On 11 September 2017, the Tanzanian government provided the necessary ratification for an Intergovernmental Agreement (“IGA”) between Uganda and Tanzania relating to the East African Crude Oil Pipeline (“EACOP”). The EACOP will allow crude oil to be transferred from Hoima in Uganda to Tanga Port in Tanzania. The approval by Tanzania marks a significant and positive step forward in the development of what will be the longest electrically heated crude oil export pipeline in the world.
The Ugandan cabinet had previously approved the IGA in mid-August.
Project details and significance
The EACOP will run for approximately 1,445-kilometres with a forecasted construction budget of over $3.55 billion and will have the capacity to transport 216,000 barrels of oil per day once fully operational. It is thought that the EACOP will dramatically increase the viability of oil extraction opportunities in Uganda which has vast reserves, estimated at 6.5 billion barrels of which 1.7 billion are thought to be recoverable.
Developments at Tilenga, the Northern Lake Albert Upstream Project, and Kingfisher Upstream projects are contingent on the EACOP’s construction which is expected to begin in early 2018 and projected to take 36 months. Uganda believes it can begin exporting crude oil via the port of Tanga in Tanzania by 2020.
Terms of the Treaty and financing of the EACOP
The IGA stipulates areas of cooperation between the two states, rights and freedoms for the project operators as well as the concessions that the respective government will provide for the project. It also covers the terms on tax incentives for the project, implementation timelines, the size of the pipeline and local content levels.
The project is to be implemented through the establishment of an SPV pipeline company which will comprise the two governments and France’s Total SA, the UK’s Tullow Oil and China’s National Offshore Oil Corporation (CNOOC).
The EACOP SPV will be responsible for financing the project with an expected 60:40 debt to equity split. Uganda’s StanBic Bank and Japan’s Sumitomo Mitsui Banking have been appointed as joint financial advisers.
Opportunities for International Oil and Gas and Infrastructure Companies
A Shell, Exxon Mobil, Statoil and Ophir Energy JV have plans to build a $30 billion onshore liquefied natural gas (LNG) export terminal in partnership with the state-run Tanzania Petroleum Development Corporation (TPDC). Current projections indicate that investment in the sector in Uganda could be as much as $8 billion (Shs27 trillion) to undertake the drilling of approximately 500 wells and the construction of associated infrastructure before commercial production begins in 2020.
Co-authored by Nyambura Kiarie
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