Set to open in 2025, the world’s longest heated pipeline will revolutionise East Africa’s oil industry. So why are US and European banks and insurance giants shunning the project?
In Brussels in May, Emmanuel Macron faced an unexpected heckle at an EU summit focused on sanctioning Russia. Would the French president, asked a climate activist, denounce the East African Crude Oil Pipeline (EACOP) and call time on the project in which TotalEnergies, a French company, holds a 62% stake?
The outburst offered a fitting introduction to a seldom-discussed energy project, which Uganda and Tanzania say will revolutionise East African oil production, but which has become a target of environmental campaigners.
So successful has the backlash been against EACOP, a $5bn conduit that will stretch from the Lake Albert region of Uganda to the Tanzanian port of Tanga, that around a dozen major lenders and numerous insurers have shunned it – despite surging global demand for alternatives to Russian oil.
Set to open in 2025, the world’s longest heated pipeline will shift 230,000 barrels of oil per day and generate more than 34m tonnes of CO2 each year. In February, TotalEnergies and China National Offshore Oil Corporation (CNOOC) agreed to plough $10bn into it.
The government of Yoweri Museveni hopes the project will turn Uganda into an oil producer for the first time. The East African country has an estimated 1.4bn barrels of oil to play with.
“By investing in oil and gas deposits in friendly nations such as Uganda, Europe could decrease its reliance on hostile nations,” Museveni, in power since 1986, wrote in a recent opinion piece in the UK’s Daily Telegraph, outlining his pitch to potential customers in the West.
Laying the groundwork
In Uganda’s Rift Valley, excavators are smoothing the terrain for a vast oil processing facility. One by one, dirt roads snaking down the valley are being tarmacked.
A TotalEnergies processing facility in Uganda will clean the oil of impurities and separate it from gas, before pumping it to a refinery. Villages and grazing lands are becoming industrial areas, with Kampala developing 16 targeted employment areas including hospitality, security and IT. Some jobs will be reserved for Ugandans.
Proponents point out that the project will limit its environmental burden by seeking to keep greenhouse gas emissions below 20kg of CO2 per barrel, extracting liquefied petroleum gas to replace dirty cooking fuels in local villages and markets, and even producing solar energy.
Proscovia Nabbanja, the chief executive of the Uganda National Oil Company, insists that every dollar invested will return 10.
Financing stalls amid environmental outcry
Yet despite these ambitions, financing has stalled in recent months amid an outcry from environmentalists. JPMorgan Chase, Citigroup, Wells Fargo and Morgan Stanley, Deutsche Bank and others have ruled out any financing role. Insurance heavyweights Munich Re, Allianz, Axa and Beazley will not provide any cover.
A pinch of good news came in June, when the Financial Times and the Bureau of Investigative Journalism reported that Marsh McLennan, the New York insurance company, will take a role.
Even that news prompted a backlash at Marsh, where more than 100 staff had signed a letter citing “disastrous consequences” for its reputation and the climate. How, they asked, would clients “trust us to provide climate risk management if they know we also support projects which worsen these very risks?”
TotalEnergies insists EACOP remains on track to complete financing by the end of this year. The French company did not respond to a request for comment from African Business. Potential financial advisers for the project include Standard Bank through its Ugandan subsidiary Stanbic and Industrial Commercial Bank of China, which owns a 40% stake in Standard Bank.
John Bosco Habumugisha, EACOP’s deputy managing director, said authorities will announce financiers in the coming weeks. “What I can say is that we have very many entities that are willing to fund the project,” he said in a speech in mid-May.
Yet insiders have described the process as a headache. “It has been difficult” a source told The East African newspaper. “Every time something is said or written about this project, a financier drops out.”
Pipeline will damage environment, say campaigners
Environmental campaigners insist the pipeline poses serious harm to people, nature and the climate.
They say it will tear through more than 400 villages and 200 rivers, displace 13,000 families and place vital water sources at risk. Its path crosses some of the world’s most important elephant, lion and chimpanzee reserves. In traversing the Lake Victoria basin, relied on by millions for drinking water and food production, the project risks a devastating oil spill.
“Uganda has the capacity to feed over 200m people if they invested in agriculture,” but instead the pipeline will destroy fertile land, Omar Elmawi, coordinator of the Stop EACOP campaign, tells African Business.
The project amounts to “Dutch disease”, he says, referring to way major oil and gas discoveries have impacted negatively on development in economies as diverse as those of the Netherlands and Nigeria. In the case of Uganda and Tanzania, vital industries such as tourism and agriculture would be harmed by the pipeline, he argues.
“Seven out of 10 countries most affected by climate change are located in Africa, despite us only contributing to less than 5% [of emissions]. Fossil fuels are not the way,” he says.
“At least 20 banks have agreed with us so far. We have had eight insurers committing that they will not be underwriting this project. And they are not doing it because they like us, they are doing this because they see sense in the arguments we are making.”
Source: African Business
