The withdrawal by risk averse lenders from the East African Crude Oil Pipeline has seen the cost of the project rise by 30 percent to $5 billion, meaning shareholders will be forced to dig deeper into their coffers to fund it.
Shareholders of TotalEnergies raised this question during the annual general meeting in May, and company executives confirmed that increase in cost to $5 billion for a fully completed project, of which $2 billion will be financed through shareholders’ equity and $3 billion by external funding.
The company’s subsidiary in Kampala did not respond to our questions.
The new cost, however, is a significant jump from the previous $3.5 billion, which required project sponsors and shareholders to raise $2.5 billion in debt financing and $1 billion through equity.
The shareholders of the Eacop, also known as the Hoima-Tanga oil pipeline, are TotalEnergies (62 percent), Uganda National Oil Company (15 percent), Tanzania Petroleum Development Company or TPDC (15 percent) and China National Offshore Oil Corporation (8 percent).
At least 10 banks have flagged Eacop as an environmental risk, expected to produce emissions of about 34 tonnes of carbon dioxide at peak production annually, hence not in line with their principle not to lend to projects that do not meet the Paris Agreement goals on climate change.
Last month, the project also suffered another setback after global insurers and export credit agencies, including French multinational AXA, withdrew its support.
“The underlying project is not compatible with our climate commitments,” AXA wrote in July, while the UK Export Finance also turned down an application for finance, after the UK government ceased financing fossil fuel projects overseas.
The lenders also see Eacop as a project that is fraught with investment risk given the oil price fluctuation while international markets where the oil is to be exported are also embracing clean energy.
Despite these fears, the project sponsors say they will secure funding for Eacop as it remains the only component holding back Uganda’s oil project that remains unfunded, and therefore failing first oil production target of 2025.
“Following conclusion in April of final agreements with the Uganda and Tanzania governments needed to launch this project, many banks [and] international organisations have confirmed their interest in participating in this funding,” TotalEnegies, the lead investor in Eacop, told shareholders.
According to the company’s records, the upstream projects — Tilenga and Kingfisher — are fully funded through equity, to the tune of $6 billion by the two partners TotalEnergies and CNOOC.
Tilenga will take up to $4 billion while investments in the CNOOC operated Kingfisher will take up to $2 billion, both feeding Eacop that is at peak expected to carry 230,000 barrels of oil per day.
These projects are part of an estimated $15 billion worth of investments that is expected to flow into Uganda and Tanzania.
At least $5 billion of this money is expected to trickle down to local firms that will sign deals to provide services during the pipeline’s construction phase, TotalEnergies CEOPatrick Pouyanné said during the launch in April this year.
The company says Eacop is economically robust, will create value for Uganda and Tanzania, with an estimated 10,000 jobs that will be created during the 36-month construction phase.
Stranded asset risk
However, activists insist that host agreements notwithstanding, risks and impacts keep amounting.
In their latest finance risk briefing, published on August 9, 2021, the ‘Stop Eacop Alliance’ — a coalition of over 260 NGOs — detail significant human rights, biodiversity and climate impacts.
They also argue that Eacop carries a “stranded asset risk” and failure to disclose key documents by the project proponent TotalEnergies and the Uganda and Tanzania governments, will have impacts felt across the two countries.
“Total may have renamed itself TotalEnergies, but in continuing with its oil projects in East Africa, it demonstrates that it remains committed to new fossil fuels and has zero interest in meeting 1.5 degree-aligned climate targets,” says Ryan Brightwell, Human Rights Campaign Co-ordinator at BankTrack.
He adds that the French oil major should be working with Uganda and Tanzania on forging a new development path based on renewables, rather than turning a national park into an oil field and locking the country into building the stranded assets of the near future.
Apparently, Eacop needs more than 5,300 hectares of land, which will affect 14,000 households that will need to be resettled, in addition to over 10,000 other households that will be economically displaced and lose land essential to their livelihoods.
TotalEnergies, however, says that Eacop will be executed in an exemplary and transparent manner, taking full account of the environmental and biodiversity issues as well as the rights of local communities, in accordance with environmental and societal standards of the International Finance Corporation.
The French company is backed by local shareholders, who include state-owned entities UNOC and TPDC in Uganda and Tanzania respectively, who also argue that Eacop’s value outweighs the negative impacts cited.
At 1,445 kilometres long, when completed, Eacop will be the world’s longest heated crude oil pipeline.