Gov’t okays American, Italian firms to construct refinery

By Ambrose Gahene

Government of Uganda has contracted a consortium of American and Italian firms; to finance and construct the $4 bn (Shs14, 000 bn) oil refinery in Hoima.

Stephen Isabalija, the energy ministry permanent secretary, said that government has agreed on the terms with the consortium. A statement released by the energy ministry last Sunday said that over 40 companies expressed interest in developing the oil refinery.

The Albertine Graben Refinery Consortium is made up of General Electric Oil and Gas, YAATRA Ventures LLC, Intracontinent Asset Holdings Ltd, and Saipem SpA. “Government’s technical team went through the different proposals and zeroed down on eight companies that were proposing something related to the government plans,” the National Oil Company chief legal and corporate affairs manager, Peter Muliisa, said in a media interview.

The eight companies were asked to submit detailed proposals on how they intended to manage the project and their sources of financing. It’s from those that the final four were selected.

The eight are SNC Lavalin of Canada, Yatra Ventures LLC and Apro, both from the USA, and IESCO of Turkey. Others are Chinese firm Guangzhou Dongsong Energy Group, Spain’s Profundo, Bantu Energy, a Canadian and Ugandan consortium, as well as Italy’s Maire Tecnimot. “The Consortium has proposed to government 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,” Mr Isabalija said in the energy ministry statement.

The agreement of the core project terms signals the start of negotiations with the consortium on the Project Framework Agreement. 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.

Mr Isabalija said the project framework agreement is expected to be concluded and signed within the next two months. The signing of the Project Framework Agreement will, in turn, pave the way for the commencement of pre-Final Investment Decision activities such as Front End Engineering and Design, Project Capital and Investment Costs Estimations, Environmental and Social Impact Assessments, among others.

Over the next two months, the Ugandan government should conclude the framework agreement on the project with the consortium, after which construction should begin. Initially, the refinery will process 30,000 barrels of crude daily. From 2020, the refinery will receive oil from fields with estimated total resources of 6.5 billion barrels.

Separately, Uganda, which is a newcomer on the oil scene, struck a deal with Tanzania that will see the landlocked producer reach international markets from the Tanzanian port of Tanga on the Indian Ocean. The two will build a US$3.55-billion pipeline from Uganda’s oil-rich Hoima region to the port city, which will ship some 216,000 bpd at a transit cost of US$12.20 per barrel. The refinery that GE and Saipem will build will also be located in Hoima.

According to Uganda’s Energy Ministry, the country consumes some 27,000 bpd of oil products. The daily consumption of petroleum products for East Africa is 200,000 bpd, growing at an annual rate of 7 percent. Kampala tasked Foster Wheeler to carry out a feasibility study on the refinery back in 2010, and the study found that a refinery would be commercially viable at a net present value of US$3.2 billion (at 2010-2011 prices), with the internal rate of return at a respectable 33 percent.

The decision to turn to the American-led consortium comes two months after the government’s preferred bidder, China Petroleum Engineering & Construction Corporation from China, withdrew from the race.

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