MININFRA: Curse and potential blessing: the role of oil in Rwanda

Like most other countries in the world, Rwanda is dependent on oil products for a wide range of economic activities, notably transport, electricity generation, industry, cooking and lighting. No economy in the world today is able to exist and develop without relying wholly or partly on oil products. Since it is a resource that is finite, and available in limited quantities while highly demanded on the world market, oil has become a problematic global issue at different levels. Firstly, because of the rapid depletion of oil reserves which means that at an unknown point in time in future, oil will no longer be available; therefore we have to start today to look into other alternative and preferably renewable sources of energy. As we have been elaborating in previous articles, the Government of Rwanda is undertaking a lot of efforts aimed at diversifying its energy sources, for example through hydro-electricity, solar, wind, methane gas or geothermal resource. Secondly, oil-based energy generation not only is it an expensive exercise, but one of the strong environmentally unfriendly undertakings owing to its carbon dioxide emissions into the atmosphere. As we all know this contributes strongly to global climate change. Rwanda’s efforts in reducing its reliance on Oil are also supported through the development of Clean Development Mechanism Projects – which means, for every certified reduction of emissions of Carbon Dioxide, we gain on what is referred to as carbon credits and subsequently generate revenues through the sale of those carbon credits on the global market. Thirdly, besides environmental and technical challenges, the biggest burden that is placed on our Rwandan economy so far is the current price of oil that has been rising continuously over the past years and months, hitting today a level of 123 US$ per barrel. This affects Rwanda even more than many other countries because of its landlocked location, and goods have to be transported all the way from the Kenyan or Tanzanian coasts via road transport. As a result, beyond skyrocketing prices of oil products, the end consumer prices of all other commodities are heavily affected. The cost of diesel is also an important parameter in the electricity sector because currently 15 MW of our national electricity production is derived from the rented diesel generators. To keep the price of electricity stable the Government not only waives taxes on diesel imports for power generation but also provides direct subsidies to the fuel cost and to some of the generation capacity (Generators). Despite the recognition of the above, unfortunately we shall continue to depend on oil imports in the foreseeable future. Cognizant of this therefore, the Governments strategic approach and targets are:  To lower the end user cost through the construction of an oil pipeline connecting Kigali to Kampala, and from there onwards to Eldoret and Mombasa on one side, and extending to Burundi on the other side.  To ensure stability of the supply chain partly through building of new and rehabilitation of existing storage facilities,  To further reduce dependency in imports by the exploring of oil existence in our country  To waive taxes on certain products such as LPG, used for cooking.  To look for alternative products The Kampala - Kigali Oil Pipeline Project - Addressing Transport Cost and Security of SupplyOil products for the Rwandan market come almost exclusively via the Northern Corridor: from the Kenyan port of Mombasa on the Indian Ocean through Kenya where a pipeline runs from Mombasa to Eldoret - from where they are distributed by truck tankers to Uganda, Rwanda, Burundi and parts of the DRC. The long distance from Mombasa increases oil product cost, as well as vulnerability and dependence since we will face major difficulties if the transport route is impassable. The dependence on Kenya was especially felt during the recent crisis in the month of December when the only alternative route was through Tanzania. In order to increase supply reliability and minimize the transport cost of imported oil products, the Government of Rwanda has joined Kenya and Uganda in the east African oil pipeline project. Extension of the existing pipeline from Eldoret to Kampala was awarded to Tamoil East Africa, through a concession contract. Rwanda is expecting to benefit from further extension of this pipeline from Kampala to Kigali, over a length of approximately 600 km. Currently a potential further extension to Bujumbura is under discussion. To this end, a memorandum of understanding (MoU) was signed in March 2008 between the Government of Rwanda, the Government of Uganda and Tamoil Africa Holdings Ltd, a private company selected to develop the project on a build-own and operate model. The selected company, which is already incorporated in Rwanda, is soon starting on conducting the techno-feasibility study on the Kampala – Kigali pipeline. A market survey by SAIC (Science Applications International Cooperation), carried out through financial support from the United States Trade Development Agency, confirmed the project’s commercial viability where the study points out that the construction of this pipeline is expected to lower the cost of trucking from 56.89 $ per cubic meter to about 42.44 $ per cubic meter, hence easing the oil tariff structure. The construction of the pipeline Kampala-Kigali will create a need for additional investment in storage capacity of the country. The existing storage in Kigali can accomodate up to 17,500 cubic meters of petroleum products. In order to meet the growing demand of petroleum products, two storage facilities, Bigogwe with a capacity of 5,000 cubic meters and Rwabuye with a capacity of 4,000 cubic meters, are being rehabilitated through the Government budget. Works on Bigogwe are nearing completion and works on Rwabuye will start soon. Prospects for Oil Exploration in Rwanda Given Rwanda’s dependency on oil imports today, the Ministry of Infrastructure is seriously assessing possibilities of oil development in Rwanda, through exploration and conversion. Such initiatives, though in early stages are likely to bring significant economic gain to the country in terms of our trade balance. Rwanda has recently registered an increased interest of international private companies in oil exploration in our country especially in the Western Rift Valley. This development is the direct result of the recent oil discovery in the Northern part of the Rift Valley in Uganda by Heritage Company. The structural similarities between the two sides of the rift valley appear to be the main factor for the renewed interest in oil exploration in Rwanda. The presence of methane gas dissolved in the deep waters of Kivu, which originates partly from the earth crust, is interpreted by some experts as an indication of probable oil presence below the Lake sediments. In early March 2007, the Republic of Rwanda has commenced negotiations for exploration of oil and gas in the North Western part of Rwanda with Vangold, a Canadian based international resource company that is specialized in oil, gas and minerals. This area is part of the Albertine Graben where oil was discovered in Uganda. The concession currently under discussion is 2,708 square kilometres in area, this represents 11% of the land mass of Rwanda. As a first step, in October 2007, a technical exploration agreement was signed between MININFRA and Vangold for the evaluation of the hydrocarbon potential in the country. This technical exploration will include testing of slick samples from Lake Kivu as well as an aerial survey of the concerned area to determine the subterranean relief and potential drilling sites. Other Initiatives In order to reduce our dependency on conventional oil imports, new concepts to produce hydrocarbons locally, in partnership with the private sector, are presently being discussed. Proposals have been received from a number of investors. One promising endeavor is the conversion of our Kivu Methane Gas to Liquid. It is technically possible to transform this gas into either LPG or even diesel, which could be used to prime ordinary cars or other engines. Another potential option we are currently looking into is the local production of biofuels from plants like Jatropha among others. Several trees have recently been planted for this purpose in the Eastern Region of Rwanda. The future seems to be strongly promising; we only need to work even harder. Ends

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MININFRA: Curse and potential blessing: the role of oil in Rwanda