November 28, 2022

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Gov’t Seeks Approval of UGX 487 Billion Loan to Finance Oil Pipeline Shares

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The Minister of State for Planning, David Bahati has asked Members of Parliament to approve a loan request of 487 Billion Shillings to finance Uganda’s initial equity shares and historical costs for the East African Crude Oil Pipeline (EACOP) project.

On Thursday, Bahati appeared before parliament’s National Economy Committee to defend the loan request (US Dollars 130 million) that government intends to secure from the domestic market. He was accompanied by the Minister of Energy and Mineral Development Mary Goretti Kitutu and officials from Uganda National Oil Company (UNOC).

The Oil Pipeline project is under UNOC which was established to manage the country’s commercial aspects of petroleum activities and the participating interests of the State in the agreements. 

It is a 1,445km long heated pipeline that will transport crude oil from the Tilenga and Kingfisher projects from the delivery point in Kabaale, Hoima to the Indian Ocean Port of Tanga in Tanzania.

“Negotiations for the Final Investment Decision (FID) for EACOP are in advanced stages. The EACOP Bill has been drafted and is under discussion between Government and the Oil Companies before it’s eventually presented to Parliament. Conclusion of these negotiations and the Bill will pave way for FID and thus enabling construction to start,” Bahati explains.

He however said that before construction commences, the Government of Uganda is required to provide 487 billion Shillings in the current financial year 2020/2021 for the Final Investment Decision -FID for East African Crude Oil Pipelines expected in March 2021.

“Given the time frame, it is not possible to mobilize tax revenues or timely mobilize external resources which follow specific processes, hence the need to turn to the domestic market,” says Bahati. 

The Minister said that domestic borrowing will be done through the issuance of securities like Treasury Bills and Treasury Bonds which are short-term debt instruments (Between 91 days and 364 days) and long term debt instruments with a maturity of more than a year, respectively.

The tenor for long term instruments in Uganda ranges between 2 to 20 years but their maturity can extend to more than 20 years. 

Bahati explains that depending on the type and tenure of securities, the government expects to issue instruments through the Central Bank in the interest rate range of 7% to 18%.

Parliament’s National Economy committee learnt that the loan request follows the signing of the Inter-Government Agreement for the Crude Export Pipeline in May 2017, which paved way for the Front-End Engineering Designs (FEED) and Environmental Social Impact Assessment (ESIA). 

These undertakings were conducted and financed by Total on behalf of the Government constituting historical costs amounting to US Dollars 60 million but are to be reimbursed by the Government upon signing of the Shareholders Agreement and Final Investment Decision. 

Uganda Radio Network- URN learnt that the 487 billion extra domestic borrowing requests will see the Net Domestic Financing (NDF) this financial year 2020/2021 rise from 6.31 trillion to 6.79 trillion Shillings.

Bahati says that the domestic debt stock is expected to reach 24 trillion as at end of the current financial year 2020/2021 when the additional borrowing of 487 billion is approved by parliament.

However, a section of MPs led by the Committee Chairperson Syda Bbumba raised concern about the move by the government to compete with the private sector. 

“Unfortunately, the banks will prefer to lend to the government rather than private individuals. This causes stiff competition which affects the business community,” said Bbumba. 

She also questioned how the project intends to benefit the local Ugandans through local content.

Ruhinda North MP, Thomas Tayebwa questioned whether UNOC has technical capacity and software to monitor the activities of the private sector involved in the deal citing Total and other Oil Companies. 

 Energy Minister Mary Kitutu said that the project will bring in a lot of opportunities especially after the signing of the Final Investment Decision. She says that the project will lead to the creation of jobs since they will need 5000 certified welders.  

The other benefits of the project are that Uganda will access the international oil market and bring in revenue, provide a market for supplies of locally available goods and services and others.

The expected net revenue from the project to UNOC over 25 years is 5.816 trillion Shillings (US Dollars 1.572 billion).    

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