Uganda’s crude oil pipeline project secures massive financing

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Uganda’s ambitious crude oil pipeline project has secured much-needed financing from Chinese lenders, after financiers from the West backed out due to opposition from environmental groups.

The East African nation is set to finalise talks with the China Export & Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (Eximbank) by next month to finance the construction of the East African Crude Oil Pipeline (EACOP).

Uganda's crude oil pipeline project secures massive financing
Uganda’s crude oil pipeline project secures massive financing.

According to Irene Bateebe, the permanent secretary of Uganda’s Ministry of Energy and Mineral Development, Sinosure and Eximbank will provide more than half of the $3 billion debt required for the project. “We are at the tail-end of the discussions [with Chinese lenders] for financial close. We are confident that by the end of October of this year, we will close the debt component and we would have mobilised most of the funding for the project,” Bateebe said.

Uganda needs approximately $5 billion for the construction of the pipeline, which will run from the oilfields in Lake Albert to a storage and loading terminal in the Tanzanian port of Tanga.

The financing plan for the project involves a 60:40 debt-to-equity ratio, with $3 billion secured as debt and the remaining $2 billion to be financed by shareholders through equity contributions.

The decision to secure funding from China comes after Western financiers stepped back from their initial commitments. Environmental groups have been vocal in their opposition to the project, citing concerns over the potential impact on local ecosystems and indigenous communities. These concerns were significant enough to deter Western lenders from providing financial support.

Uganda’s crude oil pipeline project is a crucial part of the country’s efforts to tap into its vast oil reserves and boost economic growth. The pipeline is expected to have a capacity of 216,000 barrels of crude oil per day, providing a vital infrastructure link between the oilfields in Uganda and the international market via the port of Tanga in Tanzania.

TotalEnergies possesses a 62 percent stake in the pipeline, while the Uganda National Oil Company and the Tanzania Petroleum Development Corporation hold 15 percent each. The remaining 8 percent belongs to China National Offshore Oil Corporation (CNOOC), a prominent Chinese oil giant.

Recently, drilling operations have commenced at this contentious Ugandan field owned by the Chinese oil giant. This extraordinary pipeline spans an impressive distance of 1,443 kilometres (896 miles), connecting Uganda’s Lake Albert oil fields in northwest Uganda to Tanga, Tanzania, situated on the Indian Ocean. Here, the extracted crude oil will be sold to global markets.

Apart from Chinese lenders, Uganda expects financial support from Saudi Arabia’s Islamic Development Bank and various African banks such as the African Export-Import Bank.

Initially, numerous Western-backed lenders expressed their interest in financing this project; however, they ultimately withdrew due to significant opposition from environmental and human rights groups. These groups assert that both the oilfields and pipeline endanger the delicate ecosystem of the region as well as threaten thousands of livelihoods. Moreover, environmentalists argue that Uganda’s decision contradicts worldwide efforts towards transitioning away from fossil fuels.

Although Western banks chose not to support this venture, we turned our gaze toward our other allies for support. By embracing an “East-looking” approach, we managed to secure funding from other interested parties. Previously, a substantial portion of debt was expected to come from Western lenders prior to their withdrawal.

British company Tullow Oil made an important discovery in 2006 when they found commercially viable oil deposits on the shores of Lake Albert in western Uganda, right at the border with the Democratic Republic of the Congo. It is estimated that Uganda holds approximately 6.5 billion barrels of crude oil, with 1.4 billion barrels being recoverable.

Uganda's crude oil pipeline project secures massive financing
Uganda’s crude oil pipeline project secures massive financing.

However, it wasn’t until last year that the partners finally made a final investment decision worth US$10 billion for the project. This decision includes not only the development of oilfields but also the construction of a pipeline to transport the harvested crude oil from Hoima in western Uganda.

CNOOC is responsible for the operations of the Kingfisher oilfield, which is situated on the eastern shores of Lake Albert in Uganda. The company plans to invest an estimated $2-3 billion to develop this oilfield, with a projected peak production capacity of 40,000 barrels per day.

On the other hand, TotalEnergies, a French oil multinational, operates the Tilenga oilfield. This larger oilfield is expected to require an investment between US$4 billion and US$6 billion for its development and will have a production capacity of 190,000 barrels per day.

The drilling of development and production wells for both the Kingfisher and Tilenga oilfields commenced in January and June 2022 respectively.

Environmental groups advocating under #StopEACOP has been pressuring key Western financiers to withdraw their investment plans. As a result, several major banks including Barclays, Credit Suisse, Citi, HSBC, Deutsche Bank, Morgan Stanley, and JP Morgan Chase have decided not to support the pipeline project.

Standard Bank of South Africa and Industrial and Commercial Bank of China (ICBC) are acting as financial advisers and lead debt arrangers for EACOP (East African Crude Oil Pipeline). ICBC holds a 20% stake in Standard Bank – South Africa’s largest lender.

Sumitomo Mitsui Banking Corporation from Japan has also declined to finance the project. However, it remains uncertain whether they continue to act as one of the debt arrangers and advisers.

The European Parliament recently addressed concerns over environmental and human rights issues surrounding the oil project, passing a resolution to halt its progress. TotalEnergies was also cautioned against supporting the venture.

However, Uganda believes that the Western countries pushing for the abandonment of the oil plans are not considering the complete picture. The country argues that an energy transition can still be just and inclusive while maintaining its oil and gas sector alongside renewable energy initiatives.

Bateebe emphasised that their sustainable development of the oil sector will contribute to their energy transition by providing financial support. Without a proper financing plan for the transition, it is insufficient to simply urge countries like Uganda to change paths.

To show support for Uganda’s projects, the Chinese embassy in Uganda condemned the European Union’s interference with their oil ambitions. Chinese Ambassador Zhang Lizhong stated that environmental and human rights issues should not be used as excuses to impede oilfield and pipeline development.

China’s involvement in financing the project reflects its growing influence in Africa, particularly in the energy sector. The country has become a major player in African infrastructure development, providing funding for various projects across the continent. Critics argue that China’s involvement may come with its own set of challenges, including potential debt burdens and limited local participation.

Ericson Mangoli
Ericson Mangoli is the founder and Managing Editor of Who Owns Africa, a platform for African journalism that focuses on politics, governance, and business. Mangoli is passionate about African stories and believes that media has a crucial role to play in driving the continent's development. In his work, he strives to promote accuracy and objective reporting on Africa.

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