Ukraine war, activists hinder construction of oil pipeline

The EACOP senior construction engineer, Mr Jose Allyon (2nd left), with engineers  from China Petroleum Pipeline Engineering at one of the oil pipeline crossings in Ssembabule District on March 30. PHOTO / FREDERIC MUSISI

What you need to know:

  • One Russian company, Chelpipe, according to people familiar with the matter, had been tipped for a $165m (Shs583b) tender to supply a substantial quantity—at least 60 percent—of line pipes. 

The Russian-Ukrainian conflict happening some 4,663 miles away is posing logistical nightmares to East African Crude Oil Pipeline (EACOP) company executives in Kampala, London, and Paris.

The anomaly has left the executives to ponder swift fast supply chains for construction materials for the 1,443km duct.

One Russian company, Chelpipe, according to people familiar with the matter, had been tipped for a $165m (Shs583b) tender to supply a substantial quantity—at least 60 percent—of line pipes. 

But with Moscow in the eye of the storm of back to back European and American sanctions following its invasion of Ukraine in late February questions linger on the company’s ability to deliver on the contract.

While the company is not listed among the blacklisted Russian companies sources described as a “not so good idea” for private companies to have Russian connections.

Chelpipe, according to documents seen by this newspaper, had been tipped for the tender to supply pipes alongside a joint venture of India’s Welspun Steel Ltd and Japan’s JFE Steel Corporation, and Greece’s Corinth Pipeworks.

Also as a result of the conflict, sources added, prices of construction materials have doubled triggering concerns of the project cost increasing. There are reports of the project cost having shot from $3.55b (Shs13 trillion) to about $5b (Shs18 trillion).

In the mix of this hiccup is the massive smear campaign by climate change activists, environmentalists, and conservationists who since early last year mounted an aggressive crusade calling on banking giants across the world not to finance the pipeline construction.

Seven European insurance companies including Swiss Re, Axa S.A, Zurich, Scor, and Hannover Re have so far publicly announced that they will not underwrite the $3.55b (Shs13 trillion) project that will transport Uganda’s waxy crude oil from mid-western Uganda in Hoima to the international market via Tanzania’s Indian Ocean Tanga Port.

German insurer, Allianz AG, last week announced distancing itself from the project.

Highly placed sources told this newspaper that several European Banks have also developed “cold feet” to finance the mega project out of mounting pressure from campaigners and tree huggers to stop financing fossil fuels development.

“I cannot really confirm exactly who is on board but of course as you know there are a number of questions that banks are asking in regards to such big infrastructure investments,” a source said.

“But we are likely to see a couple of banks from the Middle East and China on board,” the source added.

The EACOP will be financed through a mix of 40 percent as equity pooled by the project shareholders and 60 percent as external debt from the banks.

The shareholders, governed by the Shareholders Agreement inked last year in April, are TotalEnergies EP with 62 percent, Cnooc with eight percent, and the national oil companies of Uganda and Tanzania—Unoc and Tanzania Petroleum Development Corporation (TPDC), each taking 15 percent respectively.

“We have been in talks with several banks and of course each of them has questions which is rational. They want to understand the details exactly,” sources added.

The EACOP company deputy general manager, John Bosco Habumugisha speaking last week on Wednesday at the eighth annual oil and gas convention in Kampala hinted that “we are dealing with various international and local challenges to the conflict in Ukraine, logistics and energy transition.”

At the same conference, the TotalEnergies EP general manager Phillipe Groueix spoke of “a lot of anger towards the oil and gas sector” since Russia’s invasion of its neighbour and former Soviet Republic.

Mr Groueix who chairs the EACOP company board, told this newspaper separately in a wide-ranging interview that equally for the Tilenga oil project they “had a few equipment that was supposed to come from Russia and we are trying to find equivalents that can be procured from Europe or other countries.”