At least 10 banks have refused to finance the East African Crude Oil Pipeline (EACOP) project, saying it is an environmental risk.
According to the banks, EACOP is expected to produce emissions of about 34 tonnes of carbon dioxide at peak production annually.
This, they say, means it is not in line with their principle not to lend to projects that do not meet the Paris Agreement goals on climate change.
Some of the proposed project funders are Standard Bank Group, Sumitomo Mitsui Banking Corp and the Industrial and Commercial Bank of China.
But the lenders also say due to the oil price fluctuation, EACOP is fraught with investment risk while international markets where the oil is to be exported are also embracing clean energy.
Global insurers and export credit agencies, including French multinational AXA, have also withdrawn their funding support.
This comes after over 260 charities in March 2021 urged banks not to provide loans for the $3.5bn oil pipeline project in East Africa, saying the 1,445km project could increase carbon emissions and cause loss to community land and livelihoods.
“In light of the climate change crisis, many countries have made commitments to clean up their energy systems by promoting renewable energy,” the charities said.
“No responsible bank should finance the East African Crude Oil Pipeline (EACOP) project well knowing that the economic, environmental, climate change and social risks of the project are too immense,” they added.
Despite these fears, the project sponsors say they will secure funding for EACOP as it remains the only component holding back Uganda’s oil project that remains unfunded, and therefore failing first oil production target of 2025.
“Following conclusion in April of final agreements with the Uganda and Tanzania governments needed to launch this project, many banks [and] international organisations have confirmed their interest in participating in this funding,” TotalEnegies, the lead investor in EACOP, told shareholders recently.
The shareholders of the EACOP, also known as the Hoima-Tanga oil pipeline, are TotalEnergies (62 percent), Uganda National Oil Company (15 percent), Tanzania Petroleum Development Company or TPDC (15 percent) and China National Offshore Oil Corporation (8 percent).
The oil pipeline project will run from western Uganda through Tanzania to the Indian Ocean port of Tanga.