Business Maverick

Business Maverick

Decision Near on East African Pipeline, Standard Bank Says

Decision Near on East African Pipeline, Standard Bank Says
(Photo: Dean Hutton / Bloomberg via Getty Images)

A controversial $4 billion crude oil pipeline to link Uganda and Tanzania has overcome a key hurdle that delayed a final decision, according to Standard Bank Group Ltd. 

Negotiations can now conclude after Tanzania settled a disagreement with some Chinese funders on a separate matter, according to Kenny Fihla, the chief executive officer for the lender’s commercial and investment banking unit.

“That’s where the delay was because of the historical dispute between the Tanzanian government and some of the Chinese funders, which had nothing to do with the project, but it needed to be resolved to enable an agreement on the pipeline,” Fihla said in an interview. “We’re told that the agreement has been reached.”

Standard Bank can only decide whether to invest as much as $100 million after project developer TotalEnergies SE, China’s CNOOC Ltd., Uganda and Tanzania agree on the financing structure, Fihla said. Standard Bank is also awaiting completion of an environmental and social impact assessment study, Chief Executive Officer Sim Tshabalala said last week.

“The data-gathering process and response is close to finality,” Fihla said. “If we’re comfortable with that, we’ll say yes, but if we’re uncomfortable with that, we’ll either require further studies or we’ll say no.”

Uganda will seek other sources of financing for its portion of the pipeline after the China Export and Credit Insurance Corp., or Sinosure, failed to announce it’d be investing, Energy Minister Ruth Nankabirwa said Tuesday. Negotiations with Sinosure and the Export-Import Bank of China for the funding were close to conclusion at the end of last month, Kampala-based New Vision newspaper reported.

Read more: Chinese Lenders to Offer Uganda Oil Pipeline Finance: New Vision

Heavy Criticism

The 1,443-kilometer (897-mile) pipeline should start transporting oil in 2025 and ferry 246,000 barrels daily at peak, according to a project website. TotalEnergies has a 62% stake in the planned conduit that once complete will be the world’s longest heated pipeline. State-owned Tanzania Petroleum Development Corp. and Uganda National Oil Co. each have a 15% interest, while the rest is owned by CNOOC. The project will be funded on a 40:60 equity-debt ratio, according to UNOC.

The bank has come under heavy criticism by environmental groups citing potential damage to the habitats of endangered wildlife species and displacement of at least 118,000 people. As many as 260 civil society organizations have asked lenders, including Standard Bank, not to participate.

Read more on the pipeline here

The economic impact of the project on Uganda’s economy is, however, not in doubt, according to Fihla.

“This project and the development will go ahead with or without the participation of Standard Bank,” he said. “It is not dependent on Standard Bank’s funding at all. We will fund it – if we ultimately decide to – because it’s the right thing to do for the economy of Uganda and Tanzania, and because we think all the issues have been adequately dealt with and addressed.”

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