‘Refinery delay will not halt Uganda’s march to first oil’

The oil refinery, one of the four flagship projects needed to commercialize Uganda’s 1.4bn barrels of oil appears to be lagging behind but government technocrats say the project will not deter the country’s march towards first oil scheduled for 2025.

Kampala, Uganda | RONALD MUSOKE | The refinery set to be constructed at Kabaale near Hoima in mid-western Uganda is expected to produce 60,000 barrels per day. The refinery has in the past faced various setbacks characterized with entries and exits of the would-be investors.

Ernest Rubondo, the executive director of the Petroleum Authority of Uganda (PAU) disclosed recently that the refinery now looks like it is behind the Tilenga and Kingfisher projects and the East African Crude Oil Pipeline (EACOP).

“The progress of the three projects has made it look like the refinery is behind schedule. If you look at the benchmarks, the refinery is lagging behind the other three projects,” Rubondo said on Jan.11 in Kampala.

“It is, (however) important to note that the three projects (Tilenga, Kingfisher and EACOP) are very much interconnected; you cannot say the (oil) pipeline is ready when the oil fields are not ready and you cannot say the oil fields have started when the pipeline is not ready because the oil will not have anywhere to go,” Rubondo told The Independent when asked to explain if the oil refinery would not hold up the other projects.

“The timelines for the three projects are the same and they all have to move in tandem. But it is also important to appreciate that these businesses operate differently.”

“The people of the refinery could pick up their act and conclude the Environment and Social Impact Assessment (ESIA) and acquire financing as soon as their designs are approved,” Rubondo added in reference to the memorandum signed in 2014 which stipulated that no project should hold the other.

Whereas the US$4 billion Tilenga operated by TotalEnergies, the US$ 1.5 billion Kingfisher project operated by the China National Offshore Oil Corporation (CNOOC) and the US$3.5billion East African Crude Oil Pipeline (EACOP) already have their environmental and social impact assessments approved by the National Environment Management Authority (NEMA), and their front end engineering designs (FEED) approved by PAU, the oil refinery is yet to receive any of these approvals.

The Albertine Graben Refinery Consortium (AGRC), the lead developer of the refinery worth US $4.27bn, submitted the facility’s front end engineering design (FEED) to PAU for review at the end of last year. Rubondo said the review is expected to be concluded at the end of this month.

Meanwhile, the refinery’s environmental and social impact assessment study began two years ago in February, 2020, and is yet to be submitted to NEMA.

Uganda’s refinery gamble

The government has over the last 15 years stuck with the prospect of having a refinery in the country notwithstanding the independent experts’ questioning its viability in a landlocked nation.

The licensed international oil companies including; Total (now TotalEnergies), Tullow (which has since sold its Uganda interest to TotalEnergies) and CNOOC had for a long time preferred a crude oil export pipeline but President Yoweri Museveni insisted an oil refinery had to be built in Uganda.

However, the government later reached a compromise with the oil companies to have both the pipeline and the refinery. The government moved quickly with its refinery proposal in August, 2010, by instituting a feasibility study. A Swiss-registered firm, Forster Wheeler, concluded in its report to the government that building a refinery in Uganda was “economically viable.”

That study gave the government the impetus to invite potential investors to bid and build the refinery near the shores of Lake Albert. But the government’s plans have repeatedly suffered as selected companies have tended to pull out at the last hour.

In December 2013, the government shortlisted several firms to build the refinery, but the tender was not awarded until 2015. In early 2015, a Russian consortium, RT Global Resources, was selected by the government as the “best preferred bidder” while the South Korean consortium SK Energy was put on standby as the “alternative preferred bidder” to build the refinery.

However, a year later, the Russians pulled out of the deal. The government turned to the alternative bidder, SK Energy, but the South Koreans also pulled out on grounds that they could not afford to take a risk of up to 60%, being the shares given to the lead contractor. The government went back to the drawing board and advertised for a new bidding round.

AGRC’s big task

In August 2017, the government zeroed-in on the Albertine Graben Refinery Consortium (AGRC) and immediately embarked on negotiating the refinery project framework agreement.

The consortium led by US manufacturing giants, General Electric, comprises YAATRA Africa (Mauritius), LionWorks Group Ltd (Mauritius), Nuovo Pignone International SRL (a General Electric subsidiary domiciled in Italy) and SAIPEM SpA (Italy).

In April 2018, the government and the AGRC reached an agreement to construct a 60,000 barrels-per-day refinery in Hoima, in mid-western Uganda at a cost of US $4.27bn. The government opted for a private-public partnership to develop the refinery meaning that Uganda’s stake in the consortium will be carried by the government owned Uganda National Oil Company (UNOC).AGRC agreed to these terms.

AGRC is also required to build product storage facilities and construct a 205km product pipeline from Hoima to Mpigi to serve Burundi, Rwanda, eastern DR Congo, northern Tanzania and western Kenya.There is also a plan to have a product pipeline going northwards to link with South Sudan. For now it remains to be seen if the AGRC will marshal the required financial resources and build the refinery in record time.

Uganda, which owns 40% stake in the refinery, invited EAC states to co-own it. Kenya has committed to take a 2.5% stake in the Uganda refinery, while Tanzania wants 8%. The other East African countries are yet to commit on the shares that they will take. TotalEnergies E&P Uganda has also increased its stake in the refinery from 10% to 11.5%.

So far, the Africa Finance Corporation (AFC) has advanced US$20m for the construction of Uganda’s crude oil refinery. AFC signed the financing deal on the sidelines of the Africa Oil Week in South Africa in 2019.

At the time, it was reported that other financiers including the Africa Development Bank (AfDB), Prosper Africa, a US government Initiative that unlocks opportunities to do business in Africa and another US-based firm, Trace and Development Agency, would also sink money into the multi-billion-dollar project.

Benefits of oil refinery

President Yoweri Museveni has been the chief enthusiast of Uganda’s oil refinery. During the signing of the so-called “final oil agreements” in April, last year, he revisited the subject saying the country’s delay to commercialize its petroleum resources was partly due to his reservation about the crude oil pipeline being the only outlet for the country’s crude oil.

“It has taken these 15 years before first oil on account of the divergent perceptions between us and the oil companies. Initially I did not favour the idea of the pipeline. My question was: Why export the oil? Don’t the East Africans need the oil?” Museveni said.

He said he based his demand on the regional market that he claims straddles the border regions of northwestern Tanzania, western Kenya, Rwanda, Burundi, eastern DR Congo, South Sudan and southwestern Ethiopia. Museveni said the demand for oil in this market is at the moment estimated at 98,250 barrels of oil per day, with Uganda’s current demand standing at 38,785 barrels per day.

Local fossil fuel experts say if a barrel of crude oil were to go for US$ 50 per barrel (equivalent to about US$63 per barrel of products), locally refined petroleum would knock off US$ 1.22bn from Uganda’s import bill for petrol, diesel, jet fuel and tar for roads.And if you were to include petroleum by-products such as plastics, the saving on the import bill would add another US$400 million.

Ruth Nankabirwa, the Minister of Energy and Mineral Development told The Independent on Jan.20, that she hopes AGRC will conclude its FEED and ESIA as soon as possible and reach a final investment decision before the end of this year.

“The consortium submitted the FEED to PAU and it is being scrutinized and once the issues are sorted out, the expectation is that they will reach FID and begin constructing (the refinery).”

Nankabirwa who is new in the Ministry of Energy, however, told The Independent in a short telephone interview that she hopes she will have a better understanding of the developments around the refinery after a meeting she has been invited to attend in Rome with the consortium executives this February.

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