Chinese firm returns for Uganda oil refinery talks

Wednesday October 11 2017

Oil exploration in the Albertine Basin of Uganda.

Oil exploration in the Albertine Basin of Uganda. The country plans to build a refinery and a pipeline by the year 2020. PHOTO | FILE | NATION 

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Chinese consortium Guangzhou DongSong Energy Group Company has returned to negotiations with Uganda for the planned 60,000 barrels-per-day refinery.

Their return comes just weeks after the unceremonious sacking of Energy Permanent Secretary Dr Stephen Isabalija about whom the company had expressed displeasure.

Sources say that the government is also considering exiting all financial investment in the refinery as it seeks an investor ready to cover the entire project cost.

The new development also comes as parliament pushes government to share more information on progress on the refinery side of its oil production plans in the Albertine Graben.

While briefing MPs on the status of developments in the oil and gas sector in preparation for first oil in 2020, Energy minister, Irene Muloni said the government is still in the process of identifying the lead investor who will design, finance, build and operate the refinery at 100 per cent.

DongSong and Albertine Graben Refinery Consortium were the final two pre-qualified bidders, but a disagreement emerged and DongSong was dropped off along the way when, according to correspondence we have seen, it failed to attend meetings, signing non-disclosure agreement and payment of bid bond fee with the government of Uganda.


The Energy ministry has indicated that the consortia presented an acceptable proposal on financing and technical aspects of the project.

Initially it was proposed that government would raise finance through equity, but the Permanent Secretary Robert Kasande explained that the latest position, which has been already agreed upon, is that the investor bears all the project cost. A tentative estimate puts the refinery cost at $4.27 billion.

“We are discussing with the two companies and we expect to conclude discussions by the end of the year,” Mr Kasande said, without giving details of how DongSong was drawn back into the negotiations.

Unlike in the past, where government has had a preferred and alternate bidder, that procedure was abandoned as the government opted to rely on unsolicited expressions of interest.

Some 40 entities applied, out of whom four were prequalified and subjected to due diligence before the final two were selected.

The lead investor will be selected based on a model Project Framework Agreement (PFA) that will be signed with a consortium that offers best terms.

The PFA will detail the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investment and financing for the project.

The signing of the Project Framework Agreement will in turn pave the way for commencement of pre-final investment decision activities such as front-end engineering and design, project capital and investment costs estimations, Environmental and social impact assessments, among other things.

It was expected that the lead investor would be announced last month, but the delay is likely to have knock-on effect on the refinery construction timelines. Initially, it was projected for completion in 2018, but has now been revised to 2020 to coincide with first oil.