A new Finance Risk Update on the East African Crude Oil Pipeline (EACOP), published today, sets out the growing risks to financiers, including banks, insurers and investors, from TotalEnergies’ controversial oil pipeline, under construction between Hoima in Uganda and the port of Tanga in Tanzania.

The Risk Update, by BankTrack, AFIEGO, Inclusive Development International (IDI) and others, summarises important developments since the organisations’ previous risk update in April 2023. In that time, the avenues for project financing and (re)insurance have further narrowed for the project sponsors. One of the project’s financial advisers, Japanese bank Sumitomo Mitsui Banking Corporation (SMBC), has withdrawn from the project, and other key potential financiers, the UK’s Standard Chartered and Japan’s MUFG, have also declared themselves out, leaving the project reliant on potential but still uncertain support from China. In addition, after months of pressure from activists, (re)insurance companies SiriusPoint, Riverstone International, Enstar Group, and specialty insurers Blenheim and SA Meacock have ruled out involvement in the EACOP. This brings the total number of re(insurers) that have committed not to insure the project at 28. With local insurers only able to cover 30% of the project, the lack of insurance for the EACOP presents an additional risk to the project’s future.

Meanwhile, new research summarised in the Risk Update has demonstrated the severe flaws in, and severe impacts, of the land acquisition and compensation process. For example, Human Right Watch showed how affected communities have endured pressure and intimidation to agree to inadequate levels of compensation. AFIEGO found that, of individuals from 237 EACOP-affected households, 96.6% did not receive replacement land equivalent to that impacted by the project, while 78.1% received delayed, unfair, and inadequate compensation. In another worrying development, the High Court in Hoima, Uganda ordered 42 families to leave their land before receiving compensation. Their compensation will be deposited in court only once TotalEnergies has acquired their land for the Tilenga project. In a departure from its previous confident stance on the land acquisition process, TotalEnergies has announced an evaluation of the relocation and compensation procedures for both the EACOP and the Tilenga oil field.

As many major North American, European and Japanese lenders have refused support to the project, Chinese financial institutions are emerging as a last resort for funding the EACOP. Due to the financing hurdles, financial close has been further delayed to April or June 2024.

The unmanageable and growing risks of this project are of relevance not only to banks and reinsurers considering direct support for its construction, but also to financiers including banks and asset managers that are exposed to TotalEnergies and CNOOC, the project’s main corporate sponsors. These financiers are linked to the tremendous impacts of the project to human rights, climate and nature, as well as being exposed to its financial risks, and the Risk Update recommends urgent steps to manage and address these impacts.