管理学硕士essay:国际石油和天然气
国际石油和天然气管理硕士
International oil and gas management
在任何国家的经济活动中能源是一个关键的组件。它不仅提高了生活质量,而且基本可持续发达国家和发展中国家的社会和经济发展。足够的安全,负担得起的可靠的能源供应是可持续发展一个必要的先决条件[1]。因此,能源安全是大多数政府主要关注的,因此仍然是顶级的议程。为了确保能源安全,它强制平衡供给和需求[2]。在大多数国家在发达和发展中经济体中化石燃料(原油)仍然是主要的能源。油价高,因此供应中断产生重大负面影响一切社会和经济活动特别是国家石油净进口国。这些国家面临的挑战总是要有足够的石油或石油产品的库存,以避免任何由于供应中断或价格变化导致的最终的冲击。
像许多发展中国家,能源的主要来源在肯尼亚和乌干达生物量和商业能源。使用生物质主要集中在农村地区,在该地区的能源结构中占总体的80%。使用商业能源另一方面主要集中在城市地区。下图展示了该地区的能源消费模式
肯尼亚和乌干达都严重依赖石油特别是交通部门和部分用于发电和商业目的。缺乏商业上可行的代用燃料仍然是运输行业对石油的依赖的主要原因。这两个国家是面临石油净进口国的挑战,确保有足够的石油产品的供应来满足各个经济领域的需求。这是对进口石油的依赖使强大的供应商不断接触这两个国家外部性的市场力量[4]。肯尼亚和乌干达通过印度洋蒙巴萨港从海湾地区进口原油和成品。有一个功能齐全的炼油厂在肯尼亚的蒙巴萨港收到进口原油,精制,后来通过石油管道输送到全国主要城镇[5]。
INTRODUCTION——简介
Energy is a key component of all economic activities in any country. It not only improves the quality of life but is fundamental for sustainable social and economic development in both the developed and developing countries. A secure - adequate, affordable and reliable - supply of energy is thus a necessary precondition for sustainable development[1]. Energy security is therefore a major concern of most governments and thus remains a top agenda. To ensure energy security, it's mandatory to have a well balanced supply and demand[2]. Fossil fuel (Crude Oil) still remains the main energy source in most countries both in the developed and developing economies. High oil prices and supply disruptions therefore have significant negative impacts on all social and economic activities especially to countries that are net oil importers. Such countries are faced with the challenge of always having enough stock of oil or oil products to avoid any ultimate shocks due to supply disruptions or price changes.
Like many developing countries, the main sources of energy in Kenya and Uganda are biomass and commercial energy sources. Biomass is used mainly in the rural areas and accounts for up to 80% of the overall energy mix in the region. Commercial energy sources on the other hand are used mainly in the urban areas. The figure below shows the energy sources consumption patterns in the region.
Kenya and Uganda are heavily dependent on oil especially in the transport sector and partially for electricity generation and commercial purposes. The lack of a commercially viable substitute fuel remains the main reason behind the over dependence on oil in the transport sector. These two countries are net oil importers faced with the challenge of ensuring there is enough supply of oil products to meet the demand of the various sectors of the economy. This over reliance on imported oil has constantly exposed these two countries to externalities of market power by the powerful suppliers[4]. Kenya and Uganda import crude oil and finished products from the Gulf region through the Indian Ocean to Mombasa Port. There is a fully functional Oil refinery at Kenya's Mombasa Port where the imported crude is received, refined and later on pumped to the major towns through a petroleum pipeline in the country[5]. Uganda being a land locked country relies to a greater extent on Kenya (some of the imports come through Dar es Salaam in Tanzania) for its oil import which is first refined at the Kenya Petroleum Refineries before being pumped through the Kenya Oil pipeline to the Eldoret fuel depot[6]. The products are then transported by road or rail from the depot to Uganda. This process has proved quite inefficient causing supply disruptions that finally impact all the socio - economic sectors in Uganda negatively. This inefficiency made the two governments draw a game plan to ensure efficient transportation of petroleum products to Uganda. These developments facilitated the signing of a Memorandum of Understanding between the Government of Kenya and Uganda that led to the establishment of a Joint Coordinating Commission (JCC) in 1995[7]. The JCC was charged with the responsibility of coordinating a feasibility study for constructing an oil pipeline from the Eldoret Depot in Kenya, an extension of the already existing Kenya pipeline, to a terminal to be constructed in Kampala, Uganda. In 1998 a feasibility study funded by the European Investment Bank (EIB) was conducted by JCC's consultants, Penspen Limited of UK. The report by the consultants presented in May 1999 concluded that the project was feasible and viable[8]. JCC was later on given the mandate in 2000 to implement the project. However due to time lapse between the feasibility study and the decision to go ahead with the project implementation, taking the dynamic nature of the oil and gas industry in these two countries, a second feasibility study was conducted funded by the two governments[9]. The report from the consultant, like in the first study, concluded that the project was still viable and could be taken to the next phase. JCC therefore made a decision to proceed with the project implementation on Public Private Partnership with the two governments having a share of 24.5% each and 51% for the private investor[10]
An invitation to Tender was floated inviting interested bidders internationally to bid for the execution of the project on BOOT basis for a period of 20 years. Tamoil East Africa Ltd (TEAL) won the bid in 2006 to finance and construct an 8 inch pipeline at a cost of US$78.2 million[11]. An agreement, The Heads of Agreement, between the two governments and TEAL was then signed in January 2007 to enable the investor to start the development phase of the project[12].
A number of developmental phase activities had to be completed before commencing the construction activities. These included the preparation of all the legal agreements affecting the Project, the pipeline Route Survey to determine the right of way, the Environmental Impact Assessment Study in compliance with the environmental laws in the two counties, updates of the Market Study and revised product demand forecast leading to optimum sizing of the pipeline and finally carrying out the Front End Engineering Design (FEED)[13]. The successful completion of the above phase was the main determinant of the project costs upon which the developer was expected to make a final investment decision to proceed with the construction phase of the project[14].
TEAL had finished all the tasks at the development phase by 2008 when large Oil discoveries were made in Uganda in commercial quantities[15]. This therefore meant the initial 8 inch pipeline design, having considered only one way flow from Kenya to Uganda, could only serve Uganda in the initial years before production begins and would be rendered inactive thereafter as the there will be need to transport oil from Uganda to the Neighboring countries and to the other international. With these new developments, JCC therefore considered a redesign of the pipeline to accommodate reverse pumping from either direction. This would satisfy Uganda's petroleum needs in the short run, importing fuel through Kenya, and finally in exporting its refined oil products to the other markets through the Kenyan Port of Mombasa.
A new financial analysis of the project based on the redesigned pipeline diameter was therefore necessary to capture the new CAPEX and projected throughput as this would have an impact on the project cash flow when product will be pumped from Uganda side. TEAL through its consultant, Matt MacDonald UK, finished the new design earlier this year and came up with the new project cost as shown in Table 1 in Annex 1( the table also shows the cost breakdown of the initial design)[16]. TEAL also carried out additional economic analysis to come up with a new tariff based on the new developments. TEAL was therefore faced with the challenge of carrying out a more detailed financial and project analysis to justify the viability of the project to its shareholders and to present the same to JCC for review and approval.
It is at this stage that I joined the company as an intern to assist the project team on various tasks but more specifically on the financial analysis of the project based on the new project developments and to analyze the effect of scope creep on the project's viability. This report aims at elaborating more on the tasks undertaken during the internship period. However the main task undertaken was working with the financial consultant of the company in carrying out the financial analysis of the project and finally discussing with the project team the impact of the changes in scope (scope creep) on project cost. A report of the analysis was presented to the project team with a summary of the model assumptions and results. The final investment decision was to be taken based on the findings and the results presented in the report[17]. This report gives a brief description of the project from inception to the status during the internship period in its first and second chapters. The third chapter focuses on the financial analysis carried in fulfillment of the allocated task. A brief of other tasks undertaken during the internship is given in the fourth chapter. The final chapter focuses on the conclusions and recommendations of the whole exercise highlighting the benefits of the internship both to the intern and the company. The conclusions details the key challenges of scope creep in effective project management. The report will be based on the information collected from the Project Information Memorandum (document available in TEAL's project office), earlier study reports in the project office, skills gained from different modules taken up during my training at CEPMLP and various text books.
CHAPTER 1——第一部分
1. Overview of the Project——项目概述
The need for adequate and reliable supply of oil products to Uganda at affordable cost was the key driver of the Kenya - Uganda Pipeline project. However this was also in line with the policies of the Kenyan government ensuring the country also benefits from the project. The key issues of the project are briefly mentioned in the following subsections. These include the main project drivers, the justification for the choice of having a public / private partnership, the economic policies in the two countries and the benefits of the project to the two countries.
1.1 Project Drivers——项目驱动
A reliability, efficiency and cost effective means of transportation of oil products to Uganda was the main project driver as already mentioned. In addition to that, there was a need to have a safe and an environmentally acceptable means of transportation of the products in line with the environmental laws in both countries[18]. Various transportation options discussed in the following chapters were considered and the pipeline emerged as the most cost effective option that satisfies the requirements above for both the current and future oil demand.
1.2 Economic Policies of Kenya and Uganda in relation to the Project——肯尼亚和乌干达的经济政策与项目
Both the GoK and GoU look forward to the successful completion of the pipeline project albeit their different economic policy drivers. Uganda's main policy behind the project is to ensure adequate, reliable and affordable supply of energy to the various sectors within its economy. On the other hand Kenya's main driver is the need to create more wealth and employment to its people. The economic policies of the two countries are highlighted below;
Uganda Economic Policies——乌干达的经济政策
The overall policy of the Ministry of Energy and Mineral Development Uganda is to “To ensure an adequate, reliable and affordable supply of quality petroleum products for all sectors of the economy at internationally competitive and fair prices within appropriate health, safety and environmental standards”[19]. The responsibilities of the MEMD Uganda include;
•Establishing the available energy resources within the country;
•Carrying out energy demand forecasting for the various sectors of the economy;
•To contribute to poverty eradication by increasing access to modern, affordable and reliable energy services to its people;
•Improving energy governance and administration;
•Stimulating economic development;
•Managing energy-related environmental impacts.
Kenya Economic Policies——肯尼亚的经济政策
Kenya has already established its petroleum pipeline network within the country managed by the Kenya Pipeline Corporation. Kenya economic policy supporting the project as mentioned above unlike in Uganda was based on the country's Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC) launched in 2003[20]. According to the laid down strategy, the state is expected to facilitate private sector growth and investment. The pipeline project will create a number of jobs from the construction phase through to operation. The KPC has also laid an additional pipeline to ensure there is sufficient product for export to Uganda and the neighboring countries[21]. This expansion leads to an increment in the Countries revenue hence satisfying the policy of wealth creation. On the other hand, one of the key objectives of the Kenya Ministry of Energy is to ensure petroleum products transported within the country and for export purposes is done in the most efficient way with minimal losses while maintaining the country's environmental and safety standard, a criteria satisfied by the project[22].
1.3 Public/Private Partnership——公私伙伴关系
Public Private Partnership (PPP) is where a public service is provided through a partnership of the public sector with one or more private companies. The private sector in most cases assumes financial, technical and operational obligations. However accountability remains with the public sector for the provision of that public service. PPP therefore enables most governments to improve on the delivery of public services and proper management of public facilities by sharing the financial obligations with other private investors. The private investor on the other hand gains from the partnership by earning a return on capital employed. The procurement of public services is greatly improved on PPP ventures. However, long term political commitment is mandatory for the success of PPP. Most infrastructure projects are capital intensive but the involvement of the private sector has enabled most countries world over to implement such projects. Figure 1.1 below shows the number and value of private participation in infrastructure projects by region between 1996 and 2006. From the figure it can be seen that other regions of the world have put up many infrastructure projects with private participation well ahead of Africa.
Some of the projects implemented under public private partnership in the region include the Songa Processing plant in Tanzania, Maputo port in Zimbabwe and Skida Desalination Plant in Algeria[24]. Energy sector projects are usually capital intensive and the returns take a relatively longer time to be realised. Most developing countries face financial challenges and can only rely on donors or investors for the funding and implementation of projects of this nature. This is the main reason behind the choice of Public/ Private Partnership for the Kenya Uganda Petroleum Products Pipeline Project implementation. The JCC came up with a mechanism to partner with a private investor for the implementation of the pipeline project. The investor's responsibility is to finance and operate the project on BOOT basis. The private investor on completion of the project will be expected to manage and operate the pipeline for a period of 20 years before finally transferring ownership and operations of the facility to the two governments. The two governments agreed to have a 49% equity shared equally between them leaving the investor with a 51% share[25]. This was aimed at facilitating the private investor's growth for faster economic development in line with the economic policies in the two countries. TEAL therefore partnered with the two governments having come up with the most competitive bid for the financing, construction and operation of the proposed pipeline project. The financial plan of the project is discussed in chapter three of this report. The cost of using the facility will be borne by the users and not the tax payers.
1.4 Benefits of the Project——项目的效益
Alternative options of transporting petroleum products to Uganda have been considered in the next chapter. These range from transportation by road tankers, rail wagons, marine ships or ferries and finally pipeline transport. A number of benefits of the pipeline project that were the key drivers have been outlined below[26];
•Secure and environmentally acceptable means of transportation of Petroleum products to the Uganda market;
•Provision of secure and easy access to supply of petroleum products to the other neighboring countries to Uganda;
•Reduction of road maintenance costs and reduction in the number of road accidents i.e. decongesting the roads;
•With a reliable supply of petroleum products, the oil marketers in Uganda will be able to maintain low stocks and reduce their costs resulting in low cost passed on to the consumers;
•The overall reduction in transportation cost will also lead to a reduction in the final market prices of the oil products;
•The pipeline will lead to a reduction in illegal product movement across the Kenya-Uganda border and ultimately prevent product adulteration which is common when products are transported by road tankers and finally,
•The pipeline will lead to a reduction on HIV prevalence among truck driver a situation that has become a national pandemic in the two countries.
CHAPTER 2——第二部分
2. Market analysis——市场分析
A number of market studies have been done in line with the Kenya Uganda Petroleum Products Pipeline Project. The most recent study was done in 2007 by TEAL through their consultant, Nexant Limited. The main objective of the study was to carryout petroleum products demand analysis and forecasting. The study was a development of the earlier studies carried out in 1999 and 2001. With an optimistic commencement of works by end of this year (2008) , the consultant focused on the prevailing Market data and carried out a demand forecasting up until 2028 (End of BOOT period). There has been a considerable growth rate in the demand of white products in Uganda and the Neighboring countries.
2.1 Oil Transportation System in Kenya and Uganda——石油运输系统在肯尼亚和乌干达
As earlier mentioned, Kenya has an already functional oil products pipeline to the major cities operated by KPC. In addition to the pipeline, the country relies on rail and road transportation for distribution of the products to the remaining towns. Uganda on the other hand relies mainly on road transportation from Kenya and distribution within the country.
2.2 Market Opportunities for the Pipeline——管道的市场机会
The main driver of the project was to ensure efficient distribution of petroleum products to Uganda. However there are a number of neighboring countries, relying on road transportation of their petroleum products supply through Uganda that would also benefit from the pipeline. These include Rwanda, Burundi, North Western Tanzania and Eastern Congo. The delays caused by long distance hauling add to the final fuel costs. The pipeline will therefore serve a bigger market beyond Uganda. With the new discoveries, depending on the quantities of crude discovered in Uganda, the pipeline will be used later on in transporting white Oil products from Uganda refineries to the Kenya Port of Mombasa for distribution to the wider international market[28].#p#分页标题#e#
2.3 Competitors to the Pipeline ——竞争对手的管道
Despite the benefits of the pipeline outlined, it is still subjected to stiff competition largely based on the final tariff charged to the shippers. This will ultimately affect the final cost of fuel passed on to the consumers. If the tariff charged for utilizing the pipeline is relatively high in comparison to the cost of using road or rail modes of transport (that are largely being used currently), then the oil marketers may not use up the facility instead they will maintain the current alternatives[29]. The three main competitors, road, rail and marine transport are discussed below.
Road Transportation——公路运输
Uganda is currently relying heavily on road transportation, using oil tankers, for its oil imports through Kenya. There are two alternative routes to Uganda, through the Malaba border from Eldoret depot or Busia border from the Kisumu Depot. The shortest route to Uganda is however through the Eldoret Depot. In addition to the relatively shorter distance is its larger capacity, relative to the Kisumu Depot, to handle the extra transit oil products to Uganda.
There have been massive delays in product delivery caused by road transportation of petroleum product. However there are a number of factors that have contributed to this delay the main factor being customs clearance for transit oil at the Kenya/ Uganda border where the trucks are expected to move in regulated convoys to avoid tax fraud. The other disadvantages of road transportation are the safety and environmental problems associated with spillage of products and road accidents. The high unit labor costs make road transport more expensive as compared to rail or pipeline over long distances. Despite the shortcomings of road transportation, it is still considered as the fastest way of transportation in relation to the other existing means in the absence of a pipeline. On the other hand it also provides employment to different groups at different levels, the drivers, mechanics etc. as compared to the other modes.
Rail Transportation——铁路运输
Uganda has two options of transporting oil products by rail. This can be through the Kenyan railway system managed by Rift Valley Railways Company or the Tanzanian railway system. There are three alternative routes by rail to Uganda, two from the Kenyan Side (direct routes from Mombasa and from Kisumu) and one from Dar-es-Salaam in Tanzania. The routes through Kisumu and Dar-es-Salaam involve lake ferries through Lake Victoria. The preferred route by rail is through the Mombasa route, this is about 100km longer than the Kisumu route, as it takes relatively shorter transit duration than the other routes[30]. The railway systems use roll - on ferries for moving across the lake.
Railway transportation has the advantage of low marginal costs for incremental freight traffic after the initial capital investment is fully paid up. The major concern on the railway system in the East African region is poor maintenance in addition to the operational problems. The networks are not well developed causing delays. It however has environmental and safety advantages over road transportation.
Marine Transport——海上运输
Lake Victoria connects the three East African Countries. Uganda therefore has the option of using either route through Kenya or Tanzania. The routes are however a subsidiary to the railway systems through the ferries. The infrastructure is not well developed and the systems are not so actively used. The oil jetty in Kisumu on the Kenyan side has not been in use since mid nineties when the existing pipeline was commissioned. Plans are however underway in looking at the possibility of constructing a loading Jetty in Kisumu but no work or studies have been carried out so far to this effect. Mwanza port in Tanzania is partially in use, the oil exports currently utilize the existing ferries discussed above.
Movement via inland waters is a low cost option due to low maintenance costs. The cost of putting up terminal facilities is relatively low compared to other modes of transport. The main disadvantage of marine transport is the inflexibility due to delivery times and environmental concerns due to oil spillage that can negatively affect the fishing industry.
2.4 Risk analysis of the market and other project risks——风险分析市场和其他项目的风险
Risk management involves using past occurrences to forecast future events. By extrapolating from the past occurrences, risk analyst can forecast the probability that a particular risk might occur or not[31]. A good understanding of the project phases is important in risk analysis and finally managing the identified risks. The Capital intensive nature of energy ventures calls for a detailed risk analysis before making the final investment decision. Risk analysis starts with risk identification followed by an assessment of the probability of occurrence of the risk and finally an evaluation of the cost estimates of each risk identified. Quantifying the risks enables the Project management team to make decisions on what measures to take to avoid the risks or mitigate and manage them. Adequate analysis of various risks was carried out at the development phase of the project. Changes cannot be fully avoided in such big projects. A good understanding of risk management principals can therefore help the project team in managing the ever recurring changes. The benefits of risk analysis and risk management are summarized below; [32]
•A good clarification of project issues right from project inception to completion,
•A good support of decision making based on a detailed analysis,
•Continuous monitoring of project definition and specification,
•A good understanding of project risks hence finding various options of management at a relatively lower cost,
•The historical data can be used in future risk management procedures.
There are a number of risks associated with the Kenya Uganda Petroleum Products Pipeline Project. These have been briefly discussed below based on the market studies that were carried out by the company consultants.
Market Risk Analysis——市场风险分析
Market risks are risks that results from changes in the market environment. There are a number of external and internal forces at work that all firms need to address in order to remain competitive in any business environment. According to Michael Porter, there are five competitive forces in any market environment[33]. It is rare to find more than one petroleum products pipeline in the developing countries because of the capital expenditure involved. Most pipelines in the developing countries therefore enjoy natural monopoly and are hardly threatened by new entrants. From the discussion in the last section, the pipeline will offer the lowest oil products transportation tariff in comparison to the other modes of transportation in addition to the other benefits. It will therefore have a competitive advantage over the other competing modes of transportation. The customers (oil marketer) will therefore be forced “naturally” to use the pipeline in transporting their products to Uganda. The only threat left would therefore be oil products substitutes. Oil products are currently used mainly for electricity generation and in the transport sector, the largest consumer being the transport industry. The lack of a commercially viable substitute in the transportation sector leaves oil products as the only option. No market risks are therefore envisaged in the 20 year period that TEAL will operate the pipeline and the following years until the region develops any commercially viable substitute. There are however other project risks associated with the pipeline discussed in the following chapters.
Other Project Risks——其他项目风险
Financing Risk——融资风险
Financial risks are risks associated with changes in the financial value of the portfolio. They are therefore risks that lead to reduction of the investment's cash flow. Changes in the interest rates, stock market values etc are but some of the major causes of financial risks. The project's Request for Proposal specified a Debt Equity Ratio of 70:30 financing for the pipeline project. The equity contribution by all the parties is an indication of how much risk they are willing to take on the project. The initial bid by TEAL to finance the project was based on the return on investment from the CAPEX and OPEX assumed at the time of contract award. This has however changed significantly posing great risks to the investor. There have been a number of variations that have come up having significant cost impact on the CAPEX. Some of the variations that were not foreseen during project inception have negatively impacted the project's CAPEX leading to reductions in the project returns. A new financial model has however been developed (discussed in the next chapter) to look at the viability of the project. The time delay in the commencement of construction works has also had an impact on the project revenues that were initially forecasted to start in 2008. Discussions are however underway between the JCC and TEAL on eliminating or sharing any loses that may accrue to the developer (TEAL) for the successful completion of the project.#p#分页标题#e#
Technical Risk——技术风险
Technical risks in engineering projects are exposures to losses that occur mainly due to technological changes or design failures. In order to avoid any negative impact on the project during construction through to the operation phase due to technical failures, it is mandatory to do a thorough analysis of all the design parameters and ensure they are closely monitored and implemented during all the phases of the project. It's also important that provisions are made for any future technological changes during the design stage. Technical failures can also cause losses of revenue due to lack of operation of the facility constructed. It is therefore mandatory that stringent checks are made during design through to construction and finally during the commissioning of the facility and operation. TEAL have put in place all the necessary checks and ensured the design meet internationally accepted standards. The pipeline design was carried out by qualified consultants to TEAL and reviewed by discipline engineers in the project team[34]. To avoid any design incompatibility with the already existing pipeline on the Kenyan side, TEAL held several design review meetings with the KPC engineers. An agreement was signed between KPC and TEAL (Interconnection Agreement) to avoid any technical failures of the pipeline networks in the future[35]. Detailed manuals have been put in place for future maintenance and operation of the facility to further eliminate any technical risks.
Political Risk——政治风险
Political risks are risks that occur due to changes in the political arena in a particular country. These are mainly changes in governance, policy, civil unrest etc and can have significant impacts on an investment's returns. The risk increases where an investment involves two countries like in the case of Kenya Uganda Petroleum Products Pipeline Project because of the differences in governing systems and policies in socio-economic environments. The 2008 post election violence in Kenya had a significant effect on the economic activities in the whole Eastern Africa region. During this period, it was impossible to transport petroleum products to Uganda as the roads were impassable due to civil unrest causing serious impacts on Uganda's socio - economic activities. Most investors always opt for taking a Political risk insurance to address this risk but the project team opted on forming a commission representing all the involved parties. The JCC was therefore formed to address political risk issues in addition to the other tasks discussed in the report already. One of the responsibilities of JCC was therefore to address any potential difficulties that would result from political and national differences between the two countries. The JCC therefore put into place the Legal frameworks through which tendering for investors were managed. On completion of the construction works, a Joint Venture Company will take over the operations of the pipeline. The directors of the JVC will come from the two governments and TEAL. The ownership of the pipeline system is established through the Shareholders Agreement, and the Legal frameworks created by the Host Governments Agreements and the Intergovernmental Agreement[36]. It is however important to note that the two countries have a history of good relations but this should not be an indication of lack of any disagreements between the two governments in the future. The JVC will therefore be a neutral ground where all the pipeline operational issues will be discussed.
CHAPTER 3——第三部分
3. Finance Structure of the Pipeline——金融结构的管道
The principal objective of any firm's directors is to maximize the shareholders' value by undertaking investments with positive returns. Shareholders of a firm can earn returns on their capital from taking up investment decisions themselves and investing in other ventures outside the firm but if they get good returns from the firm then they will always put more investment in the firm. With these additional resources the firm can expand by investing in different projects. However the directors also have the responsibility of ensuring that all the stakeholders are taken into consideration but the principle objective still remains the maximization of shareholders' value. The directors therefore have the challenge of always undertaking projects that would earn the company good returns that can ultimately be translated into dividends to the shareholders. It is for this reason that a detailed economic and financial analysis is necessary before making any investment decision failure to do so exposes the firms resources to extreme risks that can lead to heavy loses. A prerequisite to the financial analysis is the economic analysis. This must be carried out to determine the optimal option at the prevailing market conditions. The economic analysis takes into consideration both the qualitative and quantitative aspects of the investments and the market environment. The analysis gives the forecasted demand and the acceptable tariff given the market conditions (demand and supply). A detailed economic analysis is therefore important in generating the key input variables for the financial model. The financial analysis on the other hand starts with a computation of the expected cash flow based on the optimal price and the forecasted throughput numbers from the economic analysis. There are various investment appraisal techniques that can be used at any one time in carrying the analysis. The most commonly used techniques include the use of NPV methodology; Payback period method and the Internal Rate of Return Approach[37]. Expected project cash flows must be generated using the price determined from the economic analysis when using either of these methods. A major consideration in investment appraisal is incorporating the time value of money and the risky nature of future payoffs[38]. The payback method (number of years, from the start of an investment, it takes to generate enough cash flow to offset the initial capital employed) unfortunately does not take this two factors into consideration and is not fully reliable hence should be used in addition to the other appraisal techniques[39]. However large corporations especially in the extractive industries consider it a key factor when investing in areas known for political instability. The NPV approach is commonly used as it takes into consideration both the time value of money and the risky aspect of future cash flows. The method computes the present value of the cash flows by discounting the expected future cash flows at a discount rate equal to the opportunity cost of capital (i.e. the returns that could be earned from any other investment with comparable risk other than this particular investment). The discount rate takes into account the time value of money and the risky future cash flows. Different companies use different methods of generating the discount rate. A survey by Wei Hun Siew (2001) gave the outcome of the most commonly used appraisal techniques as shown in the table below.#p#分页标题#e#
Table 3.1: Methods of discount rate determination used by oil companies——石油公司使用的折现率确定方法
Method Response Rate——方法反应率
Using Management prescribed hurdle discount rates.
76%
Using the Capital Asset Pricing Model (CAPM)
41%
Using the Arbitrage Pricing Theory (APT)
0%
(Source: Wei Hun Siew (2001)
The most commonly used method is the constant hurdle discount rate (mostly generated by the corporate office) or the use of Capital Asset Pricing Model[40]. The hurdle discount rate generated by top management in corporations use the same principle as the CAPM only that they assume all the investments of the same nature will generally have similar risks hence the use of the same hurdle rate. The discount rate however should capture the risks involved in the investment if the results are to be relied upon for decision making. It is the rate of return below which the investment is considered unviable. CAPM computes the discount rate as a sum of a risk free rate and a market risk premium[41]. The risk free rate is usually taken in most cases as the interest rate of investing in government treasuries. On the other hand the market risk premium is the “the extra return which investors require if they are to hold the market portfolio of risky shares rather than risk free cash”[42]. The energy industry uses different hurdle discount rates usually ranging between 10% to 15%. The present values computed can then be summed up to get the NPV.
A major task after the computation of the NPV is its use in the decision making process. “Directors should only undertake projects with positive NPV as this investment rule maximizes the shareholders' value”[43]. The use of other methods i.e. IRR and the Payback method in addition to NPV approach can lead to relatively reliable decision making. The IRR is the rate of return at which the NPV of the investment is zero. The calculations are more or else the same as in calculating the NPV given a hurdle discount rate, the only difference is that this methodology uses different rates until one arrives at the discount rate that results into a negative NPV. The decision rule is to continue if the discount rate is higher than The IRR. However IRR also has a number of shortcomings. It is not in all cases that the IRR can be computed and at times the results can give two possible IRRs. In addition a higher IRR does not necessarily mean the NPV will automatically be high[44].
In most market environments, the key parameters namely, the forecasted demand, the transportation tariffs, fiscal terms, discount rates, CAPEX and OPEX are likely to change. Carrying out a sensitivity analysis of these parameters by considering different scenarios can give an indication of the project's viability given the changes in the market environment. With an integrated approach of using the NPV methodology, Payback period, IRR method and finally carrying out a sensitivity analysis a firm's directors can be well equipped to make financial investment decisions from the financial analysis. The investment decision rule however assumes a perfect world with competitive markets full of information making forecasting of prices and production rates possible. This is not always the case in all markets especially in the developing countries where financial markets are not well developed and information is not readily available. The country risk and uncertainty of investing in the developing countries is quite significant as compared to investing in developed economies. When investing in a particular country, there are always taxes and other fiscal charges payable to the government, the firm's directors should therefore decide on whether to finance the investment from equity or debt. Despite the advantage of using debt financing in reducing the tax liability of the investment, it is in itself a liability that exposes the project's cash flow more than equity. All these factors therefore come into play before making the final investment decision.#p#分页标题#e#
The new discoveries of Crude Oil in Uganda have significantly changed the market conditions. A new economic analysis was therefore carried out to determine a competitive tariff which was later on used in the financial analysis to determine the viability of the project. Like all investors, TEAL would only venture into the Kenya Uganda Petroleum Products Pipeline Project when certain of good returns from the investment. During the bidding process, TEAL carried out an analysis and came up with a financial model based on a Capital expenditure of US$ 72.8 million for constructing an 8 inch diameter pipeline. The results of the analysis showed that the project was viable at a tariff of US$20/m3 and would give good returns to the company's shareholders. However a number of changes having significant impact on the project costs have since occurred from the time of contract award. The major change having the highest cost impact, apart from construction commencement time delay, is the redesign of a new 12 inch diameter pipeline capable of handling reverse pumping. The redesigned pipeline will require a higher capital expenditure that is more than four times the initial cost estimate. Before making the final investment decision, it was therefore necessary for TEAL to carry out a new financial analysis and evaluate the viability of the project based on the new project cost estimates[45]. The financial structure and plan is discussed in the following subsections. This is based on the information collected from different project teams especially the technical department, project documents and the external consultant.
3.1 The Financing Plan——融资计划
Most capital intensive projects can be financed through debt or equity. Debts can be sourced from various lending agencies which include[46];
•International funding agencies (e.g. IMF, World Bank etc) world bank,
•Private Sources e.g. TEAL,
•Selling company Bonds;
•Commercial Banks
The Kenya Uganda Petroleum Products Pipeline project is being implemented under a PPP with the largest funding obligation lying with the private investor, TEAL. The project will be financed on a Debt to Equity Ratio of 70:30. The equity contribution by each party (GoK, GoU and TEAL) will be commensurate with their share of the company. Each of the governments will therefore have to contribute 21.5% of the equity with TEAL contributing the remaining 51%. TEAL has the additional financial obligation of providing the 70% debt financing. TEAL relies fully on funds from their corporate office, Tamoil Africa Holdings Limited, for all their financial commitments. Tamoil Africa Holdings Limited is the corporate entity through which the Tamoil Group carries out investment in the petroleum sector in Africa. The funds will therefore cover both the CAPEX and OPEX less the equity from the two governments. There have been many changes in the project as already discussed in the previous chapter. These changes led to various variations from the initial contract signed by JCC and TEAL. Some of the variations are allowable as per the contract conditions while a number of the variations are non - allowable and will therefore not be considered as part of the CAPEX. This was the state of the project by the end of the internship period. A key factor in these higher cost variations is the proposed change from the originally planned 8 inch diameter to 12 inch diameter pipeline. JCC and TEAL were to review the CAPEX figures and arrive at a final figure that will be used as a base for both equity and debt financing. Once the CAPEX figure is known with some level of certainty then TEAL will move ahead to source the debt from TAHL[47]. The financing cost from TAHL will be at an interest rate of Libor + 1. Libor like any other interest rate is ever changing, the rate has dropped from 6% in January 2008 to around 0.61406% currently[48]. The effective rate and terms will only be known when a loan agreement is finally signed. The interest will be payable after the construction period and is expected to be paid in a period of 10 years.#p#分页标题#e#
3.2 Project Costs——项目成本
There are a number of variations in the total project costs[49]. Based on the contract signed between the JCC and TEAL, the CAPEX includes the initial bid amount of US$ 72.8 million and the allowable variations totaling to US$ 134.8 based on the new design of a 12 inch diameter pipeline. The equity contribution ratio and debt financing will be based on this figure. These figures were obtained from the cost estimates given by the consultants and the engineering team (the cost also includes some administrative costs that were considered as project costs). Engineering projects like all projects are quite dynamic in nature. More often than not the final project cost is never equal to the original estimates due to small changes that occur in construction phase that were probably not envisaged in time. TEAL has however taken precautions by transferring this risk to the contractor but this does not completely eliminate all the changes. The final cost of the project will therefore be determined on completion of the construction works upon taking the final measurements. However for no major deviations are expected from the project cost estimates.
3.3 Financial Model——财政模式
Financial models can be developed using simple excel spreadsheets. The key parameters are used in the model to generate the project results given that specific market environment. Different scenarios can also be considered for comparison purposes and finally in decision making. The initial financial model of the project developed during the bidding stage was based on the originally intended 8 inch diameter pipeline at a tariff of US$20/m3. As earlier stated, the new CAPEX for the 12 inch diameter pipeline is approximately four times higher than the initial CAPEX hence the need for a new financial and project analysis to evaluate the viability of the investment. A new financial model was developed during the internship period (by the intern and the consultant) to assist TEAL make its final investment decision based on the new project costs.
To arrive at the respective transportation tariff the allowable CAPEX estimate was applied on an economic model developed by the consultants taking account of the throughput without estimated crude impact.
The key assumptions of the model developed are outlined below[50],
•CAPEX estimated at US$213 Million for the entire project for construction of the 12” pipeline. This includes;
•Initial CAPEX as per the initial bid - US $78,200 million and
•Additional CAPEX (Allowable project variations) - US $134,899 million.
•The initial throughput of 1480KM3 in 2010 is expected to grow at 5% p.a. Throughput taken as the market demand without crude processing impact[51].
•The initial tariff of US$29.75 /M3 that will grow at 3% every 3 years.
•Depreciation of the capital assets at a rate of 5% per year over the project life.#p#分页标题#e#
•Operating expenses will increase by 3% each year.
•Corporate tax at 30% throughout project life.
•Discount rate at 10%[52]
•3% Inflation rate
•The Cash flow generated and the model was run with the assumption that the project will be all equity financed[53].
Model Results——模式结果
A detailed breakdown of the financial analysis (spreadsheets) is attached in Annex 2. The analysis was carried out taking two scenarios, discussed below, into consideration. These two models were to be discussed in a meeting between JCC and TEAL[54]. However based on the current project status all the analysis was based on Scenario 1.
•Scenario 1: Considered the new CAPEX as an addition of the Initial CAPEX and the allowable variations (this is the currently acceptable cost even though discussions are underway to consider some of the non - allowable variations as part of the CAPEX).
•Scenario 2: Considered the new CAPEX as an addition of the Initial CAPEX and all the variations (both allowable and non allowable).
The results of the analysis are tabulated below[55].
Table 3.2a: Scenario 1 - Financial Analysis Results
CAPEX US$ ‘000
213,099
NPV US$ ‘000
157,275.4
IRR
After tax - nominal
18.9%
PAY BACK PERIOD
6.8 years
(Source: Compiled by author)
Table 3.2b: Scenario 2 - Financial Analysis Results
CAPEX US$ ‘000
303,796
NPV US$ ‘000
89,133.4
IRR
After tax - nominal
14%
PAY BACK PERIOD
8.6%
(Source: Compiled by author)
SENSITIVITY ANALYSIS RESULTS
A sensitivity analysis for the three key parameters was considered i.e. the transportation tariff, discount rate and the CAPEX (using the current status given in scenario 1). Carrying out a sensitivity analysis of these parameters by considering different scenarios can give an indication of the project's viability given the changes in the market environment. For each parameter, a 15% change was considered for illustration purposes. Table 3.3 below shows the analysis results from which the Spider diagrams in figure 3.1 and figure 3.2 were obtained[56].
Table 3.3: Sensitivity Analysis Results
PARAMETER
NPV (US$)
IRR
Percentage Variation
% Change in NPV
Tariff
108,242,552.95
16.50
-15%
-31%
157,275,371.02
18.90
0%
0%
206,308,189.09
21.30
15%
31%
#p#分页标题#e#
Capex
182,172,328.19
21.60
-15%
16%
157,275,371.02
18.90
0%
0%
132,378,413.84
16.80
15%
-16%
Discount rate
211,331,982.53
18.90
-15%
34%
157,275,371.02
18.90
0%
0%
114,450,012.82
18.90
15%
-27%
(Source: Compiled by author)
Financial result analysis and Conclusions——财务计算结果分析和结论
A power point presentation (requested by the Project manager as part of the internship tasks) was made to the entire team detailing different techniques used in investment appraisal[57]. A conclusion of the summary was presented to the team giving a number of recommendations outlined below;
•The results of the analysis showed a positive cash flow during the 20 year operational period at the estimated throughput, CAPEX and OPEX[58]. The project has a positive NPV in both cases (Scenarios 1 and 2)[59] and is therefore viable;
•Any negative changes in the throughput or increments in the CAPEX and OPEX would have a negative impact on the project's net cash flow and hence the project's profitability,
•Further project delay can cause significant increment in the capital expenditure,
•The sensitivity analysis show the project is more sensitive to changes in tariff and the discount rate,
•The company's desired 21.5% IRR was however not met due to the changes in scope coupled by project delay but the company was advised to still consider the project as the investment was viable and sustainable.
With a positive NPV of US $ 157,275,371.02 for the base scenario (current status of the project), it is concluded that the project is viable and TEAL is advised to take up the investment as this will maximize the shareholder's value.
CHAPTER 4——第四部分
4. Other tasks assigned——其他任务分配=
The internship was based mainly on carrying out the financial analysis of the project however like in all organizations, there were additional tasks assigned from time to time to assist the project team in the successful running of the project and project office activities. A brief of the additional tasks is given below;
Assisting the project team in the Pipeline project Procurement and Construction Technical Tender evaluation. The evaluation was based on a laid down criteria with a score sheet to analyze the responsiveness of the bids. The main skill used was the knowledge gained from the Project Management module. Most projects fail because of poor identification of the client and end user need. In the evaluation, the contractor was expected to display a good understanding of the project. For any project to succeed, it's key that projects are managed as open systems by understanding the project context, project content and the organizational behavior[60]. Project planning and control was another key issue to be evaluated. All projects, especially the capital intensive projects, have a definite time within which they are to be implemented if they are to remain profitable. The contractors were evaluated based on their time schedules and proper use of planning tools (Gantt chart and Critical Path Method).#p#分页标题#e#
Assisting the project team on all issues to do with environmental compliance of the pipeline project. This was based on my previous work experience having worked before as an environmental analyst.
Assisting the project manager in preparing Terms of Reference for carrying out a feasibility study for constructing a new fuel tank farm in Kigali Rwanda. The main task was to develop a list of tasks that the consultant was expected to undertake in relation to three main areas explained below;
•Economic Analysis - Carrying out the demand analysis and demand forecast for Rwanda and the dependent neighboring countries using various techniques[61]. The skills gained from the two modules (Quantitative methods and Energy Economics) was widely used in detailing the tasks to be undertaken during the study. Based on the study results, the consultant was expected to finally run an optimization model for the storage facility that was expected to serve the country's oil products demand for the next 20 years. The model was to be used later on in calculating the expected future revenues from the tank farm, and the ‘optimal' price for storage.
•Financial Model - Carryout a financial analysis. The demand analysis discussed above was necessary in calculating the expected revenues through the years based on the tank capacities and the storage fees. The financial analysis of any project as already covered in chapter three above forms the basis of evaluating the viability of any investment. The consultant was therefore expected to advise the client (TEAL) on the optimal alternative with the highest NPV, lowest Pay Back Period, and highest IRR over the project life. Like in the main task assigned, the main skills used was the knowledge gained form three key modules, Energy Economics, Financial and Project analysis of Energy Ventures and Finally Energy and Mining Finance.
•Environmental Management plan/ Compliance - The consultant was expected to carryout a preliminary study on the cost implication of carrying an Environmental Impact Assessment in relation to the Capital cost. And to have this included in the Financial Analysis of the investment. This task was however based on past experienced gained in previous employment.
CONCLUSIONS——结论
Proper identification of the requirements of a project and the project constraints is important in ensuring the success of any project. Project managers are usually faced with the need of re - planning to account for the dynamic nature of external project environment. A bounded rationality approach to planning in managing project, especially capital intensive project, can therefore lead to project failure. Scope creep, changes in original scope, is a common feature of projects in the public sector. Project managers of these projects should therefore anticipate the changes through a detailed risk assessment and management. Scope creep makes it hard for the project management team to measure the success of any project. Success of a project is dependent not only on managing the end user's expectation but delivery on time and within budget. Budgeting is important to both the client and the investor for planning purposes. Major scope changes make therefore expose the investors to funding challenges. This is a key challenge to the project management team in the Kenya Uganda Petroleum pipeline project due to project delay and the scope changes. Budgeting with certainty has been made difficult and determining the final returns has been made more complicated. The redesign of the Kenya Uganda Petroleum pipeline project has lead to significant changes in the project cost. Further project delay and more scope creep can render the project unviable. The project management team should therefore take more precautions and take measures on handling these changes which also have significant impact on the final project returns as well.
The internship gave me a better understanding of key project management principles especially the need for constant re -evaluation of key project elements especially costs and scope changes. The experience gained in applying the skills learnt in class especially in the Project management Module and Financial and Project analysis amongst other modules were instrumental in carrying out the internship task. As earlier stated the main challenge faced during the internship period was lack of a supervisor or internal expertise to offer guidance in making certain decisions in regard to the financial model. The project team was largely engineers with very little knowledge on carrying financial analysis of projects. The company relied fully on the external financial consultants who may not always act in the company's best interest. As an intern it was not always possible to make all the decisions without internal (supervisor's) guidance. However after a series of meetings with the project manager where the main features of the model were discussed, it was a lot easier for him to offer support in regards to the financial analysis. A brief description of the skills used in line with the CEPMLP modules is outlined below;
Financial & Project Analysis of energy ventures and Energy & Mining Finance——金融和能源企业和能源和矿业项目分析融资
The skills learnt in these two modules were used in the main task assigned. A good appreciation of different investment appraisal techniques was necessary. This was made possible having undertaken the modules prior to the internship. With the help of the project team (including the financial consultant) the main objective of the internship was fulfilled by the end of the period as the financial model was finally presented to JCC for review.
Project Management——项目管理
Project management skills were necessary in understanding the impact of scope creep on the final project costs. The skills were also key in the additional tasks undertaken during the Technical tender evaluation. A good understanding of different project phases and planning techniques learnt in the module was of great use. The project team members were from different cultural backgrounds. In order to work with the team harmoniously learning about culture in this module was fundamental. Risk analysis of projects of this nature is essential. This is another area that was covered in the module that enlightened more light on what the company had already done.
Energy Economics and Quantitative Methods——能源经济学和定量方法
(Economic analysis and understanding the economic Models) - Despite the fact that market studies had already been done prior to joining the company and the various models generated in order to come up with the optimal tariff, it would not have been easy to understand the consultants' reports and be able to extract useful information to be used in the financial analysis were it not for these two modules. Various concepts covered in these two modules were important in understanding the reports and finally carrying out the analysis. The internship not only benefited me as an intern, the company, TEAL, also benefited from the analysis and my past experience in the engineering field that played a key role in the appreciation of the engineering aspects of the project and being able to relate them with the financial aspects hence coming up with a more detailed analysis.#p#分页标题#e#
There are however a number of issues currently affecting the smooth progress of the project. The project costs have risen from the initial US $72.8 million to US $213 million as a result of the redesign and the project delay. From the analysis undertaken, the project is viable and with the new discoveries of crude oil in Uganda TEAL is even better placed to gain from the project than before because of the higher throughput that would generate more revenue. Considering the different scenarios in chapter three above, the NPV in all cases is positive hence the reason for TEAL to undertake the investment[62]. It is however noted that further delays and additional scope changes may lead to increase in project costs and loss of revenue which would call for a re-evaluation of the project's viability. 3
Lilian Ogombo, ID: 080011557
ANNEXES——附件
ANNEX 1
Table 1: Project Cost Breakdown.
DESCRIPTION 12" Pipe
Reverse
Pumping
8" Pipe - One
Way Flow
(Bid Amounts)
Non
Allowable
12''
Allowable
Difference
12''
Comments
Pre Development Costs
Land Cost
$15,000,000
$5,200,000
$0
$9,800,000
Feed Contract
$3,635,000
$1,600,000
$0
$2,035,000
EIA Study
$182,204
$0
$0
$182,204
EIA was not provided
in the initial bid.
Feed Review Contract
$448,331
$0
$0
$448,331
Legal Costs
$336,863
$0
$0
$336,863
Legal fee was not
in the initial bid
Land Acquisition Consultant
$979,395
$0
$0
$979,395
This was government's
responsibility.
DESCRIPTION 12" Pipe
Reverse
Pumping
8" Pipe - One
Way Flow
(Bid Amounts)
Non
Allowable
12''
Allowable
Difference
12''
Comments
Other TEAL Development Costs
$1,390,000
$1,390,000
$0
$0
Project Management
Consultant's total cost
$0
$700,000
-$700,000
$0
TEAL management Team
$2,750,000
$2,500,000
$0
$250,000
Government cost
$0
$500,000
-$500,000
$0
This cost not considered in
the 12 inch option.
Field inspection
$0
$300,000
-$300,000
$0
Part of construction cost in
the 12” option.
Detail Engineering Contract
$13,500,000
$1,400,000
$0
$12,100,000
Health Safety & Environment
$0
$550,000
-$550,000
$0
Part of construction cost in
the 12” option.
DESCRIPTION 12" Pipe
Reverse
Pumping
8" Pipe - One
Way Flow
(Bid Amounts)
Non
Allowable
12''
Allowable
Difference
12''
Comments
Miscellaneous Contract Costs
CAR Insurance
$765,188
$638,100
$0
$127,088
based on prices of Jan 2009
Upgrading of Jinja
$11,000,000
$0
$0
$11,000,000
An additional Item requested
by JCC
JVC Formation - HQ Building
$0
$1,050,000
-$1,050,000
$0
JVC Personnel
$0
$0
$0
$0
Training
$0
$987,088
-$987,088
$0
Included in procurement costs
for equipment and materials
Line Fill
$15,260,000
$7,000,000
$0
$8,260,000
based on Fuel prices in 2009
Sub Total
$65,246,981
$23,815,188
DESCRIPTION 12" Pipe
Reverse
Pumping
8" Pipe - One
Way Flow
(Bid Amounts)
Non
Allowable
12''
Allowable
Difference
12''
Comments
Procurement & Construction
Direct Materials
$118,994,545
$53,691,812
$0
$65,302,733
Camp Costs
$5,959,000
$0
$0
$5,959,000
Contractor estimates 2009.
Not included in bid.
Construction site facilities
$2,750,000
$0
$0
$2,750,000
Contractor estimates 2009.
Not included in bid.
Direct Labour Costs
$37,722,847
$0
$37,722,847
$0
Subcontracted Costs
$22,733,100
$0
$22,733,100
Overheads
$18,510,937
$0
$18,510,937
$0
Fuel & Lubricants (Supplied by TEAL)
$0
$0
$0
$0
Plant Allocation
$14,218,384
$0
$849,998
$13,368,386
Contractor estimates 2009. Not included in bid.
Nile Crossing
$2,000,000
$0
$0
$2,000,000
Changes in scope
DESCRIPTION 12" Pipe
Reverse
Pumping
8" Pipe - One
Way Flow
(Bid Amounts)
Non
Allowable
12''
Allowable
Difference
12''
Comments
Financing Charges
$0
$693,000
-$693,000
$0
Contractors All risks Insurance
$0
$0
$0
$0
Contractor construction plant
$15,650,282
$0
$15,650,282
$0
Sub Total
$238,539,095
$54,384,812
TOTAL
$303,786,076
$78,200,000
$90,687,076
$134,899,000
Source: TEAL Project reports.
3
Lilian Ogombo, ID: 080011557
Table 2. DEMAND FORECASTING TILL YEAR 2028
Year Demand (1000m3) Flow rate (m3/Hr)
2008
1,345
174
2009
1,410
174
2010
1,480
174
2011
1,550
193
2012
1,605
193
2013
1,685
227
2014
1,745
227
2015
1,825
227
2016
1,905
227
2017
2,000
239
2018
2,085
276
2019
2,190
276
2020
2,280
276
2021
2,345
276
2022#p#分页标题#e#
2,495
304
2023
2,615
304
2024
2,747
320
2025
2,854
336
2026
2,943
336
2027
2,943
336
2028
2,943
336
Source: TEAL Project reports.
ANNEX 2
Financial Analysis Spreadsheets attached below.
BIBLIOGRAPHY
Text books
Bodie, ZVI, Alex K. and Alan, J.M. (2009), Finance, Mc Graw Hill, London.
Bohi D.R and Toman M.A, The Economics of Energy Security (London, UK: Kluwer Academic Publisher, 1996).
Frankline J. Stermole & John M. Stermole (1996), Economic Evaluation and Investment Decision Methods, Investment Evaluation Corporation, USA.
Gerry J., Kevan, S. & Richard, W. (2008), Exploring corporate strategy, Harlow:Pearson Education.
Nigel. J. S, Tony. M and Paul J (2006), Managing Risks in Construction Projects (Oxford, UK: Blackwell Publishing).
Porter, M.E. (1985), Competitive advantage:creating and sustaining superior performance, New York:Free Press.
Richard, A.B. and Stewart, C.M. (2008), Principles of Corporate Finance, Mc Graw Hill, London.
Wei - Hun Siew, (2001), Financial Evaluation Techniques: A Comparative Analysis of Traditional And Modern Approaches, PHD Thesis University of Dundee.
Internet
Energy and Mining Finance lecture module materials CEPMLP, University of Dundee) at (last visited on 15th November 2009).
Energy Economics module materials CEPMLP, University of Dundee) at (last visited on 15th November 2009).
Financial and Project Analysis of Natural Resources and Energy Ventures module materials CEPMLP, University of Dundee) at (last visited on 15th November 2009).
International Energy Agency, Energy Security, available at:(last visited on 14th November 2009).
Kenya Petroleum Refineries Limited, available at(last visited on 15th November 2009).
Kenya Pipeline Company Limited, available at(last visited on 15th November 2009).
Ministry of Energy and Mineral Development Uganda, available at(last visited on 5th November 2009).
Ministry of Energy Kenya, available at(last visited on 11th November 2009).
National Economic and Social Council of Kenya, available at((last visited on 11th November 2009).
National Environment Management Authority Kenya, available at (last visited 11th November 2009).
National Environment Management Authority Uganda, available at(last visited 11th November 2009).
Project Management Process module materials CEPMLP, University of Dundee) at(last visited on 15th November 2009).
Scaling Up Modern Energy Services in East Africa: A Strategy to Alleviate Poverty and Meet the Millennium Development Goals, available at: June 2005 (last visited 14th May 2009).
Quantitative Methods for Energy Economists CEPMLP, University of Dundee) (last visited on 15th November 2009).
Articles and Journals#p#分页标题#e#
Cicmil, S. (1997) “Critical Factors of Effective Project Management”, The TQM Magazine, Vol. 9, No. 6, pp. 390-396
René M. Stulz (2009) “Ways of managing risk” Harvard Business Review March 2009
Reports
Tamoil East Africa Ltd: Kenya Uganda Petroleum Products Pipeline Project Market analysis Report (by Penspen UK Limited)
Tamoil East Africa Ltd: Kenya Uganda Petroleum Products Pipeline Project Environmental Impact Assessment Report (by Arch design Uganda Ltd in Association with Nutek Kenya Ltd).
Tamoil East Africa Ltd: Kenya Uganda Petroleum Products Pipeline Project Information Memorandum.
Tamoil East Africa Ltd: Kenya Uganda Petroleum Products Pipeline Project Optimization Report (by Matt MacDonald UK)
[1]International Energy Agency, Energy Security, available at(last visited on 14th November 2009).
[2] Bohi and Toman, The Economics of Energy Security (London, UK: Kluwer Academic Publisher, 1996).
[3] See Scaling Up Modern Energy Services in East Africa A strategy to alleviate poverty and meet the Millennium Development Goals; June 2005 (Last Visited 30th October 2009)
[4] Supra note 2
[5]KPRL: Products and Services, available at(last visited on 14th November 2009).
[6] Crude oil was discovered in Uganda in 2008 in commercial quantities however production has not yet started. Plans are underway to put up the required infrastructure to start production.
[7]The Project Information Memorandum available in the TEAL office. Also see the Power point presentation on the project done by MEMD Uganda representative available at, (last visited on 30th October 2009).
[8] Ibid
[9] The second study was carried out by international based firm, Nexant Limited in 2001.
[10] Supra note 7
[11] This cost has since changed due to several changes in the pipeline design as discussed in the following chapters
[12] Supra note 7
[13] Ibid
[14] At this stage the developer was expected to continue with the project based on the initial cost estimates presented in the bid document.
[15]Supra note 6. Production will start once the infrastructure is in place but this will take about 5 - 8 years based on the current studies. Uganda government is currently carrying a feasibility study for the construction of a refinery in western Uganda to refine its crude oil.
[16] (last visited on 14th November 2009).
[17] A review meeting with the JCC (late November 2009) was to follow before taking the final investment decision. However the internship period ended before this review meeting.
[18] NEMA Kenya available at(last visited 11th November 2009) ,
NEMA Uganda available at (last visited 11th November 2009) ,
[19] MEMD Uganda available atlast visited on 5th November 2009)
[20] National Economic and Social Council of Kenya available at ((last visited on 11th November 2009)
[21] KPC available at( last visited on 11th November 2009)
[22] MOE Kenya available at,( last visited on 11th November 2009)
[23] See “Attracting Investors to African Public Private Partnerships: A project preparation guide by World Bank); available at: (Last Visited 18th November 2009)
[24] Ibid.
[25] Supra note 7
[26] Ibid
[27] See table 2 in Annex 1. The demand forecasting carried out by the consultant did not consider the impact of crude oil discoveries in Uganda. It was based on the past trend of energy demand in the country.
[28] Supra note 15
[29] There is no law in the Uganda or Kenya that requires the shippers to use the oil pipelines. The shippers are therefore at liberty to use any mode of transportation suitable for them.
[30] The transit time through Mombasa route is 7 - 9 days, Kisumu route around 19days and Dar es Salaam is 30 days. The delay is due to the lake ferries.
[31] “Ways of managing risk” by René M. Stulz; Harvard Business Review March 2009
[32] Nigel. J. S, Tony. M and Paul J (2006), Managing Risks in Construction Projects (Oxford, UK: Blackwell Publishing).
[33] Porter, M.E. (1985), Competitive advantage:creating and sustaining superior performance, New York:Free Press.
[34](last visited on 11th November 2009)
[35] Supra note 7
[36] Ibid
[37] Richard A. B, Stewart C. M and Franklin A, Principles of Corporate Finance (London, UK: McGraw-Hill, 2008).
[38] Ibid. Investors are usually risk averse and in addition would also like to earn their returns as early as possible.
[39] Ibid. See the advantages and disadvantages of different appraisal techniques.
[40] Ibid. See the definition of other methods used for analysis (MAPM, Real Options and Probabilistic methods)
[41] Bodie, ZVI, Alex K. and Alan, J.M, Finance, (Mc Graw Hill, London 2009).
[42] Supra note 37. See Portfolio theory.
[43] Ibid. A positive NPV means the rate of return on the project undertaken exceeds the opportunity cost of capital. The investment with a positive NPV also increases the shareholders value by an amount equal to NPV).
[44] Supra note 39
[45] See the project costs in Table 1 in Annex 1.
[46] Nevitt, Peter K, Project Financing (London, UK: Euromoney, 2000). See also the advantages and advantages of each method.
[47] Supra note 45. There are a number of costs that were not included in the initial contract that were considered as unallowable variations while some of the cost were considered as allowable. The final figure was to be agreed upon in the following meeting between the parties.
[48] Libor rate, available (Last visited on 16th November 2009)
[49] Supra note 45
[50] The assumptions were taken after a discussion with various project teams and the report on the economic analysis of the market
[51] Supra note 27.
[52] The “hurdle” discount rate chosen based on the common industry practice. Also see figure 3.1 above.
[53] This assumption however increases the tax liability of the project as interest on debt is tax deductible. The resulting NPV will therefore be lower than the actual when debt financing is finally considered. It was not possible to include the debt aspect at this stage before signing the loan contract agreement TAHL.
[54] The results of the meeting were not known at the time of this report as this happened after the internship period.
[55] This should be read in conjunction with the spreadsheets in Annex 2
[56] These diagrams should be read in conjunction with the Financial Model Spreadsheets in annex 2 (Sensitivity analysis Results)
[57] The power point presentation made to the project team included both discounted and undiscounted cash flow methods.
[58] There is a possibility of increased revenue in the later years when Uganda starts production of crude oil. This will therefore increase the NPV of the project.
[59] The investment decision rule is to undertake all investments with positive NPV as this maximizes the shareholder value (Energy and Mining Finance lecture notes CEPMLP, University of Dundee) (last visited on 15th November 2009)
[60] Cicmil, , S. (1997) ‘Critical Factors of Effective Project Management', The TQM Magazine, Vol. 9, No. 6, pp. 390-396
[61] The consultant was expected to use both naïve and sophisticated methods. This was to vary from use of simple growth rates, trend analysis and econometric methods.
[62] Supra note 43
