The True Oil And Gas Narrative

Uganda Awaits FID After Signature Of Key Oil Agreements. Campaigners Say “Dodgy Deal” Will Be Costly

FID is the point in the capital project planning process at which Joint Venture Partners; Total and CNOOC will decide to make major financial commitment.

Uganda is now waiting on International Oil Companies (IOCs) to announce a Final Investment Decision (FID) after concluding negotiations with Tanzania, and signing three key agreements to pave way for the construction of the East African Crude Oil Pipeline.

FID is the point at which Joint Venture Partners; Total and CNOOC will decide to make a major financial commitment.

During the Sunday meeting, Ugandan President Yoweri Museveni, his Tanzanian Counterpart Samia Suluhu, Total’s Chief Executive Patrick Pouyanné and representatives from CNOOC inked the Host Government Agreement (HGA), Shareholders Agreement and Tariff and Transportation agreement.

The deal comes at a time over 260 civil society organizations are lobbying international banks to stop debt financing of the EACOP, which they say poises “unacceptable” climate harm and threatens water sources and 2,000 square kilometres of protected wildlife habitats crucial to preserving elephants, lions and chimpanzees.

Last month, South Africa’s Standard Bank — a financial advisor to  the JV partners through its local subsidiary Stanbic Bank — announced that it was suspending support for the project while it waits for the outcome of an environmental and social impact study, following the rigorous campaign.

Ryan Brightwell, a Researcher and Editor at Bank Track,  told this website that despite the signing ceremony, “the EACOP project still faces several stumbling blocks. Not least of these is that Total and CNOOC have not yet raised the $2.5 billion project loan needed to finance the pipeline”.

“Given the continuing human rights impacts and the huge risks to water, climate and nature from the project, many financiers are choosing to stay away. Barclays and Credit Suisse recently confirmed they will not finance the EACOP, and its application to UK Export Finance was embarrassingly rejected after the UK announced a complete end to support for fossil fuel projects overseas,” he said in an emailed statement.

Technocrats and oil companies are hoping for FID in the immediate future, which will connote  to shareholders making available at least $10 billion for project development and the award of  Engineering, Procurement, and Construction (EPC) contracts.

Speaking during the signing, Pouyanné termed the pending investment as “a very large development, one of the largest that will be developed on this continent”. The company said last week that the project will be implemented in strict adherence to all environmental requirements, insisting that it “acts in transparency on social and environmental stakes of the Lake Albert resources development project.”

The signatories have now agreed to “to start investment in the construction of infrastructure that will produce and transport the crude oil,” said Robert Kasande, permanent secretary at Uganda’s ministry of energy.

The monies needed will cater for development of $6.7 billion Tilenga oil project, which included oil fields in Buliisa and Nwoya districts, and Cnooc’s Kingfisher project in Hoima and Kikuube districts, and $3.8b for the EACOP.

Financial news terminal Bloomberg reported Sunday that Total’s own $5.1 billion bet on the project is for the rare frontier oil development that’s moving forward as most major companies are cutting spending. It also cements the French energy giant’s position as the leading player in Africa.

The East African Crude Oil Pipeline (EACOP) is slated to run from Uganda’s Albertine Graben to Tanzania’s  Northeastern port of Tanga. It will be developed  60:40 per cent debt to equity arrangement.

The largest part of 1,147km, will be on the Tanzanian side, and it is estimated that 80 per cent of the project capital expenditure will be spent there. In Uganda, the conduit is estimated to cover 296km through 10 districts and 25 sub-counties, and 172 villages.

Total will own 72% stake, whereas the Uganda National Oil Company (UNOOC) will hold 15% on behalf of the country through a subsidiary while CNOOC and Tanzania through its Tanzania Petroleum Development Corporation will take 8, and 5 respectively.

Civil society groups through their STOP EACOP campaign have punched holes in Total’s environmental commitment. 

Dickens Kamugisha, the CEO of Africa Institute for Energy Governance (AFIEGO), said that: “while Total claims to act ‘responsibly and transparently’, our engagements with district leaders and local communities whose land is being compulsorily acquired for the EACOP project shows otherwise”.

“In March 2021, Total published the Resettlement Action Plan [RAP] for the EACOP project online to ostensibly foster information sharing. However, district leaders and local affected communities were unaware that the RAP exists until we informed them about it between April 6 and 8, 2021 … How can communities for whom the RAP is intended be among the last to know about it?,” he wondered.

David Pred, Executive Director of Inclusive Development International termed the signing ceremony as a “dress up” intended to paint a rosy picture on the background of a reckless  and dodgy deal.

“Fortunately this climate-destroying project is far from a done deal. Total and CNOOC still need to secure insurance and raise $2.5 billion in debt financing for the EACOP to move forward and they are going to struggle mightily to find enough banks and insurance providers willing to associate themselves with such a reckless project and assume its manifold risks on their books,” he said.

Uganda’s crude is highly viscous, which means it needs to be heated to be kept liquid enough to flow. The heated line is likely to emit 33 million tones of CO2 a year, according to NGO calculations.