Oil and gas developments in Uganda will receive capital from Stanbic Bank amidst growing opposition against fossil fuel that include oil and gas in favour of renewable clean energy.
Mr Henry Kamuntu, Stambic Bank’s Head of Power and Infrastructure, says it is important that Ugandan companies to prepare to participate in the upcoming developments as oil conglomerates prepare for the flow of oil from Uganda’s Albertine Graben.
The bank, which is part of Standard Bank Group discloses that it can offer as much as up to $70m to a single company investing in oil and gas industry in Uganda.
“It is a very exciting period. I’m one of those who strongly believe that if this opportunity had come even two or three years ago, I don’t believe that we would have been holistically ready as a country for the opportunity to participate in it. I believe the delays have created room for individuals to create the capacity and to build themselves for this opportunity. And this also extends to the banking sector” Mr Kamuntu says.
It is estimated that between 15- 20 billion dollars will be spent to develop the oil and gas sector in the next five years in Uganda. About six billion dollars (30%) of the money has been earmarked for the local contractors.
Mr Kamuntu says Stanbic Bank alone controlled almost 20% of the local balance sheet capacity last year.
“We have at least a single limit of $70m. So, we can lend up to $70m of our local balance sheet to any local contractor looking to participate in this transformational opportunity.”
Mr Kamuntu adds that there is enough sector leaning headroom to support the oil and gas sector given the growing loan to deposit ratio. The banking sector figures for 2020 indicated that the total loan to deposit ratio was about 59.4%
Stanbic is part of the wider Standard Bank Group operating in 20 African countries and is represented in international markets including London, New York and Beijing.
“In our ability to support the local content players, our understanding of all these international players who are coming to play in our oil and gas opportunity, we have relationships and our ability to draw these relationships to support these International Oil Companies with understanding the local markets play. We have significant local markets presence. We are the largest bank in Uganda.”
Oil and gas development are projected to bring to Uganda and Tanzania over $10b in the coming years.
Total’s Tilenga project recently awarded a conditional Letter of Award for the future contracts valued at approximately $2b.
Schlumberger Oilfield Eastern Limited, one of the companies that signed the conditional Letters of Award with Total says it has reserved over 500 jobs for Ugandan suppliers.
Schlumberger Exploring’s Director Strategy and Marketing, Raphael Guerithault, recently told Uganda Chamber of Mines Oil and Gas Convention that Ugandans could take up $40m in goods and services as part of the national and local content requirements.
One of the biggest challenges will be whether Ugandan suppliers will be able to raise the needed financing from local and international banks amidst campaigns urging banks not to fund oil and gas projects.
War against use of fossil fuels
Some developed countries want an energy transition from use of fossil fuels that include oil and gas to renewable energy on the globe.
In December last year, the UK Prime Minister, Boris Johnson, made a policy decision that the UK government will no longer support fossil fuel projects and that line of policy is being adopted by many countries in the West. The policy is now affecting the project financing space in Uganda and internationally.
The Country Director UK Department of International Trade at the British High Commission, Eric Olanya, says the result of such decisions is that companies in the oil and gas sector are finding it harder to find project financing.
“I’m sure you have seen from the bankers and from others mainly the green campaigners that are pushing against financing and restricting capital to these investments,” said Mr Olanya who has been a sector lead for infrastructure in agri-tech and renewables.
The trend, according to Olanya is that based on the energy transition capital is being restricted towards fossil fuel projects including oil and gas.
“It is being channeled mainly to what we call green projects. And what that means, therefore, is that in my view, I foresee that there will be stranded oil and gas assets in many countries” he adds.
One way out of the dark future for oil and gas sector is for countries like Uganda to act fast and exploit the resources before the demand for black gold ends.
But for now, some financial institutions have followed Stanbic Bank’s path by continuing investing support in fossil fuels despite local and international campaign in favour of renewable energy.
In March, a report titled “Banking on Climate Chaos 2021” said 60 largest commercial and investment banks all over the world collectively financed $3.8t in fossil fuel companies between 2016 and 2020.
According to the report, China Minsheng Bank had the second highest percentage change in fossil fuel financing from 2016 to 2020 with a 550% increase as its financing went from $1.7b to $10.8b.