Fate of vexed East African pipeline project may hinge on looming decision by China’s Exim Bank

Ugandan Energy Minister Ruth Ssentamu told Daily Maverick during an interview at the Africa Oil Week Investing in African Energy conference in Cape Town that China’s Exim Bank was expected to make a decision by December on providing finance for the project. 

The saga is emblematic of Uganda’s long slog to become an oil producer in an age when the shifting tides of the global economy are turning against fossil fuels. 

The East African Crude Oil Pipeline will run 1,443km — which would make it the largest heated pipeline in the world — from land-locked Uganda to the Tanga Port in Tanzania. About 80% of the pipeline will snake through Tanzania to transport about 250,000 barrels of oil per day — a drop in the almost 83 million barrels-per-day bucket produced worldwide in 2023. 

Critics contend it will threaten waterways and wildlife, has already displaced tens of thousands of people without compensation, and goes against the grain of the worldwide decarbonisation drive to douse the flames of climate change linked to fossil fuel usage.  

Uganda maintains that as a poor, developing nation it needs to use its natural endowment to cleave a path to industrialisation, and that environmental and social concerns are overblown.

Such concerns have stymied efforts to fund the pipeline. 

“We had planned to fund it with 40% equity and 60% debt. But as we faced challenges the shareholders decided to relook at the equity. And as I speak now equity has surpassed debt,” Ssentamu told Daily Maverick.

The East African Crude Oil Pipeline’s shareholders are the Uganda National Oil Company, TotalEnergies E&P Uganda, China’s CNOOC and the Tanzania Petroleum Development Corporation.

The project is estimated to cost about $5-billion (about R88-billion), so well over $2-billion needs to be financed with debt. 

This is where China’s Export-Import Bank, known as Exim Bank, comes into play. 

“The Exim Bank has promised us that by December they will finalise the FID (Final Investment Decision). We need that final debt tranche because we have exhausted our equity,” Ssentamu said. 

If that did not come through, Ssentamu said there were still other options on the table, including 11 European banks. 

But she pointedly noted that “China has a keen interest in this project”. 

“One of the developers is a Chinese company. The pipes for the pipeline are manufactured in China. The company that is laying the pipes is a Chinese company. And the port where the pipeline ends is going to be constructed by a Chinese company,” she said. 

One advantage to finance from the Exim Bank is that it typically comes at lower than standard market interest rates. 

But is it in the game? It’s not been in a rush to make its decision despite the Chinese commercial interests involved amid concerns about the project’s economic viability. 

It’s also interesting to note that South Africa’s Standard Bank remains a potential source of finance, which may be a reflection of the fact that its biggest shareholder is the Industrial and Commercial Bank of China. 

An oil drilling rig in the Ngiri 3 well pad at the Tilenga project, operated by TotalEnergies EP Uganda, part of the East African Crude Oil Pipeline, Buliisa, Uganda, 25 October 2023. (Photo: Luke Dray / Bloomberg via Getty Images)

Environmental and human rights concerns