Line pipes arrive in Uganda at Kyotera Main Camp and Pipe Yard 4. PHOTO/POOL
In what might, understandably, sound as unwelcome news for the oil sector and the economy, the projected start date for commercial oil production has been revised from end of 2025 to quarter four of 2026 but could stretch slightly into 2027, Monitor can reveal.
Even then, industry sources told this newspaper that the end of 2026 schedule is “only possible” if debt financing for the East African Crude Oil Pipeline (EACOP) is closed by the end of this month—as officials currently anticipate—or latest, end of the year.
“The projected date for First Oil is now quarter four of 2026, if EACOP financing is secured by end of this month,” a top official said on condition of anonymity, owing to sensitivity of the matter.
Policy chiefs in Bank of Uganda (BoU) and Ministry of Finance are eagerly banking on the oncoming petro revenues as the shot in the arm of the wobbly economy to, among others, shore up the country’s forex reserves and double debt servicing commitments.
Ali Sekatawa, director of legal and corporate affairs at Petroleum Authority of Uganda
Last month’s BoU state of the economy detailed a gloomy picture of the country's forex reserves, on downward spiral since 2022, hitting an all-time low of $144.1m (Shs526.7b) on account of high public service costs. While it’s the first time since the reserves fell below $3.5b (Shs12.7 trillion), the drawback has been on account of mounting external debt financing costs resulting from an increase in accumulation of commercial debt.
The report detailed that problems in Balance of Payment — the difference between financial inflows and outflows for a particular period — resulted in drawdown in the reserve assets.
And with a bloated public administration to finance, the unchecked corruption through procurement wheeler-dealing, domestic revenue collection shortfalls, donors slamming the doors of government since passing of the anti-gay law, and another election cycle around the corner, the writing is on the wall for the tough times ahead.
The 1,443km EACOP is one of the two mediums for commercialising Uganda’s 6.5 billion barrels stock tank of oil in place, out of which 1.5 billion barrels are recoverable. The oil pipeline runs 296km through 172 villages in 25 sub- counties in 10 districts in Uganda, and 80 percent or 1,147km through 25 districts on the Tanzania side.
The project is tagged to a cost of $5b (Shs18.2 trillion) pooled through a mix of equity and debt. The EACOP company shareholders led by majority shareholder, Total Holdings International B.V with 62 percent stake, are working around the clock to woo the Chinese-state owned credit insurance bank, Sinosure, to commit financing to the project.
The other shareholders are Uganda National Oil Company (UNOC) and Tanzania Petroleum Development Corporation (TPDC), each with 15 percent, and Cnooc with eight percent. UNOC and TPDC’s lack of financial guarantees to repay the large debt component remains another headache, according to insiders.
Oil company executives and senior government officials, wary of the tenacious #StopEACOP campaign orchestrated by a network of local and international NGOs bankrolled by shadowy forces across the Atlantic, remain tight-lipped on project financing.
Oil production in 2025 would also have been possible if the proposed 60,000 barrels per day (bpd) refinery complex was in place by then. It is another long shot.
President Museveni officially launches oil drilling activities at the Kingfisher Development Area in Kikuube District in January 2023. PHOTO | FILE
The government is currently in negotiations with Dubai-based Alpha MBM Investments LLC on designing, financing, and constructing the $4b (Shs14.6 trillion) project in Buseruka Sub-county in Hoima District.
According to the oil sector regulator, Petroleum Authority of Uganda (PAU), negotiations are ongoing on key commercial agreements including the Implementation, Crude Oil Supply, and Shareholders Agreements, but with no tentative date for project Final Investment Decision (FID).
‘On track’
The PAU director for legal and corporate affairs, Mr Ali Ssekatawa, argued during a wide-ranging interview with this newspaper last Friday that the “official date of 2025 for first oil” stands.
“We cannot predict the future. But as of October 2024, and given what has been done, we expect that if we continue the same pace and we do not have any externalities and so on, then we should be able to meet that timeline, plus or minus. Even when you construct your own small house, it's possible that you might reach the day to enter the house and you need to clarify on the switch, sewer system and so on. But from the overall target we think that whatever we are supposed to achieve by now has been achieved and it is on course,” Mr Ssekatawa opined, when pressed about the first oil date shifting to end of 2026/2027.
For EACOP, the month of September closed on a high note, with delivery of the first batch of insulated line pipes for construction to the project camp yard in Kyotera District at the Uganda-Tanzania border.
The delivery of batches of line pipes hauled by nine trucks from the coating plant in Nzega district in Tabora region in Tanzania, where shipments of line-pipes hauled by ship from China and Greece are piled for maintenance and thermal insulation, was the proverbial slap in the face of a network of local and international NGOs that have decampaigned the project since 2020.
The #StopEACOP campaign forced especially American and European banks, which once displayed appetite, to distance themselves from the project, forcing the EACOP company shareholders to forage here and there for financing.
Recent months have seen the anti-EACOP campaigners engage in running battles with police outside the Chinese embassy in Kololo, after it was revealed that a consortium of Chinese banks are in the front seat to finance construction of the duct that will transport Uganda’s waxy crude oil en route to the international market.
At least 780kms of line pipes have been delivered so far from the manufacturing plants in Greece and China to the coating plant in Nzega.
The EACOP construction contractor, China Petroleum Pipeline Engineering (CPP), is on ground on both sides of the border coordinating early civil works and expected to ramp up activity later next year.
But, amid the flurry of engineering, procurement, and construction (EPC) activities on the project coordinated by Australia’s Worley, the behind-the-schedule closure of project financing has kept the mood far from festive.
“It is news no one wants to hear but it is what it is,” one industry player noted.
Mr Ssekatawa argued that “for us we are hopeful that we can be able to meet our target or if there is an adjustment that can be addressed it will be minimal seeing that we are doing what has never been done before. But right now, if you ask me this quarter where we are; considering where we have come from in February 2022 when FID was taken, the kind of work that has been done in terms of logistics, construction, land acquisition, manufacturing of all these long-lived items. Even with a few delays here and there, we are on course.”
Trucks arrive with the first batch of line pipes at the Main Camp and Pipe Yard4 in Kyotera District on September 30. PHOTOS/COURTESY OF EACOP
Constant invariables
Officials describe Uganda’s oil project, comprising of the Kingfisher Field Development Area operated by Cnooc that straddles Kikuube and Hoima districts, the Tilenga project operated by TotalEnergies EP that straddles Bulliisa and Nwoya districts, and EACOP, as “integrated” so all pieces across the three puzzles move concomitantly to achieve first oil, whether in 2025 or in 2026/2027.
The announcement of FID on February 2, 2022 unlocked the $10b (Shs36.5 trillion) for investment into the development phase of Kingfisher, Tilenga, and EACOP and subsequently starting of commercial oil production.
By the look of things, Cnooc is making significant progress on the Kingfisher Field Development Area that holds an estimated 560 million barrels of oil, and is expected to produce 40,000bpd when production starts.
The Chinese company has so far installed three well pads, out of the planned four—and drilled nine out of 11 oil wells needed to be readied for first oil. A well pad is a site of facilities and other infrastructure for oil and gas drilling.
The four well pads will facilitate drilling of 31 oil fields across the Kingfisher project using one oil rig.
By this account, industry sources intimated, it would be feasible to start oil production next year if either EACOP or the refinery is in place.
On the other side of Tilenga, first oil has to come into play after at least 150 oil wells have been readied.
The Tilenga project encompasses 426 oil wells, out of which only 78 have been drilled to-date. The Tilenga project itself is reeling from numerous delays and crises relating to delayed payment of subcontractors by the main contractor, McDermott.
TotalEnergies EP communications team declined to respond to our inquiries on the matter.
DMr Ssekatawa, however, defended that “from a project perspective” the concerns arising “are probably affecting less than five to eight percent of the subcontractors and we have taken measures to make sure that that issue is addressed.”
“From a major outlook of execution of what you call superstructures this is not something that is very unusual because remember you are dealing with between 2,000 to 3,000 subcontractors and therefore the interplay of the contracting regime between the major contractors, their subcontractors, and sub-subcontractors would ideally, in a normal business environment, bring friction of that nature. I think the robustness of our system is that we have mechanisms that can address such friction when it arises. And I think we have demonstrated that we have escalation mechanisms that can address the issues of that nature when they arise,” he noted.
TotalEnergies EP, according to PAU, is currently fast-tracking installing the seven well pads, both the north and south of the River Nile, out of the planned 31-wellpads on which the 426 oil wells will be looped and drilled using the two rigs.
Students march to Parliament against EACOP recently. Photo/ Busein Samilu
The Tilenga project is expected to produce up to 200,000 barrels per day (kbpd) from the 426 oil wells.
Similarly, civil works at the Tilenga industrial area in Buliisa, which will host among others, the Central Processing Facility (CPF), drilling support base, construction Camp, and other facilities, are said to be at 99 percent.
Nearing the finish line
A CPF is a plant where oil will be stored first for stabilisation and treatment before being fed into either the proposed refinery or pipeline. Development of a second CPF under the Kingfisher project in Hoima is progressing, currently at 43.24 percent.
Against backdrop of this momentum, Mr Ssekatawa said: “I think next year is our peak year for purposes of closing in to make sure that the project can actually substantively come to life.”
“As you are aware, we consider next year as our last band, because it's 2025. So we expect to be doing the final activities for bringing on course the oil and bringing it to life.”
“We also expect to conclude with the Liquefied Petroleum Gas (LPG) discussion because as you are aware, is ongoing. The LPG discussion is still slightly behind. The licensing and then the starting of the construction of the facilities for using LPG. We expect to conclude or to see some footwork, groundwork on the refinery. Work should be starting also next year. That should be one of our major highlights next year,” he added.
Mr Patrick Pouyanne, the chief executive officer of TotalEnergies SE, the parent company of TotalEnergies EP, in August told the high level ONS conference held in Norway that his company planned to invest $400m (Shs1.4 trillion) to develop LPG from the estimated 600 billion standard cubic feet of gas associated with Uganda’s 6.5billion barrels of oil reserves.
LPG has been classified by the World Health Organisation (WHO) as a clean energy option, one of the many required to cut emissions from biomass and other polluting fuels.
Since announcement of the commercial viability of Uganda’s oil reserves 18 years ago, the commercial production date has shifted numerous times. From 2008 to 2015 to 2018 to 2020 to 2025 to now end of 2026. The difference this time around is that most of the required supporting infrastructure, legal framework and supporting institutions are in place, coupled with the FID in 2022.
Revenues from crude oil sale is something the government has long looked forward to propel the economy between 7-10 per cent forecast, up from the current stagnation of 4 per cent.
According to the World Bank, Uganda could earn up to $3b (approx. Shs10.9 trillion) in oil revenues as production picks up over the cycle.
However, like countless other actors have chorused, the Bank says this is only possible if revenues don’t just end up in the country’s leaders personal bank accounts but are channeled to development of human capital, and if an effective sharing formula is ensured for revenues to trickle down to local government entities.
Conversely, since April 2021 when the key EACOP agreements were signed off, the BoU has reported an increase in Foreign Direct Investments (FDI) on account of the international contractors and subcontractors setting up shop in the country.
According to PAU, which approves work plans and takes stock of contracts, contracts in the region of $5b (Shs18.2 trillion) have been awarded on the Tilenga, Kingfisher, and EACOP, out of the $7.2b (Shs26.3 trillion) approved as of October 2024. Of these, contracts worth $2b (Shs7.3 trillion)—representing 41 percent of the total contracts awarded—have been allocated to Ugandan companies.
Some 14,451 people, of whom 13,048) are Ugandans (90 percent), have been employed to-date.
KEY FIGURES
•EACOP capex—Shs18.2 trillion
•Refinery capex—Shs14 trillion
•Shs26 trillion—contracts approved by Petroleum Authority of Uganda (PAU) as at October 2024
•13,048— Ugandans employed in the sector
•1,443km-length of EACOP. EACOP is one of the two mediums for commercialising Uganda’s oil. The other medium is the refinery. •The oil pipeline runs 296km through 172 villages in 25 sub counties in 10 districts in Uganda, and 1,147km through 25 districts on the Tanzania side.
•The EACOP company shareholders led by majority shareholder, Total Holdings International B.V with 62 percent stake, are working around the clock to woo the Chinese-state owned credit insurance bank, Sinosure, to commit financing to the project
