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OPINION

Joel Odota

By Joel Odota

Uganda will be building the world’s longest oil pipeline (1443km), the East African Crude Oil Pipeline Project (EACOP), running from the Albertine region oilfields in the country’s west to the Chongoleani Peninsula near Tanga Port in Tanzania for onward transportation to the world market. However, the project has lately attracted domestic criticism and international boycott due to its environmental cost as well as its impacts on the people living around the project area, leading to major international financial institutions refusing to fund it.

Amid this, China promised to stand with Uganda as “they’re a friend of Africa,” and Beijing will step in to provide $3 billion for the controversial project. This article explores what motivates China to move in the opposite direction.

Uganda set to join oil production

Good on Uganda! The small land-locked country might join the oil production league of nations soon and start to see petrodollars flowing in. In fact, the government of Uganda says the oil monies should start flowing by 2023. Uganda’s President, Yoweri Museveni recently reechoed, and urged Ugandans not to fear any Western pressures as oil money would reduce the country’s dependence on external funding.

“Moreover, our first oil will start flowing by 2025. That will be an additional source of State revenues and also financial flow into the economy.” These remarks were made by the Ugandan President and directed to World Bank after it cut all loans to Uganda following the highly controversial Anti-gay law it passed back in May.

At this point, it might be a little difficult to believe the new deadline set for the oil to start flowing. You may recall that Uganda discovered this commercially viable oil deposits in the Albertine Graben region way back in 2006, with the first production deadline set five years later (by 2011). We are in 2023, and what do you think might have led to the over a decade delay in this? There are lots of issues that we will not cover in this piece. In fact, it would be interesting to see what happens by 2025.

According to experts, Uganda’s Lake Albertine oil estimated at 3.5 billion barrels, could be extracted over 25 years, yielding between $1.5 billion and $2 billion in revenue annually. With this revenue, Uganda could improve its economy and the standards of living of its people. But experts also warn of the “resource curse,” a term used to describe situations when natural resources such as oil extraction instead make things worse for that particular country. President Museveni himself has emphasized "wise use of oil money".

According to the National Household Survey 2019/20 (UNHS), 20.3 percent of the about 47 million Ugandans are poor (based on the national poverty line). The GPD per capita in Uganda is just under $1,000, while urbanisation is under 30 percent. With the extreme poverty rates and dependence on foreign aid and loans, the hopes for the oil industry are high.

Although Western oil companies have recommended that Uganda exports crude petroleum, Museveni repeatedly showed distaste on the exportation of raw materials and insisted that the oil be refined in Uganda. Yet without external investments, the project would hardly make any headway and it was time for Museveni to make a compromise. Finally, two kinds of arrangements were agreed: refining part of the oil in Uganda and exporting others in crude form.

The EACOP

In 2012 Total Energies, China National Oil Offshore Company (CNOOC), and the Government of Uganda entered a partnership to exploit the oil wealth in the Lake Albertine region on a 56.67%, 28.33%, and 15% sharing arrangement respectively. For the exportation of crude, the EACOP was vital. According to the project website, EACOP represents a significant inward investment of some $4 billion across both Uganda and Tanzania.

EACOP will be the world’s longest oil pipeline running from the Lake Albertine region in western Uganda to Tanga in Tanzania. The pipeline will transport crude oil from the Kingfisher and Tilenga fields to Tanga port for onward transportation to the world market.

According to sources, Uganda has failed to raise the funds to build the refinery or foot the bills for the EACOP infrastructure and had to enter a joint venture with Total Energies, CNOOC, and the Tanzanian government. Total holds 62% of the shares, CNOOC, 8%, and Tanzania and Uganda 15% each. Uganda does not have the money it needs for this partnership is short by at least US$3 billion.

Although the project promises significant benefits to not only Uganda, but also its neighbours, EACOP received mixed reactions from around the world. Critics of the project have pointed out displacement of thousands of families and farmers from their land, extinction of wildlife in the Murchison Falls National Park on the shores of Lake Albert through which the pipeline will pass, and the huge, anticipated greenhouse emissions of the project. Protesters of the project estimate at least 2,000km² of biodiverse protected wildlife habitats loss, 4 million tons of CO2 emissions, and the eviction of over 100,000 people.

For the Government of Uganda, the oil extraction project is not negotiable and there has been a crackdown on protests, but external creditors, including insurance companies have refused to fund the project. In the U.K, some 500 students recently warned a career boycott for insurance companies supporting the project.

China wants to save Uganda

In September, Ugandan officials said they were in the final stages of negotiations with the Chinese to close the financing gap following the boycott by mostly Western financiers. Indeed, China has been a “lender of last resort” to not only Uganda but the whole of Africa under its flagship Belt and Road Initiative (BRI) rolled out by the Chinese President Xi Jinping in 2013.

After Uganda enrolling in the BRI, China has increased its economic footprint in the east African nation. China has completed numerous projects in Uganda, including the US$568 Isimba hydropower project, the US$200 million Entebbe International Airport Expansion Project, US$350 million Kampala-Entebbe Expressway and the US$1.4 billion 600 MW Karuma hydropower station, among others.

In fact, today, the BRI boasts 150 countries, spanning Africa, Asia, Europe, Latin America, and Oceania. According to the Boston University Global Development Policy Centre, through the BRI, China has lent poor nations at least US$331 billion from 2013 to 2021. Some US$114 billion of that was poured into the African continent.

However, initially crafted to inject US$8 trillion over 20 years, the BRI has only spent a small fraction of that money (about US$1 trillion) in ten years. The BRI might be losing steam after Beijing cut funding by over half in recent years.

According to a recent Green Finance and Development Centre report, BRI funding for Sub-Saharan Africa plunged 54 percent last year, from US$16.5 billion to a record low of US$7.5 billion. Similarly, according to recent Boston University research, China’s two major BRI institutional lenders, the Export-Import (Exim) Bank and the China Development Bank, reduced their lending drastically. For instance, in 2016, the two banks loaned about $87 billion; in 2021, this figure plunged severalfold to just US$3.7.

After eight years of frustration due to China’s refusal to fund the US$2.3 billion Standard Guage Railway (SGR), linking Kampala to its border with Kenya, Uganda decided to “walk away” from the BRI deal and instead turned to Turkey to finance the project. Moreover, Uganda was reportedly on the brink of losing its only international airport, Entebbe to China over defaulting loans.

So why is China particularly interested in Uganda's EACOP?

China will invest in Uganda’s oil sector for one main reason: energy security—China does not want to run out of Petrol. I will now explain what that means.

In 2010, China overtook the United States to become the world's manufacturing powerhouse, and in 2019, China accounted for at least 28.7 percent of global manufacturing output. The large Chinese manufacturing sector and exports is responsible for China's economic boom. Today, China is the world’s second largest economy, only after the U.S., with experts predicting it might overtake the U.S. eventually.

In 2015, China launched the “Made in China 2025”, an industrial policy that aims to lead the world in top ten hi-tech manufacturing, that are presently dominated by the U.S., including medical devices, railway equipment, aerospace equipment, and new information technology. This large industrial sector calls for energy and, more broadly, resource security.

Although the annual growth rate of China’s energy consumption declined from 10% between 2002 and 2013 to 2% between 2013 and 2019, China is the world’s largest consumer of coal. According to experts, China’s coal consumption increased from 571 million tons of standard coal in 1978 to 4.64 billion tons of the same in 2018.

In oil and gas, in 2018, China’s overall external dependence on energy was approximately 21%, of which dependence on foreign countries for crude oil climbed to 71%. In 2010, China was the world's largest consumer of steel, copper, coal, and cement and the world's second-largest oil consumer (only after the U.S.).

Africa is rich in natural resources, including minerals, oil, and gas and is now the second largest exporter of crude oil to China, only after the Middle East and Beijing's growing demand for these resources to sustain its economic growth has led to substantial investments in African resource-rich countries. The BRI allows China to secure access to these resources through long-term agreements and partnerships.

Beijing’s overseas infrastructure investments in the BRI framework are often interlinked with its overseas energy and raw materials projects abroad and the broader Chinese domestic energy policies. A recent study on the exports of key West African states to China indicates that raw materials dominated the export commodities.

In fact, in the early 2010s, 31% of China’s oil came from Africa and research shows that West African nations do not only experience a serious trade imbalance with China, with the region importing more from China ($37 billion in 2019 and exporting only $9.63 billion in the same year), but raw materials and primary commodities dominate these countries’ exports while their imports are primarily manufactured goods.

Let us now look at some African countries where China’s resource security signs have been even clearer. To gain further leverage in the African minerals sector, Beijing has spotted resource-rich countries of interest and entered two main arrangements: Resource-for-infrastructure (R4I); and Resource-finance infrastructure (RFI).

The former means China builds infrastructure, such as roads, dams, bridges, etc., in exchange for natural resources (sometimes concessions, access rights, or real resources) while the latter implies that China puts up infrastructure in a resource-rich country and is paid back using the revenue generated from the project.

The first cases of RFI or R4I were first seen in oil-rich Angola, that later became known as “The Angola Model”. One of the first cases in Angola was the US $2 billion loan in 2004 from the China Exim Bank to finance reconstruction following the civil war in Angola. In return, Angola would supply China with 10,000 barrels of oil daily for 17 years.

That is not the only “mineral-for-infrastructure” arrangement. In fact, many experts believe that the Sicomines agreement between China and the Democratic Republic of Congo (DRC) where the profits of the mining operation will underwrite the reimbursement of the credit line is one of the most visible forms of China gaining control of Africa’s mineral resources.

That is not all. In 2017, the Chinese government entered a US$ 20 billion infrastructure deal with Guinea in which China would be paid back through mining taxes on bauxite extraction and export taxes on three Chinese-backed firms in 20 years. Similarly, Ghana signed a US$2 billion deal with Chinese State-Owned Sinohydro Corporation Limited (Sinohydro) for rural electrification and hospital and road construction, to be repaid through the sale of refined bauxite (alumina) over a period of 12 years.

It should not surprise you that China has held grip on African resources, especially those of crucial importance back home. China today controls nearly 70% of all mining activities in the DRC and about 80% of the global cobalt supply chain courtesy of Africa, particularly the DRC. China’s investment in Sudan’s oil sector is also overwhelming. The Greater Nile Petroleum Company (GNPC) is largely owned by the China National Petroleum Corporation (CNPC) of China, with 40% of the shares.

In conclusion, it makes sense that China refused to fund Uganda’s section of the SGR and instead wants to invest in the country’s oil sector even when it faces both domestic and international criticism. Of course, it can also be argued that China wants to be perceived as a “good friend of Africa” as President Xi has repeatedly mentioned when describing Beijing’s engagements with the continent. However, in the face of Beijing’s cut in loans to African nations, I argue that China’s money will always flow where it hopes to gain strategic influence, and natural resources security is now top of Beijing’s agenda as it strives to outpace the U.S., not only as an economic superpower, but also as a global leader.

The writer holds a master's degree in politics and international relations from Peking University and is presently undertaking a second master's program in international relations at the Australian National University.