Stanbic defies energy transition, promises to finance oil and gas developments
Kampala, Uganda | THE INDEPENDENT | Stanbic Bank says it will give capital for oil and gas developments in Uganda. The bank’s stand comes amidst growing opposition against fossil fuels including oil and gas in favor of renewable energy.
Stanbic, part of Standard Bank Group says it can offer up $70 million to a single company investing in the oil and gas sector in Uganda.
The Bank’s Head Of Power and Infrastructure says it is crucial that Ugandan companies get prepared to participate the upcoming developments as oil companies prepare for the flow oil from the Albertine.
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 the country. About six billion or 30% of the money has been earmarked for the local contractors.
“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,” said Henry Kamuntu.
Kamuntu said he believes the delays have created room for individuals to create the capacity, to build themselves for this opportunity. And this, he added, also extends to the banking sector.
According to Kamuntu, Stanbic alone controlled almost 20% of the local balance sheet capacity in 2020. “We have at least a single limit of seventy million dollars. So we can lend up to$70 million of our local balance sheet to any local contractor looking to participate in this transformational opportunity” Kamuntu revealed
He said generally there is sufficient 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 that has representation in twenty African countries. Stanbic also has representation in international markets that include 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” Kamuntu said
Oil and gas development are projected to bring to Uganda and Tanzania over $10 billion dollars in the coming years.
Total’s Tilenga project recently awarded a conditional Letter of Award for the future contracts valued at approximately $2 billion.
Schlumberger Oilfield Eastern Limited, one of the companies that signed the conditional Letters of Award with Total said it has reserved over 500 jobs for Ugandan suppliers.
Schlumberger Exploring’s Director Strategy and Marketing, Raphael Guerithault recently told Uganda Chamber of Mine’s Oil and Gas Convention that Ugandans could take up $40 Million in goods and services s 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 funds oil and gas projects.
The Energy Transition and Oil and gas financing
The issue about energy transition keeps on emerging whenever there is talk about financing for oil and gas space Uganda and at international level. It simply refers shifting from fossil fuels to renewable energy
He says 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. That is affecting the project financing space.
Eric Olanya, the country Director UK Department of International Trade at the British High Commission 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 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” said Olanya
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 appetite for black gold ends.
But for now, some financial institutions have followed Stanbic Bank’s path by continuing investing of support fossil fuels despite local and international campaign in favor of renewable energy.
In March, a report Banking on Climate Chaos 2021 said 60 largest commercial and investment banks across the World collectively financed $3.8 trillion 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 $1.7 billion to $10.8 billion.
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