Russians in comeback to Uganda oil refinery deal as Total wants 10pc stake

Sunday December 18 2016

Uganda plans to develop a 60,000 barrels of oil

Uganda plans to develop a 60,000 barrels of oil a day (bopd) refinery in Hoima in two phases of 30,000bopd each, with the first expected to complete in 2020. PHOTO | FILE 

By HALIMA ABDALLAH

After years of sluggish progress, Uganda’s oil production prospects have picked up dramatically, with major investors showing interest in the two major production avenues that Kampala has been pushing — a refinery for domestic and regional consumption and a crude evacuation pipeline.

Hardly a week after the government announced that Tanzania was interested in taking up an 8 per cent stake in the refinery, French oil giant Total has also announced it wants a 10 per cent stake, while the Russian firm RT Global, which in July parted ways with government, is attempting a comeback, officials familiar with the sector have told The EastAfrican.

Total has been instrumental in pushing Kampala to agree to a crude oil pipeline, alongside a refinery with the capacity to produce 60,000 barrels per day. Its latest move presents a significant boost to the search for a lead investor as it builds confidence in interested parties, officials say.

Uganda has 6.5 billion bpd of crude in place, between 1.2 billion and 1.7 billion of which are recoverable.

“Total understands the strategic importance of the refinery to Uganda. Patrick Pouyanne, CEO and chairman of Total, has proposed to President Yoweri Museveni  to take up 10 per cent shares  and will  offer technical expertise if deemed necessary,” said Ahlem Friga-Noy, Total’s public affairs manager.

Kenya has proposed to take up a 2.5 per cent stake.

President Museveni has revised forward offers to the East African Community partner states from 2.5 per cent to 8 per cent. While Tanzania communicated its interest in taking up the higher offer, Kenya, officials say, has opted to maintain its 2.5 per cent stake. Rwanda, Burundi and South Sudan are yet to make offers.

The government is offering a 40 per cent stake in what it has called public shares while sourcing a lead investor to take up the 60 per cent.

Regional refinery development strategy

In 2013, Uganda offered 10 per cent shares to its EAC partner states with each to take equal shares of 2.5 per cent. The idea was to secure the regional market for refinery products whose first module of 30,000 barrels has been pushed from 2017 to 2020 before it comes on stream. The second train of another 30,000 barrels is expected to come two years later.

In addition to building a refinery, the lead investor is expected to build accompanying infrastructure like product storage facilities on site and a 205km long product pipeline from Hoima in western Uganda to a terminal at Bulooba near Kampala. The terminal is, however, not part of the project.

The product pipeline will serve Burundi, Rwanda, eastern DRC, northern Tanzania and western Kenyan, according to government plans.

In 2008, all EAC states approved a regional refinery development strategy for the sustainable utilisation of vast crude resources.

Uganda’s case for a refinery is also based on the fact that the crude is waxy and has low sulphur content, which makes it suitable for on-site refining.

Although the Uganda National Oil Company (UNOC), and its subsidiary, the Uganda Refinery Holding Company have already been established, the project is yet to find a lead investor following a double setback from two selected companies — a consortium led by RT Global Resources and the South Korean SK Engineering led consortium which had pulled out.

The Russians are said to have made fresh demands on already concluded matters prompting the government to call off the negotiations.

However, The EastAfrican has learnt that the company was among several Russian companies that were represented in a recent joint permanent commission meeting held in Kampala. The meeting discussed investment opportunities in Uganda. 

“They must have said that they want to come back but, they have not written to us. For us, our negotiations with them have been closed,” said Robert Kasande, the acting director in the Petroleum Directorate.

On the other hand, SK engineering demanded that the government guarantee a crude supply and its profits through the lifetime of the project which government did not agree with.

Besides that the consortium was not able to proceed with the negotiations citing inability to raise its equity contribution of 60 per cent and consequently asked that the government raises its equity contribution from 40 per cent to 70 per cent.

New bidders head-hunted

Over 20 new companies have however presented Expressions of Interest in the project. Mr Kasande however declined to name the companies saying it is too early to do so but added that there are companies that have made proposals without being solicited to do so. The screening is ongoing, but the government is unlikely to get away from the question of shareholding.

“Some 40 to 60 per cent share offers did not yield desired results, that showed government takes up a higher percentage, so we are looking at restructuring how the project goes. If none of the companies take 60 per cent shares, then it is not good for the government to insist,” said Dozith Abeinomugisha, assistant commissioner, refining at the Directorate of Petroleum.

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