Why Government has Increased the Oil and Gas Budget

by Business Times writer
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The government has significantly increased its annual budget allocation for the oil and gas sector in anticipation of the country’s first oil production, which is set to begin by the end of 2025.

During the recent budget reading, Finance Minister Matia Kasaija announced that the funding for the oil and gas sector for the upcoming financial year 2024/2025 will be shs920.9 billion. This marks a substantial rise from the previous financial year’s budget of shs447 billion.

This substantial financial increment is primarily aimed at supporting the development of the East African Crude Oil Pipeline (EACOP).

“Next financial year, I have provided Shs920.86 billion for the oil and gas sector to prioritise the following: development of the East African Crude Oil Pipeline (EACOP) hub in Tanga; continued construction of the EACOP including the necessary infrastructure to facilitate adherence to high quality environmental standards; procurement and dissemination of the 57,000 Liquefied Petroleum Gas (LPG) cylinders to promote clean cooking; and stablishment of the Petroleum Geoscience Laboratory; and equity contribution for the Refinery Project,” said Kasaija.

The EACOP is a major infrastructure project, spanning 1,443 kilometers, intended to transport Uganda’s crude oil from the Albertine region in Uganda to the Tanzanian port of Tanga, enabling the export of oil to the international market.

The enhanced budget is expected to accelerate the completion of this crucial pipeline, which is central to Uganda’s strategy to capitalize on its oil resources.

The increased investment reflects the government’s commitment to ensuring the timely and efficient start of oil production, positioning Uganda as a significant player in the international oil market.

The EACOP project is crucial for Uganda, a landlocked nation.

The substantial budget increase of the oil and gas sector primarily addresses funding needs for the East African Crude Oil Pipeline. This financial boost comes at a crucial time, as the EACOP project has been experiencing some funding shortfalls. The additional resources allocated by the government are aimed at bridging these financial gaps and ensuring the project’s continuity and eventual completion.

The shareholders of the East African Crude Oil Pipeline include TotalEnergies, which holds the majority stake of 62%. The Uganda National Oil Company (UNOC) possesses a 15% stake on behalf of the Ugandan government, while the Tanzania Petroleum Development Corporation also owns a 15% stake representing the Tanzanian government. China National Offshore Oil Corporation (CNOOC) rounds out the shareholders with an 8% shareholding.

EACOP’s largest expenditures are primarily allocated towards several key areas. Significant funds are directed towards the engineering, procurement, construction, and management contractor responsible for the project.

Additionally, substantial resources are spent on procuring pipeline equipment, including line pipes and pumping stations. Another major area of expenditure is the compensation of project affected along its route, which stretches from western Uganda to Tanga in Tanzania.

The Uganda oil project has faced significant opposition from international environmental activists, anti-fossil fuel organizations, and the western blocs such the European Parliament which in 2022 passed a resolution halting the construction of EACOP on grounds that it is dangerous to the environment.

Despite the challenges, Kasaija said Uganda is progressing steadily towards the first oil in the financial year 2025/26.

“During the financial year we are ending, the following have been achieved: the Upstream Petroleum Project has advanced with drilling works in preparation for production; the East African Crude Oil Pipeline (EACOP) Project is on track with 500 km of pipeline delivered in Tanzania. The target is to lay 100 km per month; he thermal insulation plant for heating the EACOP in Tabora Tanzania was commissioned in March 2024,” he said.

Additionally, Kasaija said the planned 60,000 barrels per day Refinery in Kabaale, Kikuube district, is progressing well, and land for the project sites and associated terminal has all been acquired by Government.

“Technical designs for the project are ready. Government is working with Alpha MBM Investments from the United Arab Emirates (UAE) to build the Refinery.”

The refinery will have the capacity to produce 60,000 barrels of oil per day.

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