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Chinese lenders are open and willing to discuss financing for the East African Crude Oil Pipeline Project (EACOP), the Chinese Ambassador to Uganda, H.E. Zhang Lizhong, has told Uganda’s President Yoweri Kaguta Museveni.
The Chinese envoy to Uganda, together with Ambassador Xue Bing, the Special Envoy for the Horn of Africa Affairs of the Chinese Foreign Ministry were meeting Mr. Museveni on April 4th, 2024, at his Kisozi Farm to convey a special message from the President of the People’s Republic of China, His Excellency Xi Jinping.
According to a statement released by Uganda’s Statehouse, H.E Xi Jinping in a letter hand-delivered by Mr. Xue Bing and read by Mr. Zhang Lizhong “expressed unwavering support for the East African Crude Oil Pipeline Project (EACOP)”.
“The message reaffirmed China’s commitment to collaborating with Uganda to ensure the success of the project,” added the Statehouse statement.
“Your Excellency, I received your letter, and I am very happy to let you know that I am in full support of EACOP. I believe that it will enhance socio-economic development for the region. I am confident that with the strong cooperation between our nations, this project will be a success,” Xi Jinping is quoted by the statement as saying in his letter.
Over and above informing the Ugandan President that “Chinese financial institutions are open to discussions on the project” Mr. Zhang Lizhong extended an invitation to Hon. Ruth Nankabirwa, the Minister of Energy and Mineral Development, “to visit China for further discussions”.
President Museveni, according to the Statehouse statement, accordingly acknowledged his Chinese counterpart’s support of the EACOP project and underscored its significance as well as “assured the Chinese delegation that all major concerns regarding the project are being addressed constructively”.
The East African Crude Oil Pipeline (EACOP) is a 1,443km crude oil export infrastructure that will transport Uganda’s crude oil from the oil fields in Kabaale – Hoima in Uganda to the Chongoleani peninsula near Tanga in Tanzania for export to the international market. This major export system includes 1,443 km (296 km in Uganda and 1147km in Tanzania) of insulated and buried 24” inch pipelines, 6 pumping stations, two pressure reduction stations and a marine export terminal in Tanzania.
Developers of the pipeline, EACOP Ltd have described the project as the most environmentally friendly project.
EACOP Ltd is a special purpose company that owns and will operate the pipeline. Its shareholders are TotalEnergies (62%), Uganda National Oil Company (UNOC – 15%), Tanzania Petroleum Development Corporation (TPDC – 15%) and CNOOC (8%) are shareholders.
The estimated cost of construction is some USD5 billion and will be financed by a mix of equity financing provided by the shareholders as well as borrowing. Once in operation, the pipeline will receive a tariff for each barrel of oil transported to repay the loans and make a return on the investment for the shareholders.
The project has come under fire from environmentalists and other de-campaigners, who among other objectives have put many a lender on pressure not to finance the project.
Multi-dimensional China-Uganda cooperation
As well as EACOP, Ambassador Xue Bing briefed Mr. Museveni on deepening bilateral relations between the two nations of Uganda and China, the forthcoming Forum on China-Africa Cooperation (FOCAC), and the planned conference for peace in the Horn of Africa.
In response, the president thanked Chinese investors for their cooperation in various completed projects, such as the Isimba and Karuma Power dam projects, which generate over 800 megawatts. He also welcomed more ideas for cooperation between Uganda and China especially around railway infrastructure.
“We want to build a railway system that will connect Uganda to the coast. We are going to use the Engineering Brigade of the Army for construction. However, we need your technical and material support for this,” he informed the delegation, adding: “For the roads and electricity, we have, now my focus is on the railway system, which I believe will bring us immense development. That is where we want your support.”
Museveni also urged the “Chinese government to encourage their companies to invest in value addition at source, saying this would bring about mutual benefit as well as fostering employment and bolstering economic growth.
“We need you to come and add value to our products at the source so as to eliminate Africa’s dependency on exporting raw materials. We have a wide spectrum of raw materials, and what we need now is value addition,” said the president.
Mr. Xue Bing conveyed Chinese President Xi Jinping’s admiration for Uganda’s achievements and contributions to regional unity and cooperation, citing the successful hosting of international summits as examples.
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“We congratulate you, Your Excellency, for assuming the chairmanship of the two big summits, the Non-Aligned Movement (NAM) and the G-77+ China Summit. We believe this will strengthen our cooperation and unity among all member states because we strongly believe in your wise leadership,” he said.
The Special Envoy also reaffirmed China’s commitment to supporting Uganda’s stability and development endeavours, highlighting the enduring friendship between the two nations.
“Your Excellency, our countries have had a great relationship for a very long time now, and we assure you of continuous bilateral relations through the Forum on China- Africa Cooperation (FOCAC) and the two big summits that you now chair,” he said.
Is EACOP’s financial closure nigh?
Mr. Xi Jinping’s unwavering support couldn’t have come at a better time, especially given the Chinese government’s financial might and ownership of key commercial and development finance institutions.
The Chinese government solely owns the China Development Bank and the Export-Import (EXIM) Bank of China. It is also the biggest single shareholder in the big 4 lenders in China⏤ Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Agricultural Bank of China (ABC) and Bank of China (BOC).
ICBC is the single largest shareholder (19.4%) of the Standard Bank Group, Africa’s largest banking group and one of the funders being considered by the project.
Financial might aside, the Chinese do not have a strong history of yielding to western-standard activism, choosing to pursue their own overseas development financing agenda and on their own terms instead.
In May last year, Energy Minister Ruth Nankabirwa confirmed that the China Export-Import Bank, and other Chinese banks had offered to finance the USD3 billion required for the East African Crude Oil Pipeline.
The Permanent Secretary at the Energy Ministry, Irene Batebe, also indicated that financing would be syndicated stretching EACOP to other African and Islamic banks.
The cost for EACOP stands at USD 5 billion with a 60/40 percent debt/equity ratio. This implies close to USD 3 billion will be secured as debt and USD 2 billion in equity financing by shareholders.
EACOP has only declared funding from Saudi Arabia’s Islamic Development Bank, and Afrexim Bank totalling to USD300 million.
The oil pipeline financing arrangements have been beset by increasing pressure and civil suits from climate activists to halt the pipeline construction over what they term to be an accelerator of high carbon emissions, and the move to cleaner energy sources. The debate also stems from the energy transition that has forced some banks to review their lending for oil and gas projects in light of a global net zero agenda.
Even amidst the delayed financial closure of the project, there has been significant progress on the pipeline.
On March 26th 2024, the project launched a Thermal Insulation Plant (TIS Plant) at Sojo, Nzege in the Tabora Region of Tanzania. The TIS Plant will apply thermal insulation to all 86,000-line pipe joints before their dispatch and installation along the route from Uganda to Tanzania. Concurrent with the inauguration of the TIS plant, was the official signing of land lease and ports agreements between the East African Crude Oil Pipeline (EACOP) and Tanzania Petroleum Development Corporation (TPDC). These included the Lease Agreement for land for the construction of the Main Storage Terminal, the Marine Facility Agreement, and the Marine Use Agreement. The land leases and the production of thermally insulated pipe are two key precursors for construction activities starting along the right of way.
According to Martin Tiffen, the EACOP Managing Director, by April next year, all the 1,443 km pipelines will have arrived and all insulation works will progress as scheduled.
The EACOP Company has also received its construction licenses from both the Governments of Uganda and Tanzania.