June 2024, Vol. 251, No. 6
Features
Uganda Optimistic About Timely Finish of Revised $5 Billion, 897-Mile EACOP Pipeline
By Shem Oirere, P&GJ Correspondent, Africa
(P&GJ) — Uganda has attributed the spike in the cost of construction for the 897-mile (1,443-km) East African Crude Oil Pipeline (EACOP) to the government’s resolve to make the new project more climate responsive.
“In the original design of the pipeline project, we provided for heating of the people and over-the-ground infrastructure with power generated from burning crude oil,” said Peter Mulisa, CEO of Uganda National Oil Company (UNOC).
However, he said a re-evaluation of the likely impact of the emissions expected from the crude oil burning led project shareholders to realize the option “was not as climate responsive as we had wanted.”
“We decided to change the design of the pipeline by putting in place five solar farms that will generate at least 80% of the power needed to heat the pipeline to move the crude oil,” Mulisa said, during a press briefing led by Energy and Mineral Development Minister Ruth Nankabirwa.
The introduction of the five solar farms added $120 million to the project’s capital expenditure. The remaining 20% of the needed energy will come from the Tanzanian and Uganda electricity grids, which are what he called “nearly 100% green.”
Uganda’s Ministry of Energy and Mineral Development estimates the cost of EACOP, which is being constructed by China Petroleum Pipeline Engineering Company Ltd, to have risen to $5 billion from the original $3.5 billion.
“The other costs come from the fees on credit, effects of Covid-19, but we are still doing a lot of cost management and optimization, as well continuously looking at the engineering options to see if we can finish the project below the budget threshold,” Mulisa added.
According to Mulisa, when EACOP shareholders made the final investment decision (FID), “We did not include the historical costs, which had been incurred prior to the FID.”
He added the company is still auditing and analyzing these costs, which tally more than $500 million.
Peninah Aheebwa, Petroleum Authority of Uganda (PAU) director of Economic and National Content Monitoring, said EACOP project shareholders have reason to worry about the rising project costs, but as for Uganda, all is well.
“One of the things we did as a country in our negotiations was to negotiate and fix the crude oil transportation tariff, because we did not want to take on that cost and inflation risk,” she said.
Uganda agreed to a $22.77 per barrel tariff on crude oil transported via EACOP, which Aheebwa said is “a good thing, but we are also, through our shareholders, ensuring high efficiency so that all of us get a good value for our money.”
Although the cost of the cross-border EACOP project — which is set to run from Hoima in Uganda to a seaport terminal in Tanga, in neighboring Tanzania — has escalated, this is not the case for the crude oil transportation tariff, which remains fixed a figure.
The minister said China’s export credit agency SINOSURE is expected to provide a guarantee to bridge the EACOP financing gap of about $1.2 billion.
“As for us shareholders, we have paid our equity, and it is money we are using, although this equity could be depleted by June.”
Debt mobilization for the EACOP project “has gone on very well and investors have continued to put in their equity because we are confident debt mobilization is going to bear fruit,” according to Mulisa.
“Where we are right now, we should be able to have the first drawdown on debt by April 2024, much earlier than the target we gave the minister (for Energy and Mineral Resources) of June 2024,” he added.
He said that all necessary documentation should be ready and signed before April 2024, when the first drawdown is expected.
Mulisa dismissed claims that leading international insurance companies had abandoned the EACOP project because of unaddressed concerns about the project’s impact on the environment and human rights violations.
“We would not have closed debt if we did not have insurance companies of global stature supporting the project,” he said. “We should ignore the rumour of companies running away, as this is part of the fight against the project through disinformation and misinformation.
During the January media briefing, Minister Nankabirwa told of how she had previously run into a European Union member of Parliament, who apologized for the EU’s decision to advance an “illogical motion” to stop Uganda from developing the pipeline project.
EU Parliament, in September 2022, accused Uganda and Tanzania of human rights violations linked to investments in fossil-fuel projects, including the wrongful imprisonment of human rights defenders, the suspension of NGOs and the eviction of people from their land without fair compensation.
The EU MPs claimed more than 100,000 people were “at imminent risk” of displacement because of the EACOP project and without proper guarantees of adequate compensation.
“Some of the banks that had pulled out of the project are coming in against because countries like Uganda have spoken with seriousness in continuing to develop fossil fuel carefully and in compliance with environmental regulations,” the minister said.
But Nankabirwa accused critics of the EACOP project, which is owned by EACOP Ltd., of filing several court cases to stop construction, while other landowners were untraceable, hence derailing the compensation process.
“The constitution of Uganda mandates government to compulsorily acquire land, and we will acquire the land,” she said.
EACOP is one of the four major oil and gas projects that Uganda is transitioning from strategic planning to practical implementation. The others are the upstream Tilenga and Kingfisher projects, valued at between $6 billion and $8 billion, respectively, and the midstream Uganda oil refinery project, valued at $4 billion.
These projects, combined with the government’s investment in supportive infrastructure, represent an investment of about $20 billion in Uganda’s economy.
The Tilenga and Kingfisher projects are expected to produce 190,000 bpd and 40,000 bpd, respectively, at peak production, according to the minister.
New Milestone Reached for Pipeline Project
In another milestone for the project to build the world’s longest heated crude oil pipeline, the EACOP Coating Plant was officially commissioned at Sojo, Nzega, in the Tabora Region of Tanzania.
Coating is an essential part of the EACOP project, as the carbon-steel pipe will be sheathed in carefully designed thermal insulation, carrying a web of electrical filaments and fiber-optic cables.
The heat will allow the Ugandan crude oil to flow efficiently, while the fiber will connect leak sensors to a real-time satellite tracking surveillance network that will minimize the risk of any environmental damage.
After being coated at the new plant, the pipe sections — each 59 feet (18 meters) in length — will be transported to the different camps and pipe yards along the pipeline corridor, ready for final assembly in the EACOP trench line before being buried.
All pipes used in the project will be installed with aluminium raceways, an insulation layer, polyurethane foam (PUF), an anti-diffusion barrier and high-density polyethylene (HDPE) before distribution to the different manufacturing sites along the 897-mile (1,443-km) line.
In conjunction with the plant, the EACOP Company and the Tanzania Petroleum Development Corporation (TPDC) signed three land use and port agreements. These included the lease agreement, for the land for construction of the Main Storage Terminal, the marine facility agreement and the marine use agreement.
During the construction phase, 500 people were employed, while 270 workers will be involved in site activities, including running the thermal insulation production lines, pipe handling, logistics, maintenance and inspection.
So far, the coating yard has received three batches of pipelines, totaling 186 miles (300 km).
The EACOP Company is owned by TotalEnergies BV (62%), CNOOC Uganda Limited (8%), TPDC (15%) and the Uganda National Oil Company (UNOC) (15%).
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