More than a year since Chinese financiers and the developers of the East African Crude Oil Pipeline (Eacop) entered negotiations to bankroll the project’s debt, a massive hole remains in the financing structure as the loans amounting to about $3 billion are not imminent, forcing shareholders into emergency measures to raise additional equity funding.
When fresh cash calls for the project came in last month, the Eacop shareholders dug deep to raise money and avert the project’s stalling – a situation that would impact the set timelines for production and export of crude from Uganda’s oilfields in the Lake Albert region.
TotalEnergies executives said last month that the project’s physical works were at 33 percent, as at the end of April. Thermally insulating the line pipes, stringing and laying of line pipes, and building pump stations, are all to be done before the first oil target late next year.
With the $2 billion equity funds raised by Eacop shareholders depleted, the project developers are faced with a cash crisis to plug the funding gap, which threatens to see ongoing physical works on the project stall by July 1, officials said.
Uganda National Oil Company (Unoc) – the state-owned firm that oversees Uganda’s commercial interests in the oil and gas projects – will this month inject a further $35.38 million in answer to the latest cash calls arising from delayed debt financing, CEO Proscovia Nabbanja said.
“This money is to cover the gap between equity and debt financing,” she said, adding that all shareholders had already completed their equity contributions but now have to plug the funding crisis the project will be plunged in, due to the slow process of financial close on debt financing.
“We’ve depleted the equity funds already paid, and where the project is right now, we can’t stop [works]. So each shareholder has to come up with money to cover the gap as we wait for financial close on debt,” Ms Nabbanja explained.
The Eacop shareholders are TotalEnergies, which holds a 62 percent stake, Unoc (15 percent) held on behalf of Uganda government and Tanzania Petroleum Development Corporation with a 15 percent stake on behalf of the Tanzania government, while CNOOC has an eight percent shareholding.
The biggest project spending for Eacop is on the engineering, procurement, construction and management contractor, supply of pipeline equipment including line pipes and pumping stations, as well as compensation of project-affected persons along the route from western Uganda to Tanga.
For instance, the total amount spent on financial compensation is approximately $39 million while the amount spent to compensate project-affected persons in kind amounts to approximately $62 million – including $25 million for the construction of new houses – according to records of TotalEnergies.
The 1443km pipeline from Hoima in Uganda to Tanga Port in Tanzania is a $5 billion project, expected to reach financial close this year, with the nearly $3 billion debt component of Eacop financing coming from Chinese financiers Exim Bank and Sinosure.
The project is financed on a 60:40 percent debt-equity ratio.
The Uganda oil project has been the target of international environmental activists and anti-fossil fuel groups, prompting major European and American banks to shun industry giant TotalEnergies’ approach to lenders to bankroll Eacop, forcing the project sponsors to turn to Beijing for loans.
But amidst the criticism, executives of TotalEnergies are keen to get the financing tied up, to get the oil out of the ground and start earning from their investment in view of the current crude prices and rising global demand for oil, but also wary of the natural decline of oil fields by 4 percent per year.
While addressing shareholders last month, TotalEnergies Chairman and Chief Executive Patrick Pouyanné said the International Energy Agency forecasts that demand of nearly 106 million barrels per day is on the horizon of 2028, compared to 102 million barrels per day in 2023.
“This growth can be explained, quite simply, by the growth of the world population, particularly in countries that we call the “global South”, which legitimately aspire to a better level of life and therefore need more energy,” he said.
TotalEnergies explains that oil fields decline naturally by four percent per year, and so, the question is not so much knowing when the oil demand will start to fall, but when it falls by more than four percent per year.
“However…at this stage, the demand for oil continues to grow, like the world population,” he said, adding that even as energy efficiency efforts are realised, there has been a decoupling between growth in oil demand and economic growth, but demand growth is still present.
As at the end of April this year, the Eacop project progress in Uganda and Tanzania stood at 33 percent, according to the latest responses of TotalEnergies’ executives to their shareholders during the French super major’s Annual General Meeting on May 24.
The actual works underway include the oil terminal and loading jetty at Tanga, in Tanzania, above-ground installations which include pumping stations and main camps and production yards in Uganda and Tanzania, while installation of the pipeline starts this June, with four batches of 100km of line pipes already delivered in Dar es Salaam.
The coating plant that will thermally insulate the pipeline, is complete and was commissioned in March this year at Sojo village, Nzenga District, Tabora region in Tanzania, and will insulate the line pipes and the 86,000-line pipe joints before installation along the route in Uganda and Tanzania.
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