Proscovia Nabbanja, chief executive officer of Unoc. PHOTO/FILE
As Uganda races to first oil next year, the 2024/25 budget carries more significance as the last financial year in which the government and its joint venture partners are expected to reach financial close for the oil projects, to meet the already set production and export targets.
Accordingly, the Minister of Finance has provided Shs132.6 billion for the Uganda National Oil Company (Unoc) to firm up its additional equity contribution to the East African Crude Oil Pipeline (Eacop) as it becomes clear that the project cannot stall while its developers wait for external funds.
Progress of the $5 billion pipeline from Hoima to the Indian Ocean port of Tanga in Tanzania is currently at 33 percent, with nearly two-thirds of the project to be completed between now and the late 2025 target for first oil, according to TotalEnergies’ executives.
The allocation to Unoc is one of several budget votes that were brought last month as last-minute changes in the 2024/25 budget, which increased the total resource envelope from Shs58.34 trillion to Shs72.12 trillion.
State Minister for Finance Henry Musasizi explained to Parliament that Unoc’s allocation was necessary for the state-owned firm – which oversees Uganda’s commercial interests in the oil and gas projects – to fund its equity contribution to Eacop, to meet the cash calls for the pipeline’s construction.
Ms Proscovia Nabbanja, the chief executive officer of Unoc, told Monitor that the company had completed payment for its equity in Eacop but the latest cash calls are arising from delayed debt financing from external sources.
“This money is to cover the gap between equity and debt financing,” she said. “We’ve depleted the equity funds already paid, and where the project is right now, we can’t stop. So, each shareholder has to come up with money to cover the gap as we wait for financial close on debt,” she explained.
Indeed, Mr Musasizi explained that the allocation to Unoc was urgent and required before July 1 – when the new financial year takes off – in order to meet the government’s funding obligations in the pipeline project.
Earlier this year, Energy Minister Ruth Nankabirwa revealed that the project was badly in need of debt financing coming through as shareholders’ equity funds were slated to run out by June, risking stalling works of certain components of the project that were already underway.
This situation had the Eacop developers edgy over the slow pace at which the Chinese lenders are moving to approve and make available the nearly $3 billion shortfall on the debt component of the pipeline’s financing.
The 1443km pipeline from Hoima in Uganda to Tanga Port in Tanzania is expected to reach financial close this year, with the nearly $3 billion debt component of the project coming from Chinese lenders Exim Bank and Sinosure. The project is financed on a 60:40 percent debt-equity ratio.
The Eacop shareholders are TotalEnergies, which holds a 62 percent stake, Unoc (15 percent) held on behalf of Uganda government and Tanzania Petroleum Development Corporation with a 15 percent stake on behalf of Tanzania government, while CNOOC has an 8 percent shareholding.
As at the end of April, the Eacop project progress in Uganda and Tanzania stood at 33 percent, according to the latest responses of TotalEnergies’ executives during the French super major’s annual general meeting on May 24.
The actual works underway include the oil terminal and loading jetty construction at Tanga, in Tanzania, above-ground installations which include pumping stations and main camps and production yards in Uganda and Tanzania, while installation of the pipeline starts this month.
Production plan
The Ministry of Energy submitted a Shs1.065 trillion budget for upstream, midstream and downstream activities in the oil and gas sector, with a chunk of this funding expected to cover Uganda government’s participation in the $4.5 billion refinery project.
The ministry says it expects to take the final investment decision during the 2024/25 financial year.
