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Refined or crude? Battle for Uganda oil turns murkier

Saturday July 11 2009
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A Petrocity depot at Kyengera, Kampala. There is a lot at stake if Uganda builds an oil refinery with the capacity to serve the regional market and beyond. Photo/MORGAN MBABAZI

Competing interests tagged to either building of an oil refinery in Uganda or exporting crude products are delaying the country’s oil programme as the scramble to gain from the “liquid gold” intensifies.

The EastAfrican has learnt that some interested parties are convincing the government to export crude oil as the best economic option.

They say the oil-type here has a high content of sulphur and wax, making it very expensive to refine, against the contemporary ideology of value-addition on products from poor countries.

This is happening amid government secrecy over what is happening to an oil programme that anticipated production of at least heavy fuel this year, partly to rid the country of a power shortage through fuel-intensive thermal power.

Sources say there is a lot at stake if Uganda builds an oil refinery with the capacity to serve the regional market and beyond.

Those pushing for export of crude oil are local and foreign entities with interest in the logistics industry.

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They expect to gain by continuing to ferry refined oil from the coast.

The second group includes representatives of oil-producing governments and multinationals that want to either import the crude to be refined back home, or to safeguard their market here, regardless of where Uganda sells her produce.

Apparently, they put forth a powerful voice to the extent that President Yoweri Museveni started doubting his own conviction to refine oil in Uganda.

After Claude Landry, a Canadian oil expert with 50 years of experience in the sector, told him that refining oil in Uganda is economically viable, President Museveni was quoted in the local media saying: “You’ve immunised me against any confusion on the issue.”

It is understood that established cartels of some oil-producing countries and multinationals are not comfortable with another major producer such as Uganda — with two billion barrels of oil already confirmed — joining the club.

They have set up refineries across the world to serve sub-regions like Asia, Africa and Europe.

By refining oil and supplying it to the Great Lakes market, as hoped, Uganda could significantly impact on the current market order.

Stephen Biraahwa, chairman of the National Economy Committee in Parliament, says intrigues by powerful cartels over Uganda’s oil resources started when an arrangement to exploit the resource, jointly with DR Congo, went under with the Joseph Mobutu Seseseko regime.

Apparently, President Museveni and the late Mobutu, ex-President of DR Congo, then Zaire, had agreed to exploit oil near the two countries’ borders jointly.

“DR Congo was ahead in the oil programme until the crisis that befell the country. When the Mobutu-Museveni arrangement failed, many multinationals and other entities lost out, and intrigues set in,” said Mr Biraahwa.

Where oil producing companies invest in refineries, they have significant control of downstream companies in sectors like transport and insurance.

Usually, they also have a stake in oil tankers, pipelines and railway entities.

Secondly, financing institutions for big-ticket projects like an oil refinery are the same ones that funded entities which established the existing refineries in the world.

They have a repayment arrangement based on the then global market.

Funding another refinery to serve East Africa and beyond means removing a substantial market share from their current borrowers, and perhaps interrupting the pace of debt repayment.

Sources also say Kenya is informally engaging Uganda in a refinery arrangement, given that it already has a refinery in Mombasa.

Uganda argues that Mombasa refinery is too small to serve the region.

But if such an agreement is made, Kenyan could refurbish and expand the capacity of its refinery and pipeline.

Private pipeline companies like Tamoil are engaged in building an extension of the pipeline from Kenya to Uganda and across to Rwanda.

Should Uganda begin refining its oil, the investment could be compromised by inability to pump oil in reverse.

This could explain why Uganda has not yet announced an ally to pursue its oil programme.

A number of delegations have engaged Uganda on this over the years, including Norwegians, Australians and Americans.

Most recently, President Museveni reached out to oil producing countries like Iran and Turkey.

With more discoveries, the government has most recently ruled out an early production system as “we will be forced to export crude oil, which is against our policy,” said Energy Minister Hilary Onek.

Exporting refined oil could help Uganda escape the oil curse suffered by countries like Nigeria.

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