Uganda is just a step away from breaking ground on the East African Crude Oil Pipeline (EACOP) after China, with the second biggest economy in the world, announced that they are coming on board as co-funders of the project.
Just 20 months since the Final Investment Decision (FID) was announced by the EACOP shareholders, which runs 1,443km from Kabaale, Hoima district in Uganda to the Chongoleani Peninsula near Tanga Port in Tanzania, the project is about to get the funding required to get it off the ground.
French oil giant TotalEnergies is the lead investor in the pipeline project with a 62% stake while the Uganda National Oil Company (UNOC) and Tanzania Petroleum Development Corporation each own a 15% stake. China National Offshore Oil Corporation holds an 8% stake.
“We have obtained the assurance of China’s participation in the project, but are yet to know how much they are bringing on board,” Irene Bateebe, the Permanent Secretary of the Ministry of Energy and Mineral Development, said.
She said they expect to finalise talks with the China Export and Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (Eximbank) by next month to finance the construction of EACOP. She said Chinese lenders will provide more than half of the $3b debt that Uganda requires to build a crude oil pipeline to evacuate Uganda’s oil, whose commercial production is expected to start in 2025.
“The Chinese have all along been part of the EACOP Consortium of funders. It’s not that they have just joined in. They decided to come on board after several members of the consortium decided to leave over environmental concerns,” she told New Vision in a recent interview.
Bateebe said another sizable portion of the finances required to complete the project’s debt financing will most likely come from Saudi Arabia’s Islamic Development Bank and some African banks, “and other private and public funders that we cannot mention for now.”
“Initially, many Western-backed lenders had expressed interest in financing the pipeline, but pulled out due to strong opposition from environmentalists and lobby groups who said the oilfields and pipeline threatened the region’s fragile ecosystem and people’s livelihoods,” she said.
Wang Chenxu, the first secretary of the Chinese embassy in a phone interview confirmed their knowledge of the project finance, but said he didn’t have details about the financial part of it
Chenxu said if the funding comes on board, it will be a way that will continue deepening the relationship between China and Uganda, highlighting the robust partnership between the two nations.
Ruth Nankabirwa Sentamu, the Minister for Energy and Mineral Development, was recently quoted in the media as saying Uganda was looking for only $1.8b, which was expected to come from several Chinese lenders and two African banks.
She confirmed that equity financing for the project was fully paid up by its four shareholders.
AFRICA CHAMBER SUPPORT
Uganda, however, has got an ally in the African Energy Chamber, which hailed the country as having a strong track record of robust environmental management and social engagement.
“This gives us comfort to back this project without hesitation,” NJ Ayuk, the chamber executive, said.
He said the project was not just for East Africa’s energy future, but for the well-being of the regional community itself.
“In addition to fighting against the construction and operation of the project, activists are targeting the funding of the project, with 20 large-scale banks having been convinced not to finance the pipeline. Despite these attacks, project developers remain resilient, recognising the value of the pipeline,” he further said in a statement.
COMPENSATION
Peter Muliisa, the UNOC chief legal and corporate affairs officer, said in Uganda, compensation stands at 88% and in Tanzania, they are at 99%. What remains is something we can complete in a few months.
“This is good progress and we are now pleased that we have moved that far. In Uganda, 177 resettlement houses have been completed and handed over to happy project-affected persons. In Tanzania, it is a similar status. They have also achieved 100% handover of the houses.
We continue working to ensure that the local and project-affected persons benefit from the project. You might have seen children of the project-affected persons graduating from skilling programmes,” Muliisa said.
He said the project will have a debt-to-equity ratio of 60% to 40%, respectively. All the shareholders, including UNOC, have met their cash calls under the equity component.
“On the debt financing, we are now assured that we are going to have the financing that we require for the project. The debt component is about $2.5b,” he said.
“So, there are no money issues for the pipeline. As we have indicated, we have the highest scores on environmental social governance elements.”
Industry analysts said that the growing number of Chinese companies getting project contracts for upstream production and EACOP suggests that China is the source of loans and Beijing is leveraging on this to influence its firms getting business.
Recently, China Petroleum Pipeline Engineering signed a deal for the construction and supply of line pipe for EACOP, making it the fourth Chinese firm with big money tender in the oilfield’s development contracts and export pipeline deals.
