Convention 2018

24/05/2018

Agreement signed on Uganda refinery

A project framework agreement (PFA) was signed in early April with private partners for a long-planned development of a greenfield refinery to process Uganda’s first crude production.

The deal follows the belated selection last summer of a US-led consortium to execute the scheme and lays out some key financial terms, while paving the way for initial design and costing work to commence.

Progress appears to have been galvanised by similarly delayed movement last year on the development of the Albertine reserves, discovered more than a decade ago. The downstream project was insisted upon by President Yoweri Museveni as a condition of the internationally led upstream venture.

On April 10, government-owned Uganda National Oil Co. (UNOC) signed a PFA on the proposed refinery with the so-called Albertine Graben Refinery Consortium (AGRC). This is comprised of an Italy-based subsidiary of US engineering giant GE, Italy’s Saipem, and Yaatra Africa and Lionworks Group, both registered in Mauritius.

The deal calls for the design, financing, construction, operation and maintenance of a facility with capacity starting at 30,000 bpd – later envisaged rising to 60,000 bpd – close to the town of Hoima in the Western Region, near the Lake Albert reserves.

AGRC and Kampala will take stakes of 60% and 40% respectively in the project company – with the former to finance the government’s share of costs and recoup the investment from revenues accrued after start-up.

The PFA commits the parties to embarking on the work required before any final investment decision (FID) – which is anticipated next year. The scope of work covers the front-end engineering and design (FEED), the environmental and social impact assessment, and estimates of the total project cost.

Costs are typically put at around US$4 billion, including a 200-MW power plant and a 210-km pipeline carrying refined products to a bulk storage and distribution terminal near Kampala. According to the government press release, output will include gasoline, diesel, kerosene and heavy fuel oils and will be targeted at both domestic and regional markets.

The scheme has been insisted upon from the outset by Museveni as a means of maximising the domestic economic benefits from crude production – against resistance from the foreign upstream investors eager to prioritise more lucrative exports.

Pre-FID activities are anticipated coming in at around US$100 million and will be funded by AGRC.

The financial soundness of the consortium’s proposal – which is said to envisage a roughly 70:30 debt/equity spilt – was reportedly a critical factor in the team’s selection in August. It came out on top ahead of China’s Guangzhou DongSong Energy Group, despite the latter’s bid initially scoring more highly during due diligence.

Kampala is expected to end up with a stake of 19.5% in the project if Tanzania and Kenya fulfil pledges to acquire 8% and 2.5% respectively.
Dodoma’s promise appears the more certain to be met – as a reward for Kampala’s controversial last-minute selection in 2016 of Tanga on the country’s northern coast in late preference to Mombasa as the terminus for the planned 1,445-km export pipeline for the Ugandan crude.

French super-major Total – one of the upstream investors and the chief advocate for the Tanzanian route – has also mooted taking a stake.
The protracted search for a private partner on the refinery was restarted by the Energy & Mineral Development Ministry early last year after Russia’s RT Resources withdrew in 2016 over last-minute differences with Kampala. It had been the preferred bidder at the end of the original tender process, initiated more than five years ago.

The local press has widely cited geopolitical considerations in the eventual preference for the US-backed consortium over Guangzhou DongSong – which was said to fulfil a desire to balance existing Chinese involvement in the nascent energy sector.

Beijing-owned China National Offshore Oil Co. (CNOOC) partners Total and the UK’s Tullow in the Lake Albert Development Project – which calls for production of 230,000 bpd by a frequently delayed target date now put at 2021 and on which an FID is anticipated this year.

“The government of Uganda is also very pleased to expand its commercial ties with the United States of America and with that, the participation of American private-sector companies in the development of the oil and gas sector and the wider Ugandan economy,” the government statement on the PFA confirmed.

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