CHINA COMES TO RESCUE OF UGANDAN PIPELINE
Western lenders and insurers have backed out of the US$5 billion project, citing environmental risks, but Chinese banks have offered US$3 billion
Chinese lenders are among a group of banks coming to the rescue of a US$5 billion oil pipeline after Western-backed financiers walked away amid strong opposition from environmental groups.
The Export-Import Bank of China (Exim) and “several other Chinese banks” will finance the US$3 billion debt required to build the East African Crude Oil Pipeline (EACOP), according to Uganda’s energy ministry.
“Part of the money is going to come from Exim Bank of China” and “two companies from two African countries are offering funding”, Energy Minister Ruth Nankabirwa said last weekend.
The announcement ended speculation that the project would stall after dozens of lenders and insurance companies refused to take part in financing.
Uganda and Tanzania plan to build the 1,445km conduit to transport crude oil from two oilfields at Lake Albert in northwestern Uganda to the port of Tanga in Tanzania on the Indian Ocean. It is expected to transport 216,000 barrels of oil per day destined for international markets.
Financing for the pipeline is set at a 60:40 debt-to-equity ratio, meaning the US$3 billion will be secured as debt with the remaining US$2 billion to be financed by shareholders through equity contributions.
French oil major TotalEnergies owns the biggest stake in the project at 62 per cent, while Uganda National Oil Company and Tanzania Petroleum Development Corporation each hold 15 per cent. State-owned China National Offshore Oil Corporation (CNOOC) owns the remaining 8 per cent.
Aside from the main Chinese banks, the African Export-Import Bank (Afreximbank) and Saudi Arabia’s Islamic Development Bank have agreed to provide a total of US$300 million in financing. Irene Batebe, permanent secretary of Uganda’s energy ministry, said other African “funders that we cannot mention for now” would also provide debt financing.
Uganda has an estimated 6.5 billion barrels of crude oil – the equivalent of 1.4 billion barrels of recoverable oil.
Since commercially viable oil deposits were discovered in 2006 on the shores of Lake Albert, at the border with the Democratic Republic of Congo, production has been delayed by disagreements, funding issues and infrastructure setbacks.
In 2020, Tullow Oil, which is headquartered in London, sold its stake in the project to TotalEnergies.
But the project has run into strong opposition from human rights campaigners and environmental groups who say the oilfields and pipeline threaten the region’s fragile ecosystem and the livelihoods of thousands of people.
Last year, the issue found its way to the floor of the European Parliament, where legislators passed a resolution calling for a halt to the project over environmental and human rights concerns.
However, Chinese ambassador to Uganda Zhang Lizhong said the EU “should not use the excuse of environmental and human rights issues to block development” of the projects.
“We hope that these projects will continue without disruptions and be completed in time so that it would achieve the desired results for national economic and social development for Uganda,” Zhang said in October.
According to #StopEACOP, a campaign against the pipeline, 25 major banks including Barclays, Credit Suisse, Citi, HSBC, Deutsche Bank, Morgan Stanley and JP Morgan Chase, and 23 reinsurers have ruled out backing the pipeline.
This month, Standard Chartered Bank walked away from financing the project, saying it “is not involved”.
In response, the Ugandan government said the project would proceed regardless.
“I have confidence that we shall get funding. We are going ahead with our plan because this is not a project to be abandoned,” Nankabirwa said on May 9 during the 10th East African Petroleum Conference in Kampala. “The good thing is that we are working with the oil companies – Total and CNOOC – and we have made sure that environmental issues have been taken care of.”
“Standard Chartered Bank’s or any other potential European financier’s decision not to finance the EACOP project is unlikely to have any significant impact on its financing,” said Venu Narla, a senior analyst for oil and gas at GlobalData.
Narla said the banks would cover the debt financing portion of the project, and that the other 40 per cent would be financed by the equity shareholders.
“China’s banks are the key investors in the EACOP project,” he said.
With huge investments and development contracts at stake, Chinese companies were keen to complete the pipeline, observers said.
CNOOC’s Ugandan subsidiary has begun drilling production wells at the Kingfisher oilfield at Lake Albert, one of two commercial oil development projects in the country. The other oilfield is at Tilenga in western Uganda, which is operated by TotalEnergies.
TotalEnergies recently signed a deal with China Petroleum Pipeline Engineering, a subsidiary of state-owned China National Petroleum Corporation, to build and supply pipe.