UGANDA SIGNS US$4 BILLION OIL REFINERY DEAL

Uganda Government signs US$4 Billion Oil Refinery Agreement

Irene Muloni, Uganda Minister of Energy and Mineral Development, have signed a contract with the Albertine Graben Refinery Consortium. The event which was presided over by President Museveni saw the end of the Ugandan government’s five year struggle to get a company to invest in a refinery.

Construction of the refinery will be under a public-private partnership. Albertine Graben Refinery Consortium will own 60% shares while the Ugandan government will retain the other 40%.

The consortium contains General Electric, Saipem from Italy, Yaatra Ventures from the United States of America and Intra-continent Asset Holdings.

Uganda plans to invite other East African states to buy into the 40% stake. Tanzania have earlier shown interest to take about 7% of the stake.

Although there are doubts that this consortium will pull off the US$4 billion project as its composition looks weak. The consortium have however before the signing of the Project Framework Agreement (PFA) posted a US$2 million commitment bond with the government.

70% of the refinery financing will be in debt, the other 30% coming in as equity from the project partners. The consortium after PFA will finance all Pre-Final Investment Decision activities up to US$100 million.

The pre-FID activities, will include market studies, logistics studies, technology licensing, refinery configuration studies, Environmental and Social Impact Assessment, and Front End Engineering Design. These activities will commence after the signing of the contract.

The Uganda Government compromise

Major upstream companies operating in Uganda prefer crude oil export pipeline because they feel the product is more lucrative abroad. But the Ugandan government thinks otherwise and favours the construction of a refinery.

This opposing thoughts lead to the commissioning of a Swiss firm, Foster Wheeler, to come up with reports stating the economic importance of an oil refinery. Especially from the perspective of creating spin-off industries such as those that make bitumen and other products.

However to get the 3 major upstream oil companies – Total, Tullow and Cnooc- to invest in the country, the government agreed to having a crude oil pipeline. But also did not drop its ambition of a refinery.

The structure of having an oil refinery and a crude oil pipeline led to another important negotiation. How much crude would each take and which infrastructure would take the first call on the oil resources. This settlement is as follows; 30,000-barrels-per-day refinery, which would later increase to 60,000. The refinery was also agreed to take the first call.

The crude pipeline on the other hand would carry 120,000 barrels of oil per day, and will shoot to about 212,000 barrels only after achieving the refinery’s demands.