Eacop financing swings to China as its firms hog deals
Sunday May 07 2023
The Chinese appear to be taking over the financing of the East African Crude Oil Pipeline (Eacop) project, which has been hit by funding hitches as major lenders cave in to pressure from climate activists to abandon it.
A week ago, Standard Chartered Bank, one of the potential financiers, withdrew from the $5 billion project after activists said it could generate seven times more carbon emissions per year than the rest of the country. A StanChart spokesman was quoted as saying the lender “isn’t involved in the financing” of the 1,443km crude pipeline from the oilfields in western Uganda to the Indian Ocean coast of Tanzania.
TotalEnergies – the lead investor in Uganda’s oil projects – is therefore racing against time to reach financial close for the pipeline, as well as to conclude land acquisition, without losing sight of the 2025 oil production and export timelines.
Read: Suit in France opposing Uganda oil project flops
While the rigs are up and upstream field development is progressing, Eacop is falling behind the schedule set by the government for the first oil to flow in 2025 due to land acquisition headaches and delayed financial close after many risk-averse banks targeted as financiers pulled out of the project.
Deal with China CPP
However, the French energy giant has signed a deal with China Petroleum Pipeline Engineering (CPP) for the construction and supply of line pipe, a development that tilts the trans-border project to Beijing, where the biggest chunk of the loans is expected to come from.
CPP is a subsidiary of state-owned China National Petroleum Corporation (CNPC), and joins another state entity China National Offshore Oil Corporation (CNOOC), which owns a 28.33 percent stake in the Uganda oil and eight percent of Eacop.
Dennis Kakembo, an energy law specialist told The EastAfrican that the recent turn of events was largely expected.
“You have to look at where financing is coming from… Whether it’s construction, insurance, financing, these deals always go where the money for the project is sourced,” he said.
Read: Uganda, Tanzania proceed with Eacop
Last year, Eacop managing director Martin Tiffen announced that Australian firm Worley was tipped for the engineering, procurement and construction management tender while Italy’s ISOF Construzioni SRL was evaluated to manage the coating plant for the pipes and fittings, now taken over by CPP.
“If the Europeans were financing the project, you would expect them to influence their companies to take up these deals,” Mr Kakembo noted, referring to a string of European and American banks that have opted out of the project’s financing, citing climate risk and human rights issues.
Before CPP, the line pipe deal worth $165 million was lined up for ChelPipe, the Russian manufacturer of welded and seamless steel pipes, but the company was ejected from the tender after the US and Europe slapped sanctions on Russia after it invaded Ukraine in February 2022.
And now Stanchart has walked away, leaving China as the only realistic source of finance for the project, according to industry experts.
But NJ Ayuk, executive chairman of the African Energy Chamber, argues that Stanchart’s pull-out “is inconsequential” but adds that the Eacop shareholders, particularly TotalEnergies, will have to do the heavy lifting by taking a bigger chunk of the project’s equity financing to reduce the debt ratio.
“They have the balance sheet and Chinese financing,” he said of TotalEnergies.
Uganda government officials maintain that funding for the pipeline remains on track and multi-sourced from European, Middle East, African, and Asian financiers, particularly China. Energy Minister Ruth Nankabirwa has said the pipeline project “will get money” from Beijing.
Read: Uganda keeps oil dream alive
Last month, Eacop deputy managing director John Bosco Habumugisha said the governments had made good progress, raising 60 percent of the required financing for the project that is expected to unlock massive economic activity on the 1,443km-long corridor.
Last year, TotalEnergies CEO Patrick Pouyanné told shareholders that the amount of debt required for Eacop would be $2 billion and $3 billion.
South Africa’s Standard Bank, Japan’s Sumitomo Mitsui Banking Corporation, and the Industrial and Commercial Bank of China, as well as the US insurance broker Marsh, are the advisers for financing and insurance packages for Eacop.
Confirmation of CPP deal means that Chinese firms are taking the lion’s share of the major contracts in Uganda’s oil projects after Sinopec was picked in 2021 as the joint main contractor alongside McDermott, for the Total-operated Tilenga project.
In February, another Chinese firm, China Petroleum Engineering and Construction Company (CPECC) finalised a deal with the French major to build ground facilities in the Tilenga oilfield.
Eacop is expected to transport 216,000 barrels-per-day of oil from Tilenga and Kingfisher oilfields in the Lake Albert basin to Tanga Port on Tanzania’s coast.
Between 2022 and 2025, the project is expected to undertake the land acquisition, contract award, detailed engineering, procurement, construction, and commissioning, including hydro-testing, and first oil from upstream facilities. But in May, there is no clear schedule when the contractors will get the green light to start construction.
Land acquisition stands at 85 percent in Uganda, and 98 percent in Tanzania of the compensation agreements signed, while compensations paid are at 76 percent and 97 percent respectively. Eacop officials in Kampala cannot say when this exercise will be concluded, citing a lack of requisite documents by project-affected persons.
Ahead in Tanzania
But in Tanzania, construction has started at the marine storage terminal in Tanga port and the coating plant site in Nzega District, while in Uganda, civil works will start at the main camp and pipe yard at Kakumiro, where land acquisition is complete.
Eacop is the largest oil pipeline project in the region, spanning a 30-metre corridor and 1443km length from start to terminal, developed to transport crude oil from Uganda to Tanzania from where it will be shipped to the international markets.
TotalEnergies holds the majority stake of 62 percent, while Uganda National Oil Company (Unoc) and Tanzania Petroleum Development Corporation hold a 15 percent state each, and CNOOC eight percent.
Read: How Museveni killed Kenya’s crude pipeline dream
The project has been the target of a sustained campaign by local and international environmental and human rights activists, who say new fossil fuel projects are a ticking climate bomb that should be abandoned in favour of renewable energy.
Biggest heated pipeline
They also cite the fact that Eacop is the world’s biggest heated pipeline – the heating is meant to enable it to carry Uganda’s waxy oil – but the infrastructure crosses protected areas. Activists say the ecosystems in protected areas which the 50°C heated pipeline will cross will be harmed.
The European Union Parliament has backed the activists, and passed a resolution denouncing the project last year, arguing that the pipeline will produce 34 million tonnes of emissions per annum, hence posing a threat to local wildlife populations in conservation and protected and sensitive ecosystems.
But Peter Muliisa, chief legal and corporate affairs officer at Unoc, said that the Eacop is a buried pipeline and a very low emitter.
“In terms of contribution to total oil and gas emissions, upstream contributes 10 percent. Midstream, which is where the pipeline falls, is the least emitter; it contributes five percent. The rest of the emissions come from usage, and that’s downstream. So, if you look at the pipeline, it’s not emitting. Its emission is very limited,” he said.
Meanwhile, Uganda has from May 9-11 planned to host the 10th East African Petroleum Conference and Exhibition.
Editor's note: The story has been revised to indicate that StanChart, a potential project financier, stated that it would not be involved in the funding. Earlier version of the story had said that the bank had offered $5 billion financing and then walked back on it. The total project cost is $5 billion.