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Refinery still a headache
But even as work appears to be moving at fast pace on the export pipeline side of the project, doubts persists about President Yoweri Museveni’s pet project; the construction of Uganda’s own oil refinery.
Muloni insists the government is determined to execute this project. She says following the withdrawal of the Russian consortium, Rostec Global Resources, up to 40 companies have expressed interest in partnering with the government to build the $ 4 billion refinery. And out of those, “the government technical team picked, engaged, and assessed eight companies”.
Out of these eight, a government team is expected to recommend three where due diligence will further be done and out of these, the government will engage and negotiate with the best.
“We are fast-tracking the refinery and hopefully there will be a launch of the FEED for the refinery soon so that these projects move on concurrently to enable us achieve first oil in 2020,” she said.
“By end of March, the government will have identified a lead investor for the refinery,” she said.
Muloni also said the government is investing in infrastructure necessary to support the various activities to ensure the refinery, pipeline and other upstream facilities are in place before 2020.
Muloni said the government and oil company partners have decided on the routes and roads that will be used to bring in the equipment.
She said the government plans to improve upon 11 roads stretching a total of about 600km and two key bridges within the Albertine region have been chosen and work is already going on.
The government is also collaborating with its counterparts in Nairobi and Dar es Salam to ensure that the equipment comes in unhindered.
But despite Muloni talking up her plans, finding investors for the 30,000 barrels-per-day Greenfield refinery which is the flagship project for Uganda’s oil remains a big headache for the country.
Experts in the oil and gas sector say worldwide, refineries are typically developed and owned by independent refiners who include private equity or other financial institutions like the Russians the Uganda government had got in February, 2015.
These private investors essentially provide technology and management while the government provides guarantees and incentives to private investors if profitability is marginal.
Fred Muhumuza, a development economist told The Independent on Feb.24 that the question of the feasibility of the Ugandan refinery returns could be the reason why Uganda seems to be struggling to find a serious refinery investor.
He says, with the hindsight of previous negotiations, it seems the government is not on the same page as the private investors.
“We may politically prefer to add value when the economic rationale does not add up,” Muhumuza said.
“There have been studies done showing how producing oil within the country’s borders is profitable but these are reports which have essentially been done by consultants hired by the government.”
Muhumuza says these are the same reports shared with the potential investors who have at times queried the assumptions that were advanced by the consultants.
“Are we seeing the same things as the potential investors?”
“The refinery builders are probably looking at 25 years ahead but in an economy that has struggled to recover in the past eight years, it is difficult to see what would make it recover in the next three years.”
So is the government’s wish of seeing first oil by the end of 2020 still feasible?
Muhumuza does not think so.
He says the government might want to get back to reality because 2020 is too close when you have not put in place the required infrastructure; like roads that would facilitate the construction of the refinery.
Muhumuza says the government could have allocated money for the “oil roads” but what matters next is how the management of the processes that are needed to be in place before construction of the roads are done (contracting, designing the roads, access to land for the roads) will be handled.
“It is important the government moves its politics closer to reality,” Muhumuza told The Independent.
“Until the government becomes realistic, that is when the private sector partners will take them seriously.”
Muhumuza says the prospective investors want to see firmed up agreements, they want to see the government agenda, and they want to see the government’s decision but none of this has been happening in the last ten years.
“If you look at the physical infrastructure that needs to be done, the timeline is quite unrealistic,” he says, “These are physical projects with well-known gestation periods and you cannot wish them away; the infrastructure must be in place.”
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editor@independent.co.ug
