Developers of the pipeline that will transport crude from oilfields in Western Uganda to the Tanzania’s port of Tanga for export are jittery as they negotiate the final push to complete a rigorous process that Chinese lenders set before they decide whether to bankroll the project.
Industry sources, however, say the lenders remain at least six months away from making the final decision, as they assess potential blowback if they agree to finance the project that has attracted local and international criticism as a business risk.
With $2 billion raised by shareholders of the East African Crude Oil Pipeline (Eacop), the project seeks close to $3 billion to cover debt financing, expected to come from China Export & Credit Insurance Corporation (Sinosure) and the China Export Import (Exim) Bank.
Officials in Kampala told The EastAfrican that the Eacop shareholders have facilitated due diligence that the financiers demanded and are now tying up “a handful of financial agreements that need to be executed by end of April” to unlock funding from China.
Last year, Uganda’s Permanent Secretary in the Ministry of Energy Irene Batebe told China South Morning Post that Eacop shareholders had struck a deal with Sinosure and Exim Bank, and the project was poised for the financial close of $3 billion for the project’s debt financing in October 2023.
But activists turned their campaign on the Chinese lenders, prompting Sinosure and Exim Bank to slow down.
“The financial close didn’t happen last October because of the prolonged internal processes that we had to go through with Sinosure,” Philips Obita, chief operating officer and acting chief executive of Uganda National Oil Company, told The EastAfrican.
Mr Obita said Eacop has so far closed due diligence, as the lenders demanded, which included environmental and social governance issues, source of revenue for the pipeline, role of the shareholders and why the project has attracted a lot of local and external interest.
With a 62 percent stake, French major TotalEnergies is the lead investor in the 1443km pipeline project; Uganda government, through state-owned Uganda National Oil Company (Unoc) and Tanzania Petroleum Development Corporation each holding a 15 percent stake, while China National Offshore Oil Corporation (Cnooc) holds 8 percent.
One by one, Western banks recoiled from talks to bankroll Eacop, due to pressure by climate activists who raised the concerns against financing new fossil fuel projects, prompting the TotalEnergies and Cnooc to turn to China for loans.
When complete, Eacop will be the world’s longest heated pipeline. To enable it to transport Uganda’s low sulphur crude oil, it will require 40°C-50°C heating in the pipeline in order to flow.
Activists argue that the heated pipeline, which crosses major rivers, swamps, wetlands and forest reserves, is a threat to environmental and aquatic life, but also, some of the more than 12,000 project affected persons have till now not received compensation for their land taken up by Eacop.
On the sidelines of the Africa Energy Week in Cape Town in October 2023, Uganda’s Energy Minister Ruth Nankabirwa hinted on the slow pace to reach the project’s financial deal as a concern, as the Chinese co-financiers of Eacop’s debt, were not moving at the same pace as that of the project shareholders.
She said Sinosure suggested that it would only announce its final decision by June, potentially too late, as it is understood that Eacop civil works are currently running on the equity financing from the shareholders — TotalEnergies, CNOOC, Uganda and Tanzania.
“We need just about $3 billion to conclude the financing of this crude pipeline and the more we delay, the more expensive the project will become,” she said.
As fears grow that these explosive issues could force Sinosure to also recoil, industry analysts have said this could see TotalEnergies dig in to finance a significant chunk of the $3 billion that was expected to be covered by the debt financing component of the project.
But analysts say this would require the French major to push for a bigger share of the oil revenues than is currently provided for in the Production Sharing Agreements (PSA), which implies renegotiation of the revenue sharing pacts, a scenario that some foreign media have reported as already underway.
But Ali Ssekatawa, director of Legal and Corporate Affairs at the Petroleum Authority of Uganda — the industry regulator — dismissed as hearsay reports that Uganda is in talks with any joint venture partner to revise the PSAs.
“No PSA is being (re)negotiated with Total now. Nothing,” he said.
So far, Eacop works are underway both in Uganda and Tanzania, running on shareholders equity funds, which have financed early works for the main camp persons yards, pump stations, land acquisition at 99.8 percent in Tanzania and 90 percent in Uganda, shipment and delivery of line pipe for the first 100 km of the pipeline and coating plant works in Nzanga, Tanzania.
As financial close for debt component delays — and likely to drag on before Sinosure funding is on board — there are questions about how much longer the project can run on the available liquidity from the shareholders equity, $200 million from AfriExim Bank and $100 million from the Islamic Development Bank.
“We are still within cushion zone and operating with equity funds. As you know, it’s $2 billion,” Mr Obita said.
The EastAfrican reached out to Sinosure but had not received any response from the company by press time.
Eacop is financed on a 60 percent debt and 40 percent equity split, with debt estimated at $3 billion, according to TotalEnergies shareholders meeting records for 2023.