Uganda's hopes of signing all the necessary agreements for building its petroleum refinery by the end of April hang in the balance as the preferred bidder remains hamstrung by international sanctions.

Last week, the government selected its preferred bidder, Russian-led consortium RT Global Resources, and named the SK Engineering and Construction-led consortium from South Korea as alternate preferred bidder.

The RT Global Resources consortium members are: Telconet Capital Ltd Partnership, VTB Capital PLC, Tatnet JSC and GS Engineering and Construction Corporation. The SK Engineering and Construction consortium members are: SK KBD Global Investment Partnership, Private Equity Fund, China State Construction Engineering Cooperation Ltd, Haldor Topsoe A/S and Maestro Oil and Gas. 

READ: Russian firm wins Uganda oil refinery contract

The award has met with public criticism because Russia is facing economic sanctions from the EU and the USA, hence its capacity to raise finances and the necessary technology is questionable.

“The refinery will not be in Russia. The discussion that will follow will seek to get assurance on these fears and other various arrangements. With such projects, before you conclude you must look at the various risks,” said Energy Minister Irene Muloni.

While some observers argue that awarding the deal to the Russians could be intended to cement bilateral relations — Russia has been a main supplier of military hardware to Uganda — critics argue that sanctions could cripple the project.

Russia is facing two sets of sanctions: Those imposed by the US and those imposed by the EU in 2014. The sanctions target Russia’s state financial institutions, including its biggest bank Sberbank, and the energy and armaments sectors.

The banks cannot raise long-term finance through capital markets in the EU or the USA. In addition, the EU will not export to it a wide range of oil industry technology.

Transaction advisors led by an independent investment banking firm, Taylor Dejongh, participated in the selection of the best bidder. The refinery is expected to be ready in 2018. Oil reserves have in the meantime risen to 6.5 billion barrels of oil in place with 1.4 billion barrels recoverable.

The refinery will be located in Hoima district in western Uganda. The government is already in the process of compensating affected landowners for the 29 square-kilometre plot. 

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

Once in place, the refinery is expected to produce diesel, petrol, kerosene, jet fuel, liquefied petroleum gas and heavy fuel oil. This in effect will save the country the $1 billion it spends annually on petroleum product imports.  

Activists are concerned that the government opted to use vague terms such as “preferred bidder” and “alternate bidder,” which only serve to confuse the public.

“Our plan B will be to go for the Koreans, whom we have named alternate preferred bidder. That will be our fallback position but if the Russians can assure us that all will be okay then we shall sign the agreements,” Ms Muloni told The EastAfrican.  

The government has offered a 60 per cent share to the lead investors, while it retains 40 per cent. It is offering 10 per cent from its shares to Burundi, Kenya, Rwanda and Tanzania.

The four countries, who are yet to respond, had expressed an interest in taking up the shares when the value of the project is known.