Uganda oil refinery gets $20m funding from AFC

Saturday November 23 2019

Tullow Oil workers at a rig in Buliisa in Uganda.

Tullow Oil workers at a rig in Buliisa in Uganda .Works on the $4.27 billion crude oil refinery project are expected to start after investors showed interest. PHOTO | FILE | NATION MEDIA GROUP 

HALIMA ABDALLAH
By HALIMA ABDALLAH
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The Africa Finance Corporation has advanced $20 million for the construction of Uganda’s crude oil refinery, paving the way for the start of the $4.27 billion project.

AFC signed the financing deal on the sidelines of the Africa Oil Week in South Africa mid this month, The EastAfrican has established.

Other financiers including the African Development Bank, Prosper Africa, a US government Initiative that unlocks opportunities to do business in Africa and another US-based firm, Trace and Development Agency are also expected to put money into the multi-billion-dollar project.

“The meeting was very good for Uganda. We had several investors committing themselves to join the development of the refinery,” Uganda’s Energy Minister Irene Muloni told The EastAfrican in a Thursday telephone interview.

AFC managing director Ammadou Wadda, African Development Bank president Akiwumi Adesinia, representatives from US-based Prosper Africa Initiative and Trace Development Agency attended the side event.

Ms Muloni led a team of government officials and officials from Albertine Graben Refinery Consortium (AGRC) to the invite-only sideline meeting.

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The investors also agreed to hold a special meeting next year to discuss how to raise funds for the refinery. The refinery’s management is also expected to give potential investors details about the project and existing investment opportunities.

“AGRC and the financiers will work out the movement of the funds, but as for government we shall raise our share of the investment through debt and equity,” said Ms Muloni.

Kenya has committed to take a 2.5 per cent stake in the Tanzania refinery, while Tanzania wants eight per cent.

The other East African countries are yet to commit on the shares that they will take. Uganda, which owns 40 per cent equity in the refinery, invited EAC states to co-own it.

Total E&P has also increased its stake in the refinery from 10 per cent to 11.5 per cent.

Uganda’s Energy Ministry officials and AGRC leadership in March visited Milan, Italy, to review the final refinery configuration. AGRC is comprised of YAATRA, Saipem SpA, LionWorks Group and Baker Hughes General Electric.

The consortium signed a Project Framework Agreement in April 2018 in Kampala. The PFA gave it greenlight to undertake all the pre-Final Investments Decision (FID) activities. These include risk mitigation measures, due diligence and coming up with equipment and components that produce the desired products and by-products.

“We wanted a refinery that will give us several products, but specifically one configured to give us more petrol than diesel given the market conditions,” said Permanent Secretary in the Ministry of Energy, Robert Kassande.

The refinery is expected to produce diesel, petrol, kerosene, jet fuel, liquefied petroleum gas and heavy fuel oil. This is expected to save the country $1 billion, the amount it spends on importing petroleum products annually.

Setbacks

Construction of the refinery has suffered several setbacks in the past. In 2016, a Russian consortium, RT Global Resources, which was the government’s preferred bidder, pulled out of the deal at the last minute.

The government then went for the alternate bidder, South Korea’s SK Engineering. In 2017, the company also pulled off on grounds that it could not afford to take a risk of up to 60 percent, being the shares given to a lead contractor.

After these hiccups, the government opted for a private-public partnership to develop the refinery at estimated cost of $4.27 billion. AGRC agreed to these terms.

“Government is expected to participate at an appropriate time, through Uganda Refinery Holding Company, a subsidiary of Uganda National Oil Company,” said Ms Muloni.

AGRC is also required to build product storage facilities and construct a 205km product pipeline from Hoima to Kampala to serve Burundi, Rwanda, eastern DR Congo, northern Tanzania and western Kenya. There is also a plan to have a product pipeline going northwards to link with South Sudan.

Ms Muloni said last week that the land for Kampala refinery infrastructure has already been secured.

The acquisition of a 29-square-kilometre land for the refinery and associated projects is 99 per cent complete.

Next in the project is the Front End Engineering Design study. FEED, according to Ms Muloni, is expected to be complete by the end of 2019. Uganda is also yet to sign a Final Investment Decision on the oil pipeline to evacuate petroleum products from oil fields.

The refinery is scheduled to be ready in 2023.

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