China, African banks to finance $3 billion Eacop debt

Kampala. Uganda’s Energy minister Ruth Nankabirwa has confirmed that the China Export-Import Bank, and “several other Chinese banks” will finance the $3 billion debt required for the East African Crude Oil Pipeline (Eacop).

The confirmation ends months of speculation about the oil pipeline financing arrangements that the government had kept under lock and key.

“Two companies from two African countries are offering the money,” Ms Nankabirwa revealed, adding, “Part of the money is going to come from Exim Bank of China.”

Ms Nankabirwa was speaking at the grant of petroleum exploration licences of the Turaco oil block to Australia’s DGR resources that will explore oil in Ntoroko District.

The Energy minister also took a swipe at de-campaigners of Eacop, stressing that “those who are not with us shouldn’t develop bad blood.”

Ms Irene Batebe, the Energy ministry permanent secretary, revealed that the financing is syndicated, stretching Eacop to other African and Islamic banks.

The $5 billion heated pipeline will stretch across 1,443kms in 10 districts from Kabaale Industrial Park in Hoima District in Uganda to a marine storage terminal at the Port of Tanga in Tanzania. It has a 60 to 40 percent debt to equity ratio, meaning the $3 billion will be secured as debt.

$2 billion will be equity financed by shareholders, who include Total Energies (62 percent), Uganda National Oil Company or Unoc (15 percent), Tanzania Petroleum Development Corporation or TPDC (15 percent), and China National Offshore Oil Corporation or Cnooc (eight percent).

Eacop has so far declared funding from Saudi’s Islamic Development Bank, and Afrexim Bank, totalling $300 million.

Unoc holds the state’s oil commercial interests, with its shareholding and capital structure—including the Energy ministry with 51 percent shares and the Finance ministry with 49 percent shares.

Eacop sends a cash call to all shareholders each month to make their equity contribution towards the oil pipeline activities based on their percentage share.

Algeria declares interest

Meanwhile, an Algerian delegation led by Mr Mohamed Arkab, the minister of Energy and Mines, met President Museveni on Thursday. This publication understands an interest in financing the oil pipeline was declared. The meeting held on the sidelines of the East Africa Petroleum Conference was a follow-up on the memorandum of understanding signed when President Museveni visited Algeria in March.

The Ugandan and Algerian energy ministries discussed collaboration and partnerships in four areas that included, among others, oil refinery, financing the pipeline, and electricity generation.

The Eacop has been beset by shrinking international finance for its greenfield oil and gas projects. The project has also grappled with civil suits from climate activists, who are intent on drumming up support for cleaner energy sources.

A number of major banks such as HSBC, Standard Chartered and Standard Bank announced that they are reviewing their lending for oil and gas projects in light of the net zero campaign.

HSBC bank, in a statement, quoted the International Energy Agency’s 2021 Net Zero by 2050 report which states that an orderly transition requires continued financing and investment in existing oil and gas fields to maintain the necessary output – with 2020 financing levels maintained through 2030 and declining to half thereafter.

The International Energy Agency’s 2021 Net Zero by 2050 report states that an orderly transition requires continued financing and investment in existing oil and gas fields to maintain the necessary output.

Project status

The executive director of Petroleum Authority of Uganda, Mr Ernest Rubondo, in an update about the oil pipeline, said the construction of preparatory infrastructure such as camps, the coating plant for insulating line pipes, and the main storage and export terminal in Tanga, are ongoing.

China Petroleum Pipeline Engineering (CPP) will undertake the construction and supply of line pipe. The company is a subsidiary of state-owned China National Petroleum Corporation (CNPC).

Rubondo also noted that 92 percent of project affected persons (PAPS) have been compensated.

The pipeline affected 3,648 persons in Uganda, and 9,898 persons in Tanzania.