Oil pipeline gets sh9 trillion funding

FIRST OIL

Uganda and its joint venture partners under East African Crude Oil Pipeline (EACOP) can finally afford a smile, Martin Kitubi unfolds the development.

The country has secured the first portion of the external debt for the construction of the crude oil pipeline. 

The project loan, which is in the range of $1b (about sh3.6 trillion), is part of the $2.35b fund needed under the debt component to support the construction of EACOP. 

The funds have been provided for by five global and regional financial institutions. 

These include the African Export Import Bank (Afreximbank), the Islamic Corporation for the Development of the Private Sector from Saudi Arabia and Standard Bank of South Africa. 

The funders also include two local banks; Kenya Commercial Bank Uganda Limited as well as Stanbic Bank Uganda Limited.

Details on funding 

Sources who participated in the negotiations of the financial agreements revealed that the needed funds will be secured in three portions. 

The first two will be in a range of $1b each, while the last will be in the range of $0.5m. 
A source indicated that the rate of absorption of funding is based on the schedule. “I can reliably say that we are already having a drawdown on the debt component for EACOP,” the source said.

Govt on plans, first oil

Irene Bateebe, the permanent secretary of the energy ministry, said securing the first portion of the funds is a testimony that the country will achieve first oil. Bateebe noted: “The project work will continue seamlessly aligning with the ongoing upstream development with the aim of achieving production during 2026.” 

It should be noted that recently, the joint venture partners reviewed the project financing modalities from a 60/40 debt-equity ratio, to 47/53 debt-equity ratio. 

This implies that instead of borrowing more money to fund the construction of EACOP, the shareholders will dig more into their pockets to fund it. 

There are four shareholders in the EACOP project: the Uganda National Oil Company (UNOC) and the Tanzania Petroleum Development Corporation, each with 15% shares representing Uganda and Tanzania, respectively. 

The other shareholders are TotalEnergies with a 62% stake and CNOOC with 8% shares. 

This month, the Government has earmarked a total of sh166.5b in the sh4.2 trillion supplementary budget to ensure that UNOC meets their cash calls following the changes in the project financing. 

The supplementary budget was approved by Parliament recently. As of September 2024, $2.503b had been invested by shareholders and key agreements were being concluded by EACOP and the Government to unlock debt financing from a set of lenders.

Jobs, opportunities 

Currently, more than 8,000 Ugandan and Tanzanian citizens are employed on the project, with an $500m (about sh1.8 trillion) already spent locally. 

Under the local content provisions, the Government reserved goods and services in 16 sectors for local companies to participate. 

According to the Petroleum Authority of Uganda, the ring-fenced areas for Ugandans include transport, security, foods and beverage, hotel management and catering.

In addition, human resource management, office supplies, fuel supplies, land surveying, clearing and forwarding, locally available construction materials and civil works, were reserved for Ugandans. 

Ugandans will also participate in the supplying of locally available drilling and production materials, conducting of environment studies and impact studies, communications in addition to information services and waste management. 

However, to participate, entities are required to have registered onto the National Suppliers Database, as a system deployed and managed by the Petroleum Authority of Uganda (PAU).

Stakeholders on devt 

Nick Mugira, the managing director of Inspecta Africa, one of the local contractors handling inspection of oil and gas equipment, called the development “big news.” 
Mugira said the news on securing the funds for the project, means stability for all investments in the sector. 

He added that it means that Uganda’s oil and gas sector has a huge future. 

Adding that, “This means more contracts to Ugandans, more jobs and the contribution the economy will be immense.” 

Siragi Magara, an economist, noted that the news is good for oil companies and Uganda, whose resources will be traded. Magara explained that the project works will intensify and that it gives confidence that first oil will come.

Project status  

This month, China Petroleum Pipeline Engineering Ltd (CPP), the pipeline construction contractor, commenced the burying of the EACOP pipes under the ground, in Tanzania. 
The latest report on the project indicates that at least 207km of EACOP pipes have been stringed while 182km have been welded. 

The pipes that have been stringed and welded are expected to be laid under the ground soon. 

Currently, Panyu Chu Kong Steel Pipe Co. Ltd, the line pipe supplier for the EACOP, has supplied about 1,100km of the 1,443km pipes needed for the EACOP. 

This implies that only a fraction of about 343km of the EACOP pipes, are left to be delivered to Tanzania. Several kilometres of these are undergoing coating at the thermal insulation facility at Nzega in Tanzania. 

Data shows that the overall ground installations under EACOP in both Uganda and Tanzania stand at 48.5%, while the construction of the storage terminals at Tanga stands at 76%. 

The storage terminals in Tanga will receive and store Uganda’s crude oil from Hoima, ready for export to the international market. Relatedly, the civil works for the jetty in Tanga, a landing stage where ships will dock to receive Uganda’s crude, stand at 70.4%. 

Early this month, while speaking at the East African Petroleum Conference and Exhibition 2025 in Tanzania, Guillaume Dulout, the EACOP company managing director, noted that overall works under the project, stood at 55%.

Compensation 

The latest data on the EACOP project indicates that 99.4% out of the 13.686 project-affected persons in both Uganda and Tanzania, have signed compensation agreements. 
By signing compensation agreements, it implies that this population has agreed with the valuation. 

It should be noted that 3,759 of the EACOP project-affected persons are found in Uganda while 9,927 are in Tanzania. Of those that have signed compensation agreements, a total of 13,607 representing 99.4%, have been fully compensated.

Economic impact 

According to government projections, the upstream projects will generate annual average revenues of between $1b to $2.5b for the country, depending on the international oil price achieved. 

This seems to rhyme with the projections by the International Monetary Fund (IMF) which in their September report on Uganda, show that the country’s economy will grow by double-digits when oil starts flowing next year. 

According to the financial agency’s September 2024 report on Uganda, the country’s medium-term economic outlook will receive a significant boost following the initiation of oil production. 

With oil production expected to commence in the fourth quarter of 2025, the IMF report forecast indicates that Uganda’s gross domestic product will receive a significant boost, achieving rapid growth during the financial year 2025/2026. 

In the financial year 2025/2026, the IMF projects that Uganda will export about 70 million barrels of crude oil. 

This in return, the report says, will take the country’s GDP growth from the current 6% to 11% in the financial year 2025/2026. 

Although the GDP growth will likely drop to 9% in the financial year 2026/2027, the IMF indicates that it will still be significant and 3% higher than the current trends. 

The IMF projects that Uganda’s domestic revenues will gradually increase when we start oil production from $15b (about sh55 trillion) in 2025/2026 to $19b (about sh70.6 trillion) in 2028/29.

Under the current financial year, 2024/2025, Uganda targets to collect about sh32 trillion in domestic revenues. 

This implies that oil production will earn Uganda sh23 trillion more in domestic revenues than the current targets, come 2025/2026.