Uganda's oil updates

Geza Ulole

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Govt lays oil refinery outlook


At work. An expert watches a flaring experiment at one of the wells in the Albertine Graben. The refinery is a key stage in the production of oil in Uganda. FILE PHOTO

By FREDERIC MUSISI
Kampala.

The internal rate of return on the proposed oil refinery is “extremely attractive” given the amount of money, $1.7b (Shs6 trillion), Uganda spends on annual petroleum imports and the prospective regional market, the Uganda Refinery Holding Company (URHC) general manager Michael Mugerwa has said.

UHRC is a subsidiary of the Uganda National Oil Company (UNOC).
Speaking at the annual oil and gas convention in Kampala, Dr Mugerwa said the project will trigger several benefits key among them stabilising Uganda’s balance of payment and creating hundreds of jobs.

“It is really an exciting opportunity whichever way you look at it,” he said.
Uganda’s petroleum products imports as of September last year averaged at 85 million litres with demand growing at 7 per cent per annum, according to ministry of Energy.

The 85 million litres comprised of 34.6 million litres of petrol, 42.5 million litres of diesel, and 2.6 million litres of kerosene. Jet fuel imports stood at five million litres.

According to the ministry, average daily consumption of fuel products stands at 5.4 million litres.

Keeping all other factors constant, government is also capitalising on the petroleum market in Rwanda, Burundi and South Sudan, Kenya, Tanzania and eastern DR Congo.

The earlier plan was to start commercial oil production in 2020 but given the work at hand it is highly likely that the production date will have to be shifted.

The refinery is expected to be financed in a public private partnership arrangement, with the Albertine Graben Refinery Consortium taking a 60 per cent stake and government taking 40 per cent.

Kenya and Tanzania also offered to buy a 2.5 per cent and 8 per cent stakes, respectively in Uganda’s 40 percent stake.
Total E&P also offered to buy a 10 per cent stake, which leaves government with roughly 19 per cent.

The director for technical services at Petroleum Authority of Uganda, the industry regulator, Ms Peninah Aheebwa, said the oil and gas sector is broadening from exploration to new exploration and development of discovered oil and gas fields together with refining and pipeline infrastructure development, which calls for “mechanisms to ensure sustainable exploitation and utilisation of the resources are in place.”

Projections indicate that oil companies have to invest approximately Shs27 trillion ($8b) in the required infrastructure leading to production.

This is besides investments in the refinery and the 1,445-kilometre crude oil export pipeline from Hoima to Tanga Port in southern Tanzania.

Govt lays oil refinery outlook
 
Agreement signed on Uganda refinery
Thursday, Apr 26, 2018

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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