ANALYSIS: Museveni’s refinery deal

Museveni’s refinery deal: Now gov’t says in negotiations with GE-led consortium as Chinese protest

Kampala, Uganda | HAGGAI MATSIKO | A fight between Chinese and American investors over the US $ 4 billion refinery deal could further delay the project, observers fear.

These fears have been sparked by reports that the Chinese are protesting a decision by government’s announcement that it has reached an initial agreement with a consortium of four companies led by America’s giant General Electric (GE). The other companies in the consortium are; YAATRA Ventures LLC, Intracontinent Asset Holdings Ltd (IA) and Saipem SpA. Insiders say GE is eyeing supplying equipment, Saipem will do the actual construction and Yaatra Ventures and IA are expected to raise the capital.

Energy Permanent Secretary Stephen Isabalija made the announcement on Aug.7 signaling some optimism for the project that has a habit of attracting investors and coughing them out at the last minute.

Days later, the Chinese are protesting the decision, which they claim is unfair given that a June due-diligence report shared with President Yoweri Museveni, a copy of which The Independent has seen, showed that their consortium—China’s Dongsong Guangzhou Energy Group—had emerged the best.

But insiders revealed that China’s consortium was dealt a blow by disagreements amongst the members, which forced the major player CPECC to pull out of the deal, thereby, collapsing their bid. The Chinese have denied this. By press time, however, Isabalija had not confirmed this development.

Sources say after that, government focused on talks with the American consortium resulting into an initial agreement.

Given the trouble the project has given technocrats at energy, the development is a major step for government and Isabalija appears optimistic he will reach a deal with the consortium. It is the first time in about two years since 2015 when the Russian consortium—RT Global Resources—, which had emerged the preferred bidder, pulled out of the deal. Government had hoped to pick up talks with the alternate bidder—South Korea’s SK Energy—but negotiations never kicked off as had been anticipated last year.

All hope now appears hinged on the GE consortium because government has offered to negotiate only with them—exclusivity—even though there are reports some Chinese investors are working around the clock to put in a bid.

“The consortium has proposed to a financing approach and a path to establish, develop and operate a commercially viable refinery company with a strategic benefit to the country and the region,” the Energy PS noted in a presser released on Aug.7.

The GE consortium boasts of two major companies—GE and Saipem. With assets worth over $300 billion, GE is one of the biggest companies in the world. In 2016 alone it made revenues worth $ 123 billion or five times more than Uganda’s Gross Domestic Product (GDP). Saipem is also amongst the world’s renowned contractors.

“The EPC contractor (Saipem) has adequate experience in the industry and capable of attracting private equity financing to the project,” a due-diligence report noted in June.

As early as May this year, The Independent reported that the American consortium had some backing from some technocrats, lobbyists close to President Museveni and that the diplomats at the American Embassy were equally keen on what is seen as Uganda’s biggest infrastructure deal—a former USAID employee is at the centre of the deal.

However, the deal is not guaranteed yet and Isabalija indicated that much in his presser. The permanent secretary noted that the agreed position is only a signal of the start of more discussions and negotiations with the companies ahead of the Project Framework Agreement (PFA).  “The PFA will detail the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investments and financing for the project,” the statements notes, “That agreement is expected to be concluded and signed within the next 2 months.”

The presser added that the consortium will have the benefit of exclusivity during this period of negotiations and “should the parties agree on all terms, the consortium will be granted the rights and licenses to develop and manage the refinery as lead investor in a joint venture partnership with government”.