KAMPALA, Uganda
The government and international oil firms—French Total E&P, and China’s CNOOC on Sunday signed off four key agreements for commercialisation of the proposed East African Crude Oil Pipeline (EACOP), bringing to end years of protracted negotiations and setting on course Uganda’s oil project for the next phases of development and production by earliest 2025.
The signing of three agreements has renewed hope that commercial oil production could finally kick off in four years’ time.
The agreements signed include two separate Host Government Agreement (HGA) between Total E&P and the governments of Uganda and Tanzania. Energy minister Goretti Kitutu will sign on behalf of Uganda as is her Tanzanian counterpart, and Total E&P vice president for Africa on the other hand.
The HGA, which was first initialled at a signing ceremony in September last year, details vertical issues on the EACOP such as governmental obligations, investor duties, environmental and other relevant standards, liability, and project closure.
Other agreements are the Shareholders Agreement (SHA) between the four shareholders in the EACOP holding company. This will be signed by the Uganda National Oil Company (UNOC) Chief Executive, Ms Proscovia Nabbanja, the Tanzania Petroleum Development Corporation (TPDC) boss, and the Total E&P Vice President for Africa, and the Cnooc president.
UNOC is the statutory body mandated to manage the country’s commercial interests in the oil sector, including marketing the country’s share of petroleum and developing in-depth expertise in the sector. It manages Uganda’s 15 per cent equity stake in the EACOP.
French Total E&P owns a majority 72 per cent shareholding in the EACOP, followed by Unoc with 15 per cent, CNOOC with eight per cent, and TPDC with five per cent. However, officials described Tanzania’s shareholding through its national oil company, TPDC, as tentative.
Uganda’s 15 per cent stake is in sync with the 15 per cent stake in the production licenses for each of the oil fields operated by Total E&P and Cnooc.
Also, to be signed is the Tariff and Transportation Agreement (TTA) between the pipeline company and the shippers of Uganda’s crude oil through the pipeline. The TOTAL Vice President will sign on behalf of the pipeline company, Ms Kitutu on behalf of UNOC, CNOOC and Total E&P.
The signing of the agreements was initially scheduled for last month, March 22, but was deferred to allow mourning of fallen Tanzanian president John Pombe Magufuli.
The long walk to today’s event has been punctuated with hurdles, including disappointments, protracted negotiations with the oil companies, and a plunge in prices for the international Brent crude oil.
These delays over the years spawned cynicism and conspiracies of the oil being non-existent in the ground or being secretly shipped out through tankers guarded by the army, while Members of Parliament on the Committee on the National Economy—which scrutinises loan requests by the executive—late last month wondered why government continued to borrow extensively for oil related infrastructure yet nothing ever comes out.
A study last December by the London based Climate Policy Initiative (CPI) detailed that Uganda’s oil project had equally dropped in value by 70 per cent from $61b (Shs223 trillion) to $18b (Shs66 trillion) since 2015 when oil prices plunged from $100 per barrel to under $50 today.
The drop in value, according to commodity financial models run by CPI, is a result of changes in the global oil market, including a slump in prices of Brent Crude Oil—the international benchmark—and commitments by oil multinationals to the 2015 Paris Climate Change Agreement, a landmark deal signed by countries to intensify investments needed for a sustainable low carbon future.
In a world where the signatory countries, including Uganda and oil supermajors like Total E&P, fully commit to the Paris Agreement, CPI detailed in the report indicated that Uganda’s oil project could at best be worth $8b (Shs29trillion).
The start of commercial oil production, according to the World Bank, offers Uganda long-term prospects to diversify the economy and catapult it to upper middle income status by 2040.
With commercial oil production at a peak in the 2030s, the Bank estimates show that Uganda could earn up to $3b (approximately Shs7 trillion) in revenues from exports of up to 60,000 barrels of oil per day. These revenues have the potential to propel the economy between 7-10 per cent forecast, up from the current stagnation of four per cent.
However, as countless other actors have chorused, the World Bank says this is only possible if revenues don’t just end up in the country’s leaders personal bank accounts but are channelled to the development of human capital—education, institution building, good governance and transparency, properly managed through an efficient and transparent strategy, and if an effective sharing formula is ensured for revenues to trickle down to local government entities.
After today’s signing, officials expect Total E&P and Cnooc to announce Final Investment Decision (FID)—the availability of at least $10b (Shs36 trillion) for the development phase, followed by awarding of the Engineering, Procurement, and Construction (EPC) contracts.
Of the $10b, about $6.7b (about Shs24 trillion is for developing Total E&P’s Tilenga oil project, which included oil fields in Buliisa and Nwoya districts, and Cnooc’s Kingfisher project in Hoima and Kikuube districts, and $3.8b (Shs13.8 trillion) is the capex for the EACOP.
The awarding of EPC contracts, many of which have been evaluated over the last months, is expected to commence in the next weeks and pave way for the development/construction phase.
The construction phase, whenever it kicks off, is expected to run for at least three years paving way for commercial oil production by the earliest, 2025. Officials, however, intimated they expected construction to start tentatively by July.
The EACOP, which runs for 1,443km from Hoima district to Chongoleani terminal in Tanga at the Indian Ocean in Tanzania, will be developed in 60:40 per cent debt to equity arrangement.
Eighty [80] per cent of the pipeline, 1,147km, will be on the Tanzanian side, and it is estimated that 80 per cent of the project capital expenditure will be spent in Tanzania. The Ugandan section of the pipeline is about 296km through 10 districts and 25 sub-counties, and 172 villages.