China Steps In to Finance East African Crude Oil Pipeline Amid Lender Withdrawals

China Steps In to Finance East African Crude Oil Pipeline Amid Lender Withdrawals

China is reportedly taking over financing the East African Crude Oil Pipeline (EACOP) project as major lenders withdraw due to pressure from climate activists to abandon the project. The project, which involves the construction of a 1,443 km crude pipeline from western Uganda to the Indian Ocean coast of Tanzania, has faced delays due to land acquisition issues and the withdrawal of risk-averse banks from financing the project.

Last week, Standard Chartered Bank withdrew a $5 billion offer after activists claimed that the project could generate seven times more carbon emissions per year than the rest of the country.

However, French energy company TotalEnergies, the lead investor in Uganda’s oil projects, has signed a deal with China Petroleum Pipeline Engineering (CPP) to construct and supply line pipe, which shifts the trans-border project to Beijing. CPP, a state-owned China National Petroleum Corporation (CNPC) subsidiary, joins another state entity, China National Offshore Oil Corporation (CNOOC), which owns a 28.33% stake in Uganda oil and 8% of EACOP.

The recent turn of events was expected, according to Dennis Kakembo, an energy law specialist. He explained that these deals always go where the money for the project is sourced, whether it’s construction, insurance, or financing. Before CPP, the pipeline 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 imposed sanctions on Russia after it invaded Ukraine in February 2022.

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. The EACOP shareholders, particularly TotalEnergies, will have to take a bigger chunk of the project’s equity financing to reduce the debt ratio.

Confirmation of the 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), finalized 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.

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 between 2022 and 2025. However, there is no clear schedule when the contractors will get the green light to start construction.

Land acquisition stands at 85% in Uganda and 98% in Tanzania of the compensation agreements signed, while compensations paid are at 76% and 97%, respectively. EACOP officials in Kampala cannot say when this exercise will be concluded, citing a lack of requisite documents by project-affected persons.

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 infrastructure project in East Africa, and its successful implementation is vital to unlocking massive economic activity on the 1,443 km-long corridor.