Impact of EU’s resolution on EACOP

Documentation from the Petroleum Authority of Uganda (PAU) indicates that in line with the Memorandum of Understanding on the commercialization of the discovered petroleum resources in Uganda, feasibility studies on the development of a Crude Oil Export Pipeline from the Albertine Graben in Uganda to the East African Coast were undertaken to select the least cost route for transporting Uganda’s crude oil to the coast.

The Hoima (Uganda) – Tanga (Tanzania) route was selected as more secure, at a cheaper cost and, therefore, a lower tariff.

The East African Crude Oil Pipeline (EACOP) is a 1,443km, 24-inch diameter heated and buried pipeline that will start from Kabaale, Hoima in Uganda to Chongoleani, Tanga in Tanzania. The pipeline will have a manifold in Kabaale, Hoima, six (06) pumping stations (two (02) of which will be located in Uganda), 27 heating stations and two (02) pressure reduction stations.

The development of this pipeline is being led by the licensed upstream oil companies in Uganda, with participating interests by the Governments of Uganda and Tanzania.

Given the linear nature of the pipeline, the majority of the impacts are economic and in both scenarios of physical displacement or economic impact, the Project will compensate or restore the affected in compliance with the Equator Principles and IFC Performance Standards and the laws of Uganda and Tanzania.

In Uganda, there are 3,648 Project Affected Persons (PAPs). Of these, 203 (5.5 per cent) are physically displaced and the majority of the physically displaced PAPs have elected for replacement housing, construction of which is ongoing.

As of September 12, 2022, 3,648 PAPs in Uganda had signed their compensation agreements). No land will be accessed by the Project until compensation has been paid and notice to vacate has been issued. Eligible PAPs will also be entitled to transitional food support and have access to livelihood restoration programs. The land acquisition process is expected to be completed in mid-2023

However, on September 15, 2022, the European Union Parliament passed an “emergency resolution” by a large majority highlighting the consequences of Uganda’s oil projects— specifically Tilenga and EACOP.

The EU Parliament called for the halting of drilling activities in the protected and sensitive ecosystem (Murchison Falls National Park) and the postponement of work on the EACOP for at least one year to study the feasibility of an alternative route that would preserve the environment and consider other projects based on renewable energy.

The resolution paints a gloomy future for the oil project showing that the extraction of oil in Uganda would (likely) generate up to 34 million tonnes of carbon emissions per year.

The environmental cost of the emission of one tonne of carbon is about 180 euros (Shs676,733), according to calculations published by Germany’s Federal Environment Agency (UBA)

Additionally, the resolution projects that more than 100,000 people are at imminent risk of displacement as a result of the EACOP project without proper guarantees of adequate compensation.

This resolution was stirred up by climate change activists who took to their social media through #StopEACOP demanding that international financial institutions publicly pledge not to provide the 60 per cent debt financing towards the oil pipeline.

A few days after the resolution was passed, the US climate envoy John Kerry raised similar concerns while cautioning against investing in long-term gas projects in Africa.

Kerry’s comments, captured by Reuters and CNN, noted that some countries were hoping to tap into recent oil and gas discoveries, and are also wrestling with how to power their development with clean energy.

Deputy Speaker of Parliament, Thomas Tayebwa, said the EU resolution was based on “misinformation and deliberate misrepresentation of key facts on environment and human rights protection.”

Deputy Speaker of Parliament Of the Ugandan parliament Thomas Tayebwa

“It represents the highest level of neo-colonialism and imperialism against the sovereignty of Uganda and Tanzania. This motion seeks to curtail the progress of Uganda’s oil and gas developments and extension, the country’s socio-economic growth and development.”   He said the EU motion seems premised on allegations of potential environmental impacts, human rights abuses and climate change targets.

“It is imprudent to say that Uganda’s oil projects will exacerbate climate change, yet it is a fact that the EU bloc with only 10% of the world’s population is responsible for 25% of global emissions, and Africa with 20% of the world’s population is responsible for 3% of emissions.”

According to Mr Peter Muliisa, Chief Legal and Corporate Affairs at Uganda National Oil Company (UNOC), the activists have advanced different arguments at different fora, what comes out is that they are fighting EACOP primarily because it is a fossil fuel project.

“Even though EACOP is not the biggest fossil fuel project, is generally structured to be carbon neutral and is sponsored by Countries with significantly low emissions, it has attracted a lot of attention; surprisingly more than coal plants being re-opened, increased coal production and exploration activities being commenced in Countries that are contributing most to global greenhouse gas emissions. However, notwithstanding these clear double standards by the activists attacking EACOP, climate change affects all of us and as such we must review this project in that light. We must all work to protect our planet Energy transition is therefore a journey we all must take,” he says.

Uganda contributes less than 0.14% per cent of global greenhouse gas emissions.

Muliisa is optimistic that Uganda’s development will be significantly impacted by the construction of this pipeline which is the key to the exploitation of its oil and gas resources upstream.

“It can be argued that as a very negligible emitter with a predominantly green energy mix (over 80% reliant on hydro), Uganda is entitled to development by responsibly exploiting oil and gas resources. Uganda has, however, gone a step ahead and ensured that it sustainably develops its assets and ensure that as much as possible the Country and its projects are carbon neutral,” he says.

He further reveals that Uganda prohibits flaring and as such gas produced with Crude oil (associated gas) will be converted into LPG for use by the population.

“This will have the benefit of significantly reducing the use of charcoal and firewood and thereby reduce forest cover loss. Uganda has an aggressive forest restoration agenda and has managed to slow down its forest cover loss, but it remains a major challenge for the Country,” says Muliisa.

With global financing institutions cutting back on funding oil projects over climatic concerns, the EU resolution may affect Uganda yet it is in dire need of funds for the EACOP.

Cost estimates for EACOP stand between $3.5- $4b with a 40 to 60 per cent with 40 to 60 per cent equity to debt ratio. This implies close to $2.4b (about Shs9 trillion) will be secured as debt, with $1.6b equity financed by shareholders.

The shareholders include; Total Energies at 62 per cent, Uganda National Oil Company (UNOC) at 15 per cent, Tanzania Petroleum Development Corporation (TPDC) at 15 per cent, and China National Offshore Oil Corporation (CNOOC) at 8 per cent.   

Total Energies is one of the shareholders with about 62%

Early this year, Standard Group, one of Africa’s biggest lenders in oil projects, announced it will cut back on financing oil to upstream oil projects by five per cent by 2030.

The lender said it will also stop providing financial products and services to pipelines transporting a significant volume of tight oil and export terminals supplied by a significant volume of tight oil.

Uganda’s biggest lender, the World Bank also resolved in 2017 of how “it would no longer finance upstream oil and gas operations starting by 2019 over climatic concerns.”  

The multilateral lender made it clear, “the financing could only be made in exceptional circumstances, with consideration given to financing upstream gas in the poorest countries where there is a clear benefit in terms of energy access for the poor.”

It is not clear, if Uganda by definition as being one of the poorest countries in the world by the World Bank, will by some means benefit from its initiative.

Petroleum Authority’s legal and corporate affairs director in an interview with the Daily Monitor reveals that the term impact of the EU resolution has indeed created uncertainty on the project.

However, he’s confident about the financing of the project, which he says is on course.

“When doing a project of $20 billion, you don’t want this funny uncertainty, because you have many players involved. We have international contractors and financiers, insurance companies, and banks. This noise creates additional uncertainty for everyone,” he said.  

He also notes that it has created unnecessary deviation, and yet the country would rather spend the energy on how Ugandans should benefit from the sector.

“The project is moving on very well,” Sekatawa said, raising hopes that financing has never been a problem for the debt needed to finance EACOP.

“That debt is the one being sold, and again those maligning the project have realised all their efforts are fading because the financiers are coming on board,” he noted.  

Sekatawa said that the project was oversubscribed with Islamic Development Bank committing $100m to the project, with other financiers still yet to come.

Business Times Uganda

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