Uganda’s projected oil revenues could shrink sharply after costs for the East African Crude Oil Pipeline (EACOP) surged to $5.6 billion, about 55 percent above earlier estimates, according to a new analysis.
In a report titled Reassessing Oil in Uganda, the Institute for Energy Economics and Financial Analysis (IEEFA) said the rising costs of the pipeline project could significantly erode the government’s anticipated earnings from future crude exports.
The pipeline, designed to transport crude oil from western Uganda to Tanzania’s Indian Ocean coast, was initially budgeted at a far lower cost before the final investment decision. The revised estimate of $5.6 billion reflects cost overruns and delays that have altered the project’s financial outlook.
IEEFA modelled several oil price and global demand scenarios and found that Uganda’s oil revenues could fall by as much as 53 percent compared with projections made before the cost revision. The think tank said the decline would stem from the combined effects of higher capital expenditure, delays and market uncertainties.
The financial returns for oil companies involved in the project are also expected to decline, though to a lesser extent. According to the report, company earnings could drop between 25 percent and 34 percent relative to initial forecasts.
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Under existing oil production-sharing agreements, companies are permitted to recover their capital investments before profits are shared with the host government. As a result, increased spending on infrastructure such as EACOP means a larger portion of early oil revenues will go toward cost recovery, delaying the point at which Uganda receives a full share of profits.
Despite the financial concerns, Uganda and Tanzania are pressing ahead with plans to launch exports later this year. Following talks between President Samia Suluhu Hassan of Tanzania and President Yoweri Museveni of Uganda, officials announced a target of July for the first crude shipment.
The 1,443-kilometre pipeline will run from oil fields in western Uganda to the port of Tanga in Tanzania. Authorities say construction is approximately 79 percent complete, marking the final stretch of infrastructure works linked to the development of the Tilenga and Kingfisher oil fields.
Uganda has long pinned hopes on oil production to boost state revenues, fund infrastructure projects and reduce reliance on external borrowing. The country’s recoverable oil reserves are estimated at about 1.4 billion barrels, with production expected to reach around 230,000 barrels per day at peak.
However, analysts have cautioned that global energy transition trends, oil price volatility and high capital costs pose risks to long-term profitability. The IEEFA report adds to a growing debate over whether Uganda’s oil investments will deliver the fiscal windfall once anticipated.
For now, both Kampala and Dodoma remain focused on meeting the July export deadline, viewing the pipeline as a strategic project that could transform regional energy trade despite mounting financial pressures.
