Why Is Uganda Building An Oil Refinery? — FAQs About The Greenfield Project

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In 2006, Uganda confirmed the existence of up to 6.5 billion barrels of oil in its Lake Albert Basin, upon which, between 1.4 and 1.7 billion barrels were thought to be recoverable – the proportion of resource that can be extracted from the ground.

 These were the largest onshore oil finds in sub-Saharan Africa in over two decades.

Following the discovery,  a new National Oil and Gas Policy was developed in 2008, which among others recommends refining the discovered oil in the country to supply the national and regional petroleum product demand before consideration of exportation.

1. What is Uganda Oil Refinery?

The refinery is a 60,000 barrels per day facility which will convert Uganda’s waxy crude oil into refined petroleum products to reduce the country’s import bill and also meet the region’s petroleum products demand.

2. Why is Uganda building a refinery?

In line with the National Oil and Gas Policy 2008, the East African Community (EAC) Refineries Strategy of 2008 recommended, among other things, the development of a second in Uganda to meet the region’s future petroleum needs in addition to the existing one at the Mombasa port.

Uganda subsequently in 2009, contracted U.K-based Foster Wheeler Energy Limited to carry out a feasibility study to determine the viability of such an undertaking.

This study was done during 2010/2011 and it defined the key aspects of developing a refinery in the country such as the size and configuration of the refinery, its location and financing as well as the market for the petroleum products to be produced from the refinery.

It confirmed the economic viability of refining petroleum in the country and its recommendations were adopted by Government during 2011.

3. Where will the refinery be located?

The refinery will be built on a 29 square kilometres (11 sq mi) piece of land in Kabaale, Buseruka Sub-county, Hoima District, Western Region, near the border with the Democratic Republic of the Congo, along the eastern shores of Lake Albert.

A new industrial park, an airport and a hospital are planned alongside the refinery, which sits close to Kaiso-Tonya, the largest oil fields.  Also planned is the Nzizi Power Station, a 100 megawatt thermal power plant, using natural gas and heavy fuel oil as raw material.

The project also includes a 211-kilometre finished petroleum products pipeline from Hoima to a new terminal in Buloba on the western outskirts of Kampala.

In July 2015, Uganda hired Danish firm Ramboll Group A/S, to conduct an early phase detailed route and environmental study for the oil pipeline.

4. Who is building Uganda’s Oil Refinery?

Uganda contracted a US-based energy investment and consulting firm Taylor Dejongh to carry out an international search for a lead investor in the refinery on a Public-Private Partnership (PPP) basis in 2013. The firm was expected to evaluate bids and announce the most competent company to execute the project.

In October 2013, the government of Uganda invited interested parties to bid for the construction, operation, and 60 percent ownership of the refinery in a public-private partnership arrangement.

In January 2014, Uganda shortlisted six consortia out of fifteen applicants. These included; China Petroleum Pipeline Bureau (from China), Marubeni Corporation (Japan), Petrofac (United Arab Emirates), RT Global Resources (Russia), SK Energy (South Korea), and Vitol (the Netherlands).

On 25 June 2014, it was reported that consortia led by RT Global Resources and SK Energy had emerged as the two best contenders. They were requested to make a last and final proposal so that the winner could be selected by the end of August.

In February 2015, Uganda announced the consortium led by RT Global Resources (also including Telconet Capital Limited Partnership, VTB Capital, JSC Tatneft, and the GS Engineering and Construction Corporation) as the wiiner of the bid  to build the refinery.

However, by June 2016, talks between the Russian firms and government had collapsed, pushing Uganda to renegotiate with the second-runners up in the bid, the consortium led by SK Engineering & Construction of South Korea. The new consortium members include SK Engineering and Construction, the KBD Global Investment Partnership Private Equity Fund, the China State Construction Engineering Corporation, Haldor Topsøe A/S, and Maestro Oil and Gas. These negotiations would later breakdown also.

Uganda then started courting new consortium led by Guangzhou Dongsong Energy Group, a Chinese company. Others in that consortium included (a) China Petroleum Engineering & Construction Corporation (CPECC) (b) China Africa Fund for Industrial Cooperation (CAFIC) (c) Guangzhou Silk Road (d) East China Design and Engineering Institute (e) Exim Bank of China and (f) Industrial and Commercial Bank of China (ICBC). Those talks collapsed in June 2017 when CPECC, the main contractor in the consortium, pulled out of the talks.

In August 2017, a new consortium led by General Electric of the United States and Jk Minerals Africa agreed to build the US$4 Billion refinery and to own 50 and 10 respectively percent, while the government of Uganda and other investors take up the remaining 40 percent. Other members in this new consortium are (i) Yaatra Ventures LLC, (ii) Intracontinent Asset Holdings and (iii) Saipem SpA of Italy.

These firms were competitors during the initial bidding. However, they came together and formed a special purpose vehicle, the Albertine Graben Refinery Consortium (AGRC), which is expected to design, procure the necessary supplies and build the refinery.

5. How much will the Uganda Oil Refinery Project cost?

The cost of the refinery is estimated to be US$4.3 billion, with 70 percent of that amount to be borrowed and the remaining 30 percent coming from shareholders. The refinery is expected to be financed under the public-private partnership ratio of 60:40.

The Lead Investor will be responsible for raising the debt for the project.

Uganda’s share will be carried through the Uganda Refinery Holding Company, a subsidiary of Uganda National Oil Company (UNOC), which is mandated to manage the country’s commercial interests in the oil sector.

However, officials say the government has agreed with the Albertine Graben Refinery Consortium (AGRC) to carry Uganda’s share until when government can find the money or  recouped once the starts making profits.

6. What are the existing legal framework guiding the development of this project?

In order to facilitate the achievements of the National Oil and Gas 2008 policy objective, the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Act 2013 was enacted by Parliament during February 2013 and became effective during July 2013 following Presidential assent.

This Act provides for among others, the legal foundation for the development of a refinery in Uganda and other midstream infrastructure like pipelines and storage facilities.

Following enactment of the Midstream Act, the Ministry together with the other arms of Government put in place General Licensing, National Content and Health, Safety and Environment (HSE) regulations to operationalize this Act.

In addition, the Ministry together with the Uganda National Bureau of Standards (UNBS) through Technical Committee 16 have developed standards and codes for the operation of petroleum infrastructure in the country.

A total of 192 standards identified as required for both upstream and midstream petroleum operations have been formulated through a consultative process involving both private and public sector institutions, and have been approved by the National Council for Standards.

The Standards were launched in October 2016.

7. Will people be moved to create space for the refinery?

The refinery will sit on on a 29 square kilometres piece of land in Kabaale, Buseruka Sub-county, Hoima District. The acquisition of the land commenced in 2012 with the preparation of a Resettlement Action Plan (RAP) for project affected persons (PAPs) through a consultative process.

The RAP was completed during 2012 and as part of its implementation, payment of compensation to the PAPs who opted for cash commenced in December 2013. By December 2017, 2,625 Project Affected Persons (PAPs) of the 2,670 who opted for cash compensation have been compensated, accounting for 98.3%.

The remaining 1.7% includes the PAPs who have never turned up for verification and disclosure. It also includes those whose grievances are still being addressed and some who are in court disputing the compensation rates that were used.

In addition, 533 acres of land was acquired in Kyakabooga Parish, Buseruka Sub-county for resettlement of the PAPs who opted for relocation. Physical planning for this land and construction of resettlement houses and other social amenities for those who opted for relocation was.

The infrastructure includes: construction of 46 resettlement houses, construction of Nyahaira and Kyapaloni Primary Schools, rehabilitation of Buseruka Primary School, rehabilitation and expansion of Buseruka and Kabaale health centres IVs. The resettlement houses together with farm land were handed over to the PAPs during 2017.