EnergyMining, Oil & Gas

Uganda now signs agreement to develop oil refinery

By Jacob Okwii.

In what can be seen as a major turn towards oil production, the government of Uganda has signed an agreement with a consortium that will fund and develop the country’s oil refinery. This is one of the two major upstream oil activities the country has been pursuing in its long drawn oil exploration history. The other is the construction of the pipeline to take crude to the coast for export.

The consortium- The Albertine Graben Refinery Consortium includes Nuovo Pignone International SRL (General Electric in Italy), Intra-Continent Asset Holdings of the US, YAATRA Ventures LLC of Mauritius and SAIPEM SpA of Italy. The Uganda National Oil Company represents Uganda’s interest in the consortium.

The Project Framework Agreement that has just been signed will ensure development, design, financing, construction, operation and maintenance of the oil refinery. The consortium will inject up to US$ 4 billion into the project.

The project is managed under the private public partnership arrangement in which the Albertine Graben Refinery Consortium takes up 60 per cent of the shareholding while the government of Uganda holds 40 per cent. In the past, the government of Uganda has interested other East African countries in taking up stakes on the refinery. So far, only Tanzania has publically said they will take up some stake on both the refinery and pipeline.

A statement seen by The Infrastructure Magazine signed by Robert Kasande, the permanent secretary in Uganda’s ministry of Energy & Mineral Development said, “Under the PFA, the consortium will be responsible for funding the pre-final investment decision activities and will proceed thereafter to construct and operate the refinery.”

The signing of the PFA agreement marks the beginning of pre-final investment decision activities like engineering and design of the project. The treaty as well mandates the consortium to do estimations on project capital, investment costs and environmental and social impact of the project to its definite effectiveness.

On the successful completion of this refinery, it is expected to supply products such as petrol, diesel, kerosene and heavy oils. The refinery will initially uptake 30,000 barrels of crude per day, eventually growing that to 60.000.

While meeting a delegation from General Electric in October 2017, Ugandan President Yoweri Museveni emphasized his interest to ensure “a cost-effective, technologically sound and profitable refinery.”

US based media group Bloomberg News reported late in 2017 that the AGRC consortium was selected from over 40 different proposals.

It will also be remembered that initially Russians were favoured for Uganda’s refinery. Then the government of Uganda actually got into negotiations with the Russian Government owned group, RT Global Resources LLC in consortium with South Korean company, SK Engineering and Construction Company. The deal collapsed when the Russians pulled out of deal, at the time citing unsuitability of the agreement. The US based business newspaper, The Wall Street Journal in June 2016 reported that the Russians had insisted on un-named tax breaks, which the government of Uganda turned down.

At the time, Russia was excited about the project. “The Rostec win in this (Ugandan) tender was the first achievement of this kind for a Russian company in Africa in (the) new history of Russia….Implementation of this project will generate additional demand for high-tech Russian equipment-within the scope of this project we will see the transfer of Russian technologies,” a statement posted on Rostec website said.

RT Global Resources is a subsidiary of the Russian state-owned Rostec. Sergey Chemezov, CEO of Rostec, at the time said, “The consortium led by RT Global Resources Company won the tender for construction of the refinery as a result of tough, transparent competitive struggle with global companies.”

Following the collapse of the negotiations with the Russian group in 2016, the government initiated another round of negotiations with a Chinese consortium led by China Petroleum Engineering Construction Corporation (CPECC). This group included Chinese companies China Exim Bank, China Africa Fund for Industrial Corporation, Guangzhou Silk Road, East China designing & Engineering Institute, among others. This group was fronted by a Uganda based Chinese company, Dongsong Energy Group. However, in June 2017, Dongsong wrote to the government to say they were pulling out of the negotiations. Sources said the pulling out of the consortium head (CPECC) was occasioned by disagreements within the consortium. Negotiations with The AGRC started.

Uganda has an estimated 6.5 billion barrels of oil, of which 1.4 billion is recoverable.

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