The shareholders of the East African Crude Oil Pipeline (EACOP) have committed an additional $500 million to the project to address delays in debt financing, ensuring progress in construction. This significant injection has brought the equity contribution to 52%, surpassing the initial plan of 40% equity funding, as the developers grapple with sourcing debt financing from international lenders.

Overview of the Project

The EACOP, a 1,443km-long pipeline, is designed to transport oil from the Albertine region in Uganda to the Tanzanian port of Tanga. With an estimated cost of $5 billion, the pipeline is set to deliver up to 230,000 barrels per day at peak production. It plays a critical role in Uganda’s aspirations to monetize its oil reserves, estimated at 6.5 billion barrels, and in Tanzania’s drive for economic growth through regional collaboration.

Stakeholders and Contributions

The key stakeholders in the project include TotalEnergies, holding a 62% stake, along with China’s CNOOC, and the governments of Uganda and Tanzania, each holding 15%. Additional funding commitments have been made as follows:

• TotalEnergies has added $400 million.
• Uganda and Tanzania contributed $45 million each via their respective national oil companies, the Uganda National Oil Corporation (UNOC) and the Tanzania Petroleum Development Corporation (TPDC).
• CNOOC has provided proportional equity in alignment with its 8% share.

Debt Financing Challenges

Despite these contributions, the project remains short of full financial closure. Efforts are ongoing to secure debt financing from key Chinese lenders, including Exim Bank and Sinosure, after European and international banks withdrew due to pressure from environmental groups and activists. A decision on the financing is expected by the end of 2024.

Economic and Social Impact

The EACOP project has been a double-edged sword for the communities along its path. While it promises significant economic benefits, including job creation and improved infrastructure, it has also sparked controversies. For example:

• In the Lake Albert region, TotalEnergies claims the pipeline and related developments will generate 7,000 jobs, boost local economies, and fund scholarships for over 200 students.
• Compensation for land acquisition has been uneven, with some residents benefiting from buyouts and resettlement programs, while others report insufficient compensation and legal disputes​

Progress and Setbacks

While upstream projects like the Tilenga and Kingfisher oil fields are advancing, the pipeline’s construction has lagged. About 800km of pipeline materials have been delivered, with one-third of the route laid so far. Developers aim to install 100km per month to meet revised timelines. However, the initial 2025 target for first oil production is now unlikely to be met.

In tandem with the pipeline, Uganda is also working on a refinery to process up to 60,000 barrels of oil per day. However, delays in securing partnerships and funding for the refinery further complicate synchronization between upstream production and export infrastructure​

Environmental and Human Rights Concerns

The project has faced intense scrutiny from environmental and human rights advocates, who argue that it poses risks to sensitive ecosystems and could displace thousands of residents. Developers have responded by limiting the pipeline’s environmental footprint and designing above-ground facilities to minimize impact.

Local voices reveal a spectrum of experiences:

• Some, like Scovia Aheebwa, have benefitted from scholarships that allowed them to complete their education.
• Others, like farmer Geoffrey Byakagaba, see the pipeline as a source of injustice due to inadequate compensation and legal challenges​

Conclusion

The EACOP project underscores the complexities of large-scale energy projects in developing regions. While it holds the promise of economic transformation and energy independence for Uganda and Tanzania, it also highlights the challenges of balancing development with environmental stewardship and social equity. As construction progresses, the success of EACOP will depend on resolving financing hurdles, adhering to environmental commitments, and ensuring fair treatment for affected communities.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd December, 2024