EU resolution: What’s at stake for Uganda’s oil?

Critics labelled Vanessa Nakate as a passing cloud, but for now, she’s the poster child of Uganda’s oil project resistance in Europe.

The 25- year-old Ugandan climate activist hit the ground running early this year.
She has been traversing European cities to canvas for support against the financing and construction of the East African Crude Oil Pipeline (EACOP).

The pipeline will stretch across 1,443 kilometres from Hoima district in Uganda to the Port of Tanga in Tanzania.  

For some Ugandans, Nakate was at first, viewed as a beacon of hope when she hit the global stage in the fight against climate change.
It was until six months ago when she intensified her climate activism war on Uganda’s oil project.

Nakate, a dedicated subscriber to the #StopEACOP Movement is among other African climate justice activists demanding that international financial institutions publicly pledge not to provide the 60 percent debt financing towards the oil pipeline.  

“If it [the oil pipeline construction] goes ahead. It will have devastating consequences, displacing communities, endangering wildlife, and contributing to the climate crisis,” the climate activist says.

One could say, her efforts are ‘bearing fruit,’ at least, going by last week’s European Union Parliament’s resolution on human rights violations linked to the pipeline project.
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).
Economic losses include crop losses, damages to buildings and infrastructure, and damages to human health.

This is against the International Energy Agency (IEA) warning in a 2021 report which shows that limiting global warming to 1.5 °C will prevent climate change’s most destructive impacts, and therefore requires new oil and gas development to stop immediately.

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

The resolution concludes calling upon Total Energies to take one year before launching the project to study the feasibility of an alternative route.

This is meant for better safeguard of protected and sensitive ecosystems and the water resources of Uganda and Tanzania.

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

Kerry’s comments, captured by the 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.

The EU parliament has rubbed Ugandan authorities the wrong way. Infact, the last two weeks have been marked by a sense of uncertainty.

Emotions continue to run high pitting President Museveni against the EU Parliament.     
Infact, down in the power pyramid structure, Parliament’s Deputy Speaker, Thomas Tayebwa went on a diatribe, slamming the decision as a form of double standards in what he said was, “the highest form of Economic Racism against developing countries.”

Tayebwa in a statement presents an argument that various member states in the European Union continue exploring, developing, and have increased the production and use of fossil fuels in recent months.

Besides, Tayebwa, says there are more than 9,000 oil and gas production licences in the USA, including plans to drill in Alaska and the Arctic Sea.
The Deputy Speaker also draws parallels on the energy security question in which 53 licences have recently been issued in the North Sea and Germany has revived its coal plants.  

“Is energy security a preserve for only the European Union? Does Uganda not have the same right?” he asks.
EACOP represents less than 0.1 percent of the operational global pipeline network of 1.18 million kilometres.

Immediate impact
The EU resolution comes at a tough time, when Uganda is in dire need of finances for the crude oil pipeline- and yet - global financing institutions continue to cut back on funding oil projects over climatic concerns.

Cost estimates for EACOP stand between $3.5- $4b with 40 to 60 percent 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 percent, Uganda National Oil Company (UNOC) at 15 percent, Tanzania Petroleum Development Corporation (TPDC)  at 15 percent, and China National Offshore Oil Corporation (CNOOC) at 8 percent.    

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 5 percent by 2030.

The leading bank with affiliates across Africa, including Stanbic bank in Uganda said in a statement that the cut back on financing is a gradual process.

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 operationsstarting 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’s 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.

Banktrack, a financial research firm tracking oil financing shows that while the regional public financial institution- the African Export-Import Bank takes first place, most of the finance comes from South African commercial banks such as; Absa Group, Standard Bank and FirstRand.
China Development Bank has been singled out as one of largest financiers of fossil fuel projects and companies in Africa.

However, the majority of the largest fossil fuel financiers are from North America and Europe, in particular from the United States, the United Kingdom and France.
JPMorgan Chase, Standard Chartered, and Barclays together with the China Development Bank and China Export-Import Bank make up the rest of the top five financiers.

Petroleum Authority’s legal and corporate affairs director, Ali Sekatawa, says the immediate term impact of the EU resolution has 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, banks. This noise creates an 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 actually 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.   Other emerging issues in the EU Parliament resolution such as the environmental concerns have been addressed by the National Environmental Management Authority (NEMA).

NEMA in a published statement notes that the Environmental and Social Impact Assessments followed the time and tested principles.  NEMA in its statement shows mitigation measures to reduce the carbon footprint will focus on using the national grid power to meet the energy needs of the project, and offsetting residual emissions through tree planting projects.

“Whereas the EU Parliament resolution claims that EACOP will traverse protected areas in Uganda and Tanzania, we clarify that using the avoidance approach to determine the routing for the pipeline, many sensitive ecosystems including all Ramsar sites were avoided,” the statement reads.
The pipeline, according to the environmental agency, will be buried, coated to prevent rusting and has inbuilt automated leakage detection mechanisms.
In the unlikely event of the oil spill emergency, a national oil spill contingency plan was developed.

Tackling energy poverty
The Organisation of the Petroleum Exporting Countries (OPEC) in its World Oil Outlook provides some perspective on what is yet to come.

It shows the global oil demand has only one direction, and that is up. Oil is expected to retain the largest share of the energy mix, accounting for just over a 28 percent share in 2045, followed by gas at around 24 percent.

 In a July speech delivered by Mohammad Sanusi Barkindo, OPEC’s outgoing Secretary General, at an oil conference in Nigeria.
He noted that there was a need for more cooperation and financial firepower when it comes to tackling energy poverty.

In Sub-Saharan Africa where Uganda belongs, Barkindo while quoting OPEC data shows that an estimated 47 percent representing 535 million people have no electricity and approximately 85 percent lack access to clean cooking and heating fuels.

“Considering the enormous energy resources available on this continent, this is simply hard to accept!” Barkindo quipped.  

Barkindo observes that the UN Climate Change Conference - COP27, slated for November in Egypt will offer a prime opportunity for developing nations, including those producing oil and gas, to make our voices heard.

“This is a chance to return to a balanced and holistic process to address critical issues such as adaptation, mitigation and the means of implementation, especially climate finance and technology,” he noted.
 
With almost all African countries being in the phase of research and exploitation of oil resources, it remains certain that the world geopolitics of oil and gas will turn in the years to come, towards the African continent.

Oil pipeline
The legal and commercial framework for  the East African Crude Oil Pipeline (EACOP) is established in the Host Government Agreements which set out the relationship between EACOP and the Host Governments on issues such as land, health, social and safety standards, human rights, local content, fiscal regime, authorisations, and dispute mechanisms.

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 percent) 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 have 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.

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