China steps in to save Uganda oil pipeline as Western lenders back out over environmental concerns

Details: East Africa; 23 September 2023; 530

The East African Crude Oil Pipeline (EACOP) has seen Western banks pull out of financing the project over environmental concerns. Photo: Handout

China steps in to save Uganda oil pipeline as Western lenders back out over environmental concerns

A new pipeline is planned to transport crude oil from Uganda’s Lake Albert oilfields to Tanzania’s Indian Ocean coast
Several major Western banks have pulled out of investing in the project due to pressure from environmental groups

Chinese lenders will provide more than half of the US$3 billion debt that Uganda requires to build a crude oil pipeline after financiers from the West backed out following strong opposition from environmental groups.

According to Uganda’s Ministry of Energy and Mineral Development, the East African nation expects to finalise talks with the China Export & Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (Eximbank) by next month to finance the construction of the East African Crude Oil Pipeline (EACOP).

Irene Bateebe, the ministry’s permanent secretary, said Sinosure, the Chinese state-owned provider of export credit insurance, is working with Eximbank to provide funding for the pipeline, which “is the largest portion – above 50 per cent of the debt”.

“We are at the tail-end of the discussions [with Chinese lenders] for financial close. We are confident that by the end of October of this year, we will close the debt component and we would have mobilised most of the funding for the project,” Bateebe said on Friday.

Uganda needs about US$5 billion for the pipeline running from Lake Albert’s oilfields to a storage and loading terminal in the Tanzanian port of Tanga. Financing is set at a 60:40 debt-to-equity ratio, meaning US$3 billion will be secured as debt with the remaining US$2 billion to be financed by shareholders through equity contributions.

TotalEnergies controls a 62 per cent interest in the pipeline; the Uganda National Oil Company holds 15 per cent; Tanzania Petroleum Development Corporation has 15 per cent; leaving 8 per cent for Chinese oil giant China National Offshore Oil Corporation (CNOOC).

The 1,443km (896-mile) pipeline would transport crude oil from Uganda’s Lake Albert oilfields in northwest Uganda to Tanga in Tanzania on the Indian Ocean where the oil would then be sold onwards to world markets.

Besides the Chinese lenders, Bateebe said Uganda expects to get some funding from Saudi Arabia’s Islamic Development Bank and some African banks, including the African Export-Import Bank.

Bateebe said initially many Western-backed lenders had expressed interest in financing the pipeline but pulled out due to strong opposition from environmental and human rights groups who have said the oilfields and pipeline threaten the region’s fragile ecosystem and the livelihoods of thousands of people. Further, environmentalists say Uganda is going against the global push for energy transition away from fossil fuels. By Jevans Nyabiage, South China Morning Post