Neighbours sign up for Uganda refinery shares

Saturday July 19 2014

By HALIMA ABDALLAH, Special Correspondent

Kenya, Rwanda and Burundi have confirmed interest in taking up a portion of the 10 per cent shareholding in the Hoima refinery that Uganda had reserved for its EAC neighbours.

Officials at Uganda’s Ministry of Energy said they have received letters of interest from the three countries; Tanzania has asked for more time to decide.

“Tanzania asked us to give them more information and we have given it to them. We are waiting for their response,” said Minister for Energy Simon D’Ujanga. 

A few weeks ago, Tanzania wrote asking for the feasibility study report of the refinery, done by Foster Wheeler in 2011, showing the commercial viability of the project. None of the countries, however, has specified the exact shareholding they want.

“They want to know the costs first, so they are waiting for Front End Engineering Design to give their report, which will show the total cost of the project,” said the commissioner of the refinery, Robert Kassande.

Burundi says it is too early to decide on the number of shares it will take up.

“We asked for the feasibility study document. After that the experts will study those documents and guide us. We want to see the cost and determine how much to put into this project,” Burundi’s EAC Affairs Minister Leontine Nzeyimana told The EastAfrican.

Initial estimates put the project cost at $4.27 billion.

Uganda plans to build a refinery with a capacity of 60,000 barrels of oil per day (bpd) that will be scaled up to 180,000 bpd in phases, through a public private partnership.

The country invited its neighbours in order to spread the risk and to secure the regional market for the refinery’s products, expected from 2017.

Under the PPP arrangement, the lead investor is expected to take a controlling stake of 60 per cent and government will retain 40 per cent. Out of its shares, Uganda offered 10 per cent to be shared among Burundi, Kenya, Rwanda and Tanzania.

The lead investor will be appointed in October.

The SK Group-led consortium (South Korea) and the RT Global Resources-led consortium (Russia) have proceeded to tender. The government is currently negotiating technical, financial and legal details with them.

Transaction advisors led by investment banker Taylor Dejongh will evaluate the bids before announcing the winning contractor.

The 10 per cent reserved for the four countries is not cast in stone.

“What we have offered is not conclusive, there will be negotiations on how much each country can pay after establishing capital requirement,” said an Energy Ministry official.

The refinery will be constructed together with product storage facilities on site and a 205km-long product pipeline from Hoima in western Uganda, to a terminal in Kampala. The pipeline will serve Burundi, Rwanda, eastern DRC, northern Tanzania and western Kenya.

In 2008, all EAC states approved a regional refinery development strategy that aims at harmonised planning and development of a refinery in the region for sustainable utilisation of crude resources.

The region had only one refinery in Mombasa, Kenya, with a 70,000 bpd capacity, but was then operating at only 30,000 bpd. The refinery has since been shut down after Essar Energy, that held 50 per cent shares, pulled out of the project last year.

Uganda’s crude oil is waxy and has a low sulphur content, making it suitable for on-site refining, and not pipeline transportation.

Additional reporting by Moses Havyarimana.