Numerous pitfalls signal bleak odds for Museveni’s legacy oil project

Uganda’s race to first oil in 2025 faces grim odds, with the nation now racing against time to have the crude export pipeline constructed, fully solarised and ready for purpose in under 24 months – against the three-year construction duration for the turnkey project – which puts pressure on the oil firms whose upstream operations last week suffered a setback when the regulator suspended works after a death at the Kingfisher oilfield.

Until the fatal accident, the upstream operators were confident Uganda would produce the first barrels in late 2025, but with operations at Kingfisher halted, the project could lose lead time in the race to first oil, which has political implications for President Yoweri Museveni’s legacy and next election campaign in 2026.

On Friday, the Petroleum Authority of Uganda (PAU) lifted the suspension of works at the Kingfisher Development Area, paving the way for the resumption of operations.

Ernest Rubondo, PAU executive director said the step was been taken “after rigorous examination of all standard procedures to ensure that the health and safety requirements are being robustly implemented by all contractors and sub-contractors”.

“The Authority has reviewed and realigned the safety protocols with the operator for overall improvement in the HSE culture and practices during operations,” he said in a statement.

The resumption of operations comes after additional preliminary safety measures have been instituted, he added, noting that PAU was satisfied that the agreed procedures, when implemented, would ensure the safety and well-being for all during the oil and gas operations.

That breathed the project back into life and all involved hope that the lost time will be recovered.

At TotalEnergies Uganda, Jean Gavalda, director of business development and corporate affairs said Tilenga should be ready to produce oil in November 2025, adding that the feeder pipeline will be in place, the flow lines will be fixed,

“But we will still have drilling to do,” he told The EastAfrican.

The executive explained that Tilenga ready-for-start date is between July and November 2025, during which time the project’s number of wells and production infrastructure will be complete to allow start of production and to reach a plateau of 190,000 barrels of oil per day (bopd) as per ramp-up definition in the field development plan.

Beyond this date, development activities will continue as the drilling sequence is anticipated to last till 2028 to attain the planned number of wells of the field development plan for the TotalEnergies-operated upstream project.

The Kingfisher Development Area, operated by the China National Offshore Oil Corporation (Cnooc), which started drilling works in January 2023 – six months ahead of Tilenga – is scheduled to come on-stream earlier, with 40,000 bpd at peak production.

Before PAU halted drilling works at Kingfisher on October 7, industry executives were upbeat that the project would come on-stream ahead of time.

“For Kingfisher, we should be ready to produce oil even before 2025,” said Peter Muliisa, chief legal and corporate affairs officer at Uganda National Oil Company (Unoc), which oversees government’s commercial interests in the oil and gas projects.

But industry analysts argue that funding hiccups for East African Crude Oil Pipeline (Eacop), and even the refinery project, have left the upstream projects not moving in sync with the midstream infrastructure, raising questions of what will when Uganda hits the oil production milestone in 2025 without a crude export pipeline.

According to the pipeline’s Front End Engineering Design (Feed), Eacop’s construction period is 36 months and, currently, only the project’s coasting plant located in Tanzania is nearing completion. Even if financial close were to be achieved before the end of this year, the project would have less than 24 months to the production and crude export timeline.

But Mr Muliisa argues that these financing delays were envisaged at the time of taking financial investment decision in February 2022, and the project sponsors agreed to complete their equity financing to start initial works and importation of equipment such as line pipe, solar panels and insulation materials.

“The shareholders agreed when we took FID last year that we had not closed non-debt, but the project must proceed. We are moving, there are teams on the project and we are running on our equity contributions,” he told The EastAfrican.

Industry experts argue that despite discovering commercial quantities of oil and gas in 2006, Uganda remains a frontier oil and gas country with no current production, but already faced with a litany of human rights and environmental controversial questions around its project even before pumping the first barrel.

Consequently, each controversy implies loss of time and falling behind on set timelines, and this has cost implications not only for the oil and gas companies but also revenue targets for the potential oil producer and exporter.

Significantly, oil is President Museveni’s 2026 political and economic lifeline: with an estimated $1.5 billion to $2 billion per annum in oil revenues projected from the crude Uganda exports, according to the regulator PAU, the resource has fiscal and political implications for the veteran leader.

Already, analysts argue that Uganda cannot afford any delays, with his government increasingly facing liquidity pressures as external sources of financing shrink due to ballooning debt and donor aid cuts.

Within days of PAU halting drilling activity at Kingfisher, on October 12, more than 2,000 families which have been affected by Eacop Kingfisher and Tilenga oil projects wrote to the Sinosure and China Exim Bank (project’s source of debt financing amounting to $3 billion, half of which is to be covered by the Chinese lenders), asking them to conduct an independent field visit before making any decision to bankroll the project.

The households cite displacement, which has allegedly been characterised by violations -- against the Uganda Constitution and International Finance Corporation’s performance standards, especially Standard 5 -- which has caused destitution, food stress and income loss.

They also informed the banks that on May 1, 2023, Eacop-affected households of Hanang, Kiteto and Simanjiro districts of Manyara region in Tanzania were served with eviction notices by the Tanzania Petroleum Development Corporation (TPDC), seeking to acquire land for the pipeline.

The households allege that TPDC, which is a shareholder and part of the project developers, did not give them an opportunity to harvest their crops, and this stands to impoverish the families.

With compensation of project-affected persons still unresolved, the project is yet to secure 100 percent right-of-way both in Tanzania and Uganda, although it is closer in the former, before which Chinese contractor CPP cannot be guaranteed free passage for construction works to start.

Quoting Irene Bateebe, Permanent Secretary in Uganda’s Energy Ministry, South China Morning Post last month reported that the Chinese lenders were on the verge of financial close with the Eacop project developers this October, after which construction would start be to meet the 2025 timeline.

It is not clear how the petition of the project-affected persons will impact this process to reach the long-awaited financial close that has evaded the project after Western lenders shunned the project as a climate and environmental risk, which was no longer supported by their lending policies.

The project-affected persons in Uganda and Tanzania question whether Eacop meets guidelines of the 2013 Belt and Road Initiative, a Chinese policy that directs its institutions to lend to roads, pipelines and clean energy projects after Beijing put in place environmental and other policies to guide implementation of this initiative.