Eacop’s $5b financing headache as environment activists pile pressure

In a week when seven more financiers publicly distanced themselves from backing the East African Crude Oil Pipeline (Eacop), executives from the Ugandan government and oil companies remained confident that the financing package for the project — which is key to the commercialisation of Uganda’s oil — is on the home stretch and will be tied up in two months.

The confidence is buoyed by recent revelations by the Financial Times and the Bureau of Investigative Journalism that New York-based insurance broker Marsh McLennan will come on board as the insurance arranger. This brought optimism after global insurers Swiss Re, AXA and Zurich last year declined to cover the $5 billion pipeline that has faced a fierce campaign from climate and environmental activists who describe it as “toxic”.

In March, reports showed that Eacop’s promoters TotalEnergies were banking on European and Asian export credit agencies to provide a financial guarantee for the project to bring on board commercial banks to provide loans.

Officials in Kampala are guarded on which financiers are involved but indicate that the wheels are starting to turn.

Negative campaigns

Eacop deputy managing director John Bosco Habumugisha said that potential lenders had travelled to Uganda and Tanzania to evaluate the project, and that the authorities will announce the financiers within two months.

“What I can say is that we have very many entities that are willing to fund the project,” he said on May 19 while giving an update on Eacop’s execution in Kampala.

Insiders say arranging Eacop’s financing has been a “headache,” a “slow and complex process” due to the environment concerns and negative campaign by climate activists.

“It has been difficult,” a source said.

“Every time something is said or written about this project, a financier drops out.”

The project financial advisors are Standard Bank of South Africa through its Uganda subsidiary Stanbic, Chinese giant Industrial and Commercial Bank of China (which owns a 40 percent stake in Standard Bank) and Japan’s Sumitomo Mitsui Banking Corporation.

A fortnight ago, climate activist Dominika Lasota confronted France President Emmanuel Macron in Brussels, asking him to denounce Eacop, cut off support and stop the project in which the French major TotalEnergies holds a 62 percent stake.

Such campaigns have seen major lenders desert the company as the push for clean energy sources gains currency.

“Total and allies were in a hurry to announce their final investment decision in early February this year. Since then the list of banks and insurers staying away from Eacop has been growing,” Omar Elmawi, the coordinator of the #StopEacop Coalition, said last week.

Last week alone, five banks — Deutsche Bank, Citi, JPMorgan Chase, Wells Fargo and Morgan Stanley — confirmed they would not finance the Eacop. Insurer Beazley Group and the Italian export credit agency SACE also opted out.

Another 13 banks — including two TotalEnergies’ traditional lenders — abandoned the French giant-headlined project between 2020 and 2021, but experts argue that there is a way back in for some of these lenders if Total is on course for a low-carbon transition.

TotalEnergies said in its 2021 presentation to shareholders that for the Lake Albert project, it has set a carbon intensity target of 13 kilogrammes of carbon dioxide equivalent, per barrel of crude oil produced (13kgCO2/boe).

Globally, carbon intensity for crude oil ranges from 10.1-72.1kgCO2/boe, and the French giant’s Chief Executive Patrick Pouyanne says the firm is transitioning from fossil fuels to renewable energy and remains on course achieve net-zero carbon emissions by 2050.

World’s longest pipeline

Upon completion in 2025, Eacop will be the world’s longest heated pipeline, transporting 216,000 barrels of oil per day from Hoima in Uganda’s Lake Albert region to the Tanzania Indian ocean port of Tanga, spanning a distance of 1,443km.

The pipeline, whose construction will start in the second half of 2022, will generate up to 34 million tonnes of carbon emissions each year, but Mr Habumugisha says activists are failing to recognise measures the project promoters are deploying to mitigate environmental impact.

“We are introducing intrusion detection technologies, we have added leak detection systems, we have added general physical surveillance and in addition,” he said, adding that the activists’ campaigns will not stop the project.

TotalEnergies and China National Offshore Oil Corporation took the Final Investment Decision in February to invest $10 billion toward production and transportation infrastructure to drill, produce and commercialise Uganda’s oil.