The East African Crude Oil Pipeline controversy

“Insufferable, shallow, egocentric, and wrong” is what Ugandan president Museveni called an EU condemnation of the country’s newest and biggest oil pipeline project, EACOP (The East African Crude Oil Pipeline). The pipeline, which will be developed in congruence with other oil projects in the country, has been an increasing source of controversy over the past months. While supposedly delivering economic benefits, the oil projects also stand in stark contrast with commitments to decrease carbon output. To complicate the matter even further, they also are a source of environmental and human rights concern.

The oil politics involved with EACOP and Ugandan oil do not only reflect the consideration between economic development and green agendas. To a large extent, protest groups have also made it significantly harder for the country to access the capital needed to develop the projects. Their approach, targeting the financial sector, potentially could make it harder to develop other fossil fuel projects in the future. As such EACOP has become a complex question of oil politics involving states, companies, financial institutions and civil society.

Uganda oil development

EACOP will connect the Kingfisher and Tilenga oil fields near Lake Albert (Western Uganda) to the port of Tanga in Tanzania. The reserves in these fields account for 6.5 billion barrels. Once finished, the project will be the longest heated crude oil pipeline in the world, spanning more than 1,400 kilometers, and able to carry 246,000 barrels per day. Due to the waxy properties of the Lake Albert oil, the pipeline needs to be heated to ensure a smooth flow. 

Although EACOP Ltd claimed that pipeline construction will cost $4 billion, other sources state it will cost $5 billion. The combined cost of developing EACOP, Kingfisher Field, and Tilenga Field will amount to $10 billion. The shareholders will finance $4 billion and aim to finance the other $6 billion through a 60-40 debt to equity split, with the remaining 60% being funded through loans of financial backers. 

TotalEnergies owns a majority stake of 62% in the projects, whereas both countries’ state-owned oil companies, UNOC (Uganda National Oil Company) and TPDC (Tanzania Petroleum Development Cooperation), hold a 15% stake each and CNOOC (China National Offshore Oil Corporation) an 8% stake. CNOOC will operate the Kingfisher field, which will produce 40,000 barrels per day, and Total will operate the Tilenga field, which will produce 190,000 barrels per day. In addition to the pipeline project and development of oil fields, a refinery will be built, which has a right of first call to 60,000 barrels per day. 

The potential

The Ugandan government has framed the project as one of economic development.  Uganda is projected to earn $1.5-3.5 billion per year, which is similar to 30-75% of its annual tax revenue, and Tanzania is projected to earn almost $1 billion per year. The projects should create approximately 10,000 jobs in both countries and bring $1.7 billion worth of work during its construction phase. Aside from that, cheap reliable power often plays a key role in lifting people out of poverty, which is what oil potentially may do for Uganda. 

By becoming an oil-exporting country, it would also turn Uganda into a relevant regional player. As Tanzania is not an oil-producing country it offers the potential to form import-export partnerships with Uganda. There also is a hope that the pipeline-project eventually will reach beyond Tanzania and provide oil to the DRC and South Sudan. According to President Museveni, “it could serve the entire region long-term”. 

The controversy

On the other hand, protestors and environmentalists point to the multiple risks that are involved with the projects. The biggest concern is carbon output. The Ugandan government, actually, argues that national oil production may lead to lower emissions, since the country’s current imports need to be trucked in from Kenya, creating high emissions. Similarly, Total claims it is one of the company’s lowest emitting projects. Nevertheless, campaign group STOP EACOP states the project will create 34 megatons  carbon emission per year, when you take into account the downstream as well. That is twice the current size of Uganda’s and Tanzania’s emissions combined. 

Another concern is the displacement of communities and wildlife. On the humanitarian side, supposed human rights abuse, delayed or insufficient compensation, displacement, increased prices and loss of land are all involved with the project. On the environmental side, 2000 square km of protected wildlife habitats will suffer from the construction of the pipeline and roads. Water sources and wetlands are also at increased risk of oil spillage.

To a certain extent the economic development argument is also being debunked. It is argued that the projected returns are incorrect, since they don’t take into account several factors. First of all, it is claimed that only ⅓ of the reserves are commercially viable. Furthermore, demand markets are undergoing a transition from fossil fuels to renewables. As such, Uganda and Tanzania may not find good returns on their investments. Even if the project were to generate decent returns, campaign groups argue that it will not benefit society, but mostly the country’s elite and that it potentially will worsen corruption. 

Condemnation and campaigns

Due to the aforementioned reasons, the EU Parliament passed a resolution that condemned the construction of the pipeline. This in turn led to outrage among the East African countries that pointed to hypocrisy and double standards. According to them, Africa has a right to use and export their natural endowments as Western countries have done for hundreds of years. 

Yet the EU wasn’t the only actor disapproving of the project. Major financial institutions have committed not to finance the project, due to campaigns from opposition groups. These groups aim to chip the 60% of funds that the project requires, which comes from major financial institutions. By tracking the banks that are mostly likely to finance the projects, they were able to pitch the risks, create pressure and ask them to make commitments. This approach has led to commitments from banks such as JPMorgan, Morgan Stanley, Citigroup, Wells Fargo, Barclays and Crédit Suisse. Certainly it does not make finance impossible, but rather harder and more expensive. 

Risks and outlook

So far not a single metre of the pipeline has been built. That is not to say the project is on hold. The Kingfisher oil rig is in place and the Tilenga rig is on the move, marking the starting phase of project development. 

On the one hand, the oil projects have a  huge potential for economic development and if successful, it will improve Uganda’s standing in the region. On the other hand, there are significant downsides, such as displacement, environmental impact, and carbon emissions. The EU statement and commitment from financial institutions certainly places the project into bad light and makes it harder to secure funding. However, it will not be impossible and the gap left might be filled by Chinese and African banks, which in European eyes might be something to consider.