Standard Bank is unlikely to provide more than 2% of the funding required for the controversial East African Crude Oil Pipeline (EACOP), a project condemned by environmental groups that will see Uganda’s oil transported to a port in Tanzania for export.
While Standard Bank is so far only acting as a financial adviser on the project, it has said its decision on whether to provide financing for EACOP will be guided by an environmental report by Golder Associates, which is still being reviewed by its internal experts.
Kenny Fihla, the CEO of Standard Bank’s corporate and investment banking (CIB) unit, told Business Day that should the bank opt to help fund the project it would most likely not provide more than $100m in finance, an amount that equates to just 2% of a project cost he now says has swollen to about $5bn.
While most reports have described the project cost as being around $4bn, Fihla says the latest estimates received by Standard Bank show the cost will be closer to $5bn for the 1,443km pipeline being punted by oil groups CNOOC, TotalEnergies and Tullow. Fihla says between $2.5bn and $3bn of the total project cost is likely to be funded with equity finance, a process that involves ceding an ownership stake in exchange for capital, while the remaining $2bn to $2.5bn will be raised from development finance institutions and other lenders.
“Standard Bank is unlikely to participate — if at all we decide to participate — for anything that will be more than about $100m,” Fihla said in an interview. “Our involvement is actually insignificant in the broader scheme of things.”
At least 20 international banks have so far ruled out funding the EACOP project while a growing number of insurers, reinsurers, development finance institutions and export credit agencies have also said they will not participate. Earlier this month the European Parliament became the latest body to denounce the project when it adopted a joint motion for a resolution on reported human rights abuses as well as environmental and climate risks linked to EACOP and other fossil fuel projects in Uganda.
SA-based shareholder activist group Just Share has also criticised EACOP, saying it will contribute negatively to climate change while also calling into question the commitment of TotalEnergies and the Ugandan government to use revenues from oil exports to benefit the poor. Fihla says critics of banks looking to fund the project should instead welcome their participation as it will enable stronger environmental and social oversight.
“Who puts conditions and covenants in place and makes sure they are enforced?” said Fihla. “On some of these things it is in their interest to actually want commercial banks like Standard Bank to be involved ... so they can extract the conditions they require.”
Commenting on Just Share’s criticism of EACOP, Standard Bank CEO Sim Tshabalala said while he respected the group’s position, it had to consider the potential economic benefits for Uganda, Tanzania and the rest of the East Africa region. Standard Bank could not simply rule out funding the project given its status as the largest bank in Uganda, where it operates under the Stanbic brand.
“The people of Uganda and Tanzania have a say about what this means for their economies,” he said. “It’s not like we are callous and don’t understand the environmental, social and ethical questions at play. There’s a temptation to believe that this is a simple matter of either supporting a project or not. It’s a dilemma with profound ethical implications and we’re working through them.”
However, the ethics of the project, as well as the potentially positive socioeconomic impact it may have get somewhat murkier when one considers that Uganda President Yoweri Museveni has been in power since 1986, rendering the country a virtual dictatorship. While the jury is still out on Tanzania President Samia Suluhu Hassan after she succeeded the late John Magufuli in March 2021, the country is known to have strict laws governing media criticism while rallies by political opposition are also banned.
“It is now abundantly clear that Standard Bank is making this decision purely on the basis of its own commercial interests and is seeking to justify it in advance by resorting to arguments about energy security, energy access and socioeconomic benefits,” said Robyn Hugo, director of climate change engagement at Just Share.
“It is clear from the multiple findings by human rights organisations, Ugandan NGOs and now the European Parliament that the political situation in Uganda is such that it is far from certain that any benefits from this project would actually accrue to ordinary people or support long-term sustainable development outcomes for the region.”
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