic growth would mean we would be able to really afford the credit.” “But China is not giving us charity,” he added.

Kateeba noted that currently China is examining whether repayments could be adjusted, costs lowered or the implementation period pushed backwards.”

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