Hoima-Tanga Pipeline project suffers major setback

Hoima-Tanga Pipeline project suffers major setback

The Hoima-Tanga oil pipeline project has suffered a major financial setback after at least 10 risk averse banks walked away from the development terming it an environmental risk.

The project, which was expected to cost US $3.55 billion, will now cost US $5 billion following the withdrawal by top lenders from the East African Crude Oil Pipeline (Eacop) project. This means shareholders of the Eacop, also known as Hoima-Tanga oil pipeline, will be forced to source for more money to finance the project.

According to executives of TotalEnergies, which holds a 62% stake in the project, a total of $2 billion will be financed through shareholders’ equity while US $3 billion will come from banks. Other shareholders of Eacop include Uganda National Oil Company (15%), Tanzania Petroleum Development Company (15%) and China National Offshore Oil Corporation (8%).

At least 10 banks have flagged Hoima-Tanga oil pipeline project as an environmental risk, saying it will produce about 34 tonnes of carbon dioxide at peak production annually. Eacop suffered another major setback after global insurers and export credit agencies, including French multinational AXA, withdrew their support for the project.

“The underlying project is not compatible with our climate commitments,” AXA said, while the UK Export Finance also rejected a loan request after the UK government ceased financing fossil fuel projects overseas.

Longest electrically heated crude oil pipeline in the world

Despite the setbacks, the sponsors of the project are confident that they will secure financing for the pipeline as it remains the only factor holding back Uganda’s oil production project.

“Following conclusion in April of final agreements with the Uganda and Tanzania governments needed to launch this project, many banks and international organisations have confirmed their interest in participating in this funding,” TotalEnegies told its shareholders.

According to TotalEnegies’ records, the upstream projects Tilenga and Kingfisher are 100% funded through equity, to the tune of US $6 billion by TotalEnergies and CNOOC. Tilenga is expected to take up to US $4 billion while investments in the CNOOC-operated Kingfisher will take up to US $2 billion, both feeding the Hoima-Tanga pipeline that will carry up to 230,000 barrels of oil daily.

At 1,445 kilometres, the Hoima-Tanga crude oil pipeline is expected to be the longest electrically heated crude oil pipeline in the world. The pipeline will be heated so as to keep the highly gummy crude liquid enough to flow. The facility will move Uganda’s crude oil from Kabaale, in the western Hoima region, to Chongoleani in Tanzania.

The 24-inch diameter pipeline is expected to move 216,000 barrels of oil per day at a cost of US $12.2 per barrel. This will save Uganda US $3.7 per barrel compared to an earlier plan to build a pipeline from Hoima to Lamu in Kenya at a cost of US $5 billion.

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