Russian firm ejected from oil pipeline deal

The EACOP Ltd managing director, Mr Martin Tiffen (left), speaks to Petroleum Authority officials in Tanzania in August. PHOTO/COURTESY

What you need to know:

  • EACOP indicates that they are not procuring anything from Moscow because of the heavy sactions imposed on the regime.

The East African Crude Oil Pipeline (EACOP) holding company Ltd says it is no longer dealing with Russian company, Chelpipe, which was tipped for the $165m (Shs578b) tender to supply a substantial quantity—at least 60 percent—of line pipes for the construction of the 1,443km duct running from mid-western Uganda in Hoima to Tanzania’s Indian Ocean Tanga port.

Chelpipe had been tipped for the tender alongside a joint venture of India’s Welspun Steel Ltd and Japan’s JFE Steel Corporation, and Greece’s Corinth Pipeworks.

The EACOP managing director, Mr Martin Tiffen, told Monitor that owing to the heavy sanction regime slapped on Russian companies by the United States and its European allies, they are not procuring anything from Moscow for the multi-billion dollar project financed through a mix of 40 percent as equity pooled by the project shareholders and 60 percent as external debt from international banks.

The project shareholders are Total Holdings International B.V, which holds a majority shareholding of 62 percent, Uganda National Oil Company (UNOC), and Tanzania Petroleum Development Corporation (TPDC), each with a 15 percent stake as well as China’s oil company—Cnooc, with eight percent.

See excerpts below

This year has been a rollercoaster; from taking the Final Investment Decision (FID) to set the ground, from Resettlement Action Plan (RAP to pre-construction studies). Bring us to speed where you are.

Taking FID paved the way for Uganda’s oil projects to head to the development and construction phases and subsequently the start of the commercial oil production. FID also meant concrete opportunities for local goods and services providers, both directly with EACOP Ltd and through its main contractors.

During 2022, the project’s focus has been on land acquisition along with the detailed engineering, procurement and preparation works for main construction, which will start on ground in 2023.

The other major highlight of the year was the September 15 EU Parliament motion that alleged so many things as you followed. Was it because of dearth in communication or engagement[s]?

EACOP, its shareholders and the two host governments will ensure that the project is carried out in an exemplary manner in terms of transparency, shared prosperity, and sustainable development, including the environment, land acquisition and respect for human rights.

The pipeline route has been designed to minimise environmental and social impacts in line with local and international best practices, including the environmental laws and regulations in Uganda and Tanzania as well as the Equator Principles and International Finance Corporation performance standards.

There was also the Russia-Ukraine war which posed logistical nightmares. Chelpipe, one the suppliers for line pipes, were caught up in the mix as we know; which companies are replacing the former, and how far are negotiations?

EACOP is complying with international sanctions and is not sourcing any goods or services from Russia. There is no shortage of alternatives.

The other concern is that the global inflation amplified the project cost from $3.55b to more than $5b. Which is what, and if it’s true the project cost shot up are the economic margins still what they were?

The estimated cost of construction post FID is some $4b (Shs14.5trillion) and this number has not been revised.

How is the mobilisation of other Engineering, Procurement, and Construction (EPC) contractors and when do we expect to see them on the ground?

EACOP construction progress is now visible on the ground in Tanzania, particularly at the marine storage terminal site in Tanga and the coating plant site in Nzega District. Civil work activities have also started at three of the main camp and storage wards.

Note that the land acquisition process for these areas in Tanzania started in 2021 ahead of FID. Similar works will start in Uganda in 2023 once land access has been achieved.