Stanbic Bank Uganda, Uganda’s largest bank and a subsidiary of the Standard Bank Group, Africa’s largest banking group has said that it is still doing its own due diligence on financing of the East African Crude Oil Pipeline (EACOP). However, the bank added that it is as committed to strict adherence to global standards on environment and social safety, as it is committed to a just energy transition.
Responding to a question during the just-ended presentation of the bank’s 2023 financial performance, held at the Kampala Serena Hotel on March 25, 2024, Paul Muganwa, the Head of Corporate and Investment Banking, said that the bank is yet to make the final decision on financing of the project, but that decision will be guided by principles on just energy transition as well as the bank’s adherence to equator principles as well as the bank’s strategic purpose.
“It’s important to provide some broader context on our approach to climate change, as a Group. The approach is anchored in three words⏤just energy transition,” he said adding that: “as a bank, we have a very important role to play in enabling transition” and “we do that through very high standards, making sure that we are putting capital meaningfully behind clients that have the ability to support the transition”.
Contextualising why just energy transition was an important factor, Muganwa said that “we have to recognise the continent that we are on and what this continent has contributed to emissions globally”.
“Africa is the lowest contributor historically and that context cannot be ignored as we explore energy transition. Second, we do have a challenge with economic, growth, jobs, employment, social inclusion, and those are factors that need to be considered as we explore our transition. Lastly, there is an energy deficit in Africa and Uganda.If we look at the composition of energy consumption in Uganda, 95% of our electricity is renewable, but it only represents less than 20% of all energy consumed across the country. The majority of our energy is still biomass⏤trees,” Muganwa said.
Just energy transition is a paradigm that gained momentum during the December 2023 28th UN Climate Change Conference (COP28). A just energy transition seeks to decelerate funding to fossil fuels while facilitating a transition to clean renewable energy as well as supporting those who are most vulnerable to the impacts of climate change.
With the average African consuming a tenth of the energy of an average European and a twentieth of an average American, proponents of a just-energy transition insist on focusing not just on fossil fuels but rather extending the conversation to achieving the energy trilemma of equity, security, and sustainability, which every nation has been grappling with especially the developing world.
At COP28 UAE, developing nations, especially those that have just discovered oil & gas resources such as Uganda insisted that even as the threat of climate change looms, energy poverty could have far-reaching consequences.
Citing the “last in, last out” approach “Uganda and other developing nations (will have the opportunity) to develop their resources and attain the same advantages enjoyed by longer-established oil producers,” Nankabirwa told Uganda Ugandan media at a quarterly ministry press briefing on 23 January 2024.
“Having benefited for decades, established oil-producing nations are better positioned to reduce their output first,” she said.
Standard Bank is committed to global standards on the environment and social impact
Mr. Muganwa however said even amid the bank’s quest for a just energy transition, the bank was doing its own due diligence process.
“We have employed the services of an independent advisor, who is focused on environmental and social factors. Our participation in EACOP as a lender will be subject to a few things. The first is that the project must meet the Equator Principles⏤ a set of clear and objective standards that has been set by the IMF and the World Bank. We cannot participate in a project unless it meets these standards,” Muganwa said.
The Equator Principles are a financial industry benchmark for determining, assessing and managing environmental and social risk in projects. Equator Principles Financial Institutions (EPFIs) are required to report annually on their Equator Principles-related activities. Standard Bank Group, is a member EPFI.
He also said the project would have to be subjected to an internal credit process, “which not only looks at the environmental and social factors (E&S) but other factors beyond E&S.
“Should the project, go through those various checks and balances and successfully meet the criteria that we set, there is still a big decision that we need to make as a financial institution on whether the project strategically fits into what we want to achieve,” he explained.
“So the simple answer today is, we are still in the due diligence process. But we want to highlight that the principles underlying just energy transition will inform our participation and that approach is not limited to EACOP, it is our approach to energy transition across the continent,” Muganwa reiterated.
The East African Crude Oil Pipeline (EACOP) is a 1,443km crude oil export infrastructure that will transport Uganda’s crude oil from the oil fields in Kabaale – Hoima in Uganda to the Chongoleani peninsula near Tanga in Tanzania for export to the international market. This major export system includes 1,443 km (296 km in Uganda and 1147km in Tanzania) of insulated and buried 24” inch pipelines, 6 pumping stations, two pressure reduction stations and a marine export terminal in Tanzania.
Developers of the pipeline, EACOP Ltd have described the project as the most environmentally friendly project. EACOP Ltd. is a special purpose company, governed by its Shareholders Agreement in which TotalEnergies (62%), Uganda National Oil Company (UNOC – 15%), Tanzania Petroleum Development Corporation (TPDC – 15%) and CNOOC (8%) are shareholders.
The estimated cost of construction is some USD4 billion and will be financed by a mix of equity provided by the shareholders as well as borrowing. Once in operation, the pipeline will receive a tariff for each barrel of oil transported to repay the loans and make a return on the investment.
The project has come under fire from environmentalists and other de-campaigners, who among other objectives have put many a lender on pressure not to finance the project.
However, despite delays in financial closure with prospective lenders, works are already underway, funded by shareholders. For example, on March 26th 2024, the project launched Thermal Insulation Plant (TIS Plant) at Sojo, Nzege in the Tabora Region of Tanzania. The TIS Plant will apply thermal insulation to all 86,000-line pipe joints prior to their dispatch and installation along the route from Uganda to Tanzania. All project pipes 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 lots across the 1,443KM EACOP line.
Concurrent with the inauguration of the TIS plant, was the official signing of land lease and ports agreements between the East African Crude Oil Pipeline (EACOP) and Tanzania Petroleum Development Corporation (TPDC). These included the Lease Agreement for land for the construction of the Main Storage Terminal, the Marine Facility Agreement, and the Marine Use Agreement. The land leases and the production of thermally insulated pipe are two key precursors for construction activities starting along the right of way.
Following the inauguration, the TIS Plant/workshop is expected to ramp up production, reaching a capacity of 110- 117 kilometres of insulated line pipe per month. Production is slated to commence immediately and continue into 2025. The TIS Plant has to date received three batches of pipelines totalling 300km and according to Martin Tiffen, EACOP Managing Director, two more batches of piping are arriving at Dar es Salaam in the coming months.
“By this time next year, all the 1,443 km pipelines will be here with us and all insulation works progressing as scheduled,” Tiffen revealed.
The EACOP Company has also received its construction licenses from both Governments of Uganda and Tanzania.
Life-changing project
Paul Muganwa’s comments, echo those of his boss, Mr. Sim Tshabalala, the Chief Executive Officer of the Standard Bank Group, who has previously defended Uganda’s oil and gas project as a life-changing opportunity that will lift masses from poverty and change standards of living.
Of the global campaigns not to fund the project, Mr. Tshabalala told The Africa Report, an online pan-African magazine that: “We are being asked to make a choice: Don’t do the project, and let those poor Africans continue to live like this.”
“I choose to give them dignity,” Mr. Tshabalala said on the sidelines of the Corporate Council on Africa US-Africa Business Summit, in Botswana in July 2023.
In the same interview, Tshabalala said the project was “one of the most efficient in terms of oil production because people have learnt lessons”. He is also quoted by The Africa Report as acknowledging the downsides of the project, but reiterating that the life-changing potential of the project outweighed the downsides. He also emphasised that the project must however go through Standard Bank Group’s internal processes that require the lender to be “satisfied with the environmental and social impact of the project” before it can move forward.
A number of other Africa’s big banks such as ABSA, Nedbank and Investec seem to have yielded to pressure from activists, not to fund the project.
Likely, Standard Bank Group whose shareholding is partly by the Industrial and Commercial Bank of China (ICBC) will go ahead with the project⏤ ICBC is the single largest shareholder (19.4%) of the Standard Bank Group, will fund the project.
ICBC itself is majority-owned by the Chinese government through the Central Huijin Investment Ltd a state-owned investment company that owns 34.7% and the Ministry of Finance of the People’s Republic of China owns 31.14%.
China National Offshore Oil Corp. (CNOOC) one of the major partners in the pipeline as well as the upstream oil production in Uganda is also owned by the Chinese government.
EACOP, alongside the entire oil and gas upstream, midstream and downstream activities, has also been acclaimed by both the developers, the government of Uganda as well as a large section of Ugandans as a life-changing project largely for its economic impact potential.
Uganda anticipates a “long-term economic uplift” over the next 25 or more years as oil and gas revenues pour $8.6 billion into Uganda’s GDP as production from the Lake Albert development comes on-stream in 2025, Uganda’s Minister of Energy and Mineral Development, Ruth Nankabirwa Ssentamu has frequently said.
For example, the Petroleum Authority of Uganda, reported last week that since the announcement of the Final Investment Decision (FID) in February 2022, contracts valued at approximately USD7.16 billion had been sanctioned and of this, nearly USD1.8 billion (equivalent to UGX7 trillion) worth of contracts has been allocated to Ugandan companies.
Most of the deals are in the upstream sector, but the regulator said that the volume and value of contracts will surge, once construction of the East African Crude Oil Pipeline (EACOP) begins. To maximise the benefits of ongoing oil and gas activities, the PAU is updating its National Suppliers Database (NSD), and has urged Ugandan entities and individuals interested in supplying goods and services to the sector to register. The NSD 2024 currently has over 3,000 qualified entities with 2,389 Ugandans and 612 foreign.