The East Africa Crude Oil Pipeline will be an important factor in making Uganda’s expected oil revenues a reality. As the pipeline continues to attract public interest, EITI reporting can shed light on the management and benefits of the project.
Oil pipelines are often the subject of debate, and recent headlines show this to be the case with the East Africa Crude Oil Pipeline (EACOP). Upon completion, the 1,443-km structure will be the longest heated oil pipeline in the world, transporting up to 216 000 barrels of oil per day from Uganda’s Albertine Graben to Tanzania’s Tanga port. With construction set to begin in 2021, the project will cost an estimated USD 3.5 billion.
The pipeline has brought to the fore environmental concerns, expectations of revenues and local employment and development opportunities. A recent transnational agreement indicates progress towards the final investment decision on the project, attracting media and public attention. As the pipeline will span over two EITI implementing countries, the EITI can play an important role by informing public debate on the project.
Source: East Africa Crude Oil Pipeline
Oil pipelines: What’s at stake?
In some countries, pipelines can be a critical part of oil infrastructure. For landlocked Uganda, the planned pipeline will be the only way for oil to reach the global market, making it economically significant. Yet oil and gas pipelines also attract public attention because of their potential impact on the environment. Pipelines traverse vast distances which include critical natural habitats, and in some cases can result in oil spills and or the displacement of local communities.
Pipelines are also expensive to build. They often depend on debt financing, thus becoming a liability for governments or government-owned companies. Tanzania’s USD 1.3 billion Dar-Mtwara pipeline was largely financed through a China Eximbank loan to its national oil company, Tanzania Petroleum Development Corporation (TPDC). More than half of the EACOP’s total cost is expected to be funded through debt financing.
Where oil producers are also involved in developing and operating a pipeline, as is the case in Uganda, the pipeline’s balance sheet forms an important part of the overall economic viability and success of an extractive project. According to Tanzania’s 2017-2018 EITI Report, the EACOP will be constructed and operated by a company owned by Total SA (35%), China National Offshore Oil Corporation (35%), the Uganda National Oil Pipeline Company (15%) Tullow Oil (10%) and TPDC (5%). Transparency in the distribution of ownership is essential to understand shareholders’ level of investment in the pipeline and their likely returns over the lifetime of the project.
Connecting the dots with EITI reporting
EITI reporting, both in Uganda and Tanzania, can promote transparency and accountability over the development and management of the pipeline. The 2019 EITI Standard requires governments to disclose revenues generated by the transportation of oil, gas and minerals, if significant. Countries are further encouraged to disclose the arrangements, taxes, tariffs, volumes and parties involved in resource transportation in their EITI reporting.
Data related to the EACOP’s tariff and “throughput” – the volume of oil, that is required to keep the pipeline economically viable – are of particular importance to inform decision making in Uganda and Tanzania. The volume of oil transported through the pipeline will be a factor in any decision on the proposed Uganda oil refinery. The tariff has an impact on the profitability of the pipeline and the revenues owed to Uganda and Tanzania’s governments. When determining a rate for the tariff, the pipeline company will consider covering the costs of constructing and operating the pipeline, paying taxes and generating return on the investment.
Civil society organisations have expressed concerns about the environmental impacts of the EACOP, underscoring a need for data on these issues. EITI reporting can shed light on the environmental monitoring and management of extractive activities, including pipelines. To this end, Uganda and Tanzania could disclose information on the legal provisions and actual practice of the EACOP’s environmental management and monitoring, including environmental impact assessments, monitoring procedures, administrative and sanctioning processes of governments, as well as environmental liabilities, environmental rehabilitation and remediation programmes.
Communities and organisations representing community interests have also raised concerns about the lack of public inclusion in decision-making, particularly in relation to the project’s impacts on land and livelihoods. The EITI’s multi-stakeholder platform can provide a forum for civil society to discuss and debate issues related to extractive governance. The EITI Protocol on civil society participation underpins this inclusive approach, ensuring diverse stakeholders have a voice when it comes to informing governance decisions and public debate.
Several EITI implementing countries offer good examples of reporting on oil and gas pipelines. Tanzania already has experience disclosing information related to its natural gas pipelines. Its latest report shows tariff payments of nearly USD 10 million paid to TPDC for natural gas transportation through the Dar-Mtwara and Songas pipelines.
Source: Ukraine 2017 EITI Report
Further afield, Ukraine’s EITI reporting covers the country’s network of oil and gas pipelines, disclosing tariffs and the calculation methodology thereof. Its reports show how much oil has been transported and how much revenue the pipeline company generated over time, giving an indication of long-term trends. Mongolia’s 2018 EITI Report includes information on environmental monitoring and management, including data on companies’ rehabilitation efforts, compliance with environmental laws, water usage and environmental payments.
These reporting practices can provide lessons for similar disclosures in Uganda and Tanzania, as oil and gas transportation becomes increasingly significant. While the pipeline may only become operational in 2024, there is scope for these countries to use EITI reporting to publish key information ahead of its development, thereby strengthening transparency and informing dialogue on a matter of public interest.
Photo source: East Africa Crude Oil Pipeline, eacop.com.