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America, China in US$ 4bn Uganda refinery deal race

President Museveni, Energy Minister, Irene Muloni and PS Stephen Isabalija

For instance, insiders say that officials in charge of the refinery project were disappointed when they travelled to Washington to do due diligence and GE, the biggest player in the Yantra Ventures consortia, only sent junior officers to meet them.

On the side of Dongsong, officials are equally concerned that it has not locked in Exim Bank, which is the key financier of Chinese companies doing big projects in Uganda.

Some have even pointed to foul play. Apparently, a Ugandan company, owned by a Canadian company, both owned by a one Eric Byenkya, is being locked out of the deal yet it had managed to assemble a consortium of better players in the refinery building sector and had even secured financing from a U.S company known as Terra Master Inc.

The Ugandan company called Bantu Energy was also said to be in talks with SNC Lavalin, a major global contractor, which had independently applied to undertake the project and appeared willing to partner.

The Independent has seen correspondences between SNC Lavalin, Terra Master and Bantu Energy confirming the three were working together. However, insiders say Bantu was unfairly sidelined. The Independent understands that President Museveni has even given the Bantu directors audience.

Energy Ministry Permanent Secretary, Stephen Isabalija, declined to divulge any details and only told The Independent that negotiations with the potential investors are expected to take place this July. Isabalija is part of the government team trying to find the best investor.

Given past experiences, officials are approaching the project with caution and less excitement than they did with the Russians and South Koreans.

Energy Minister, Irene Muloni, has described the parties that had shown interest in the project this time as “very serious”.

“An investment of $4 billion is not small so it needs serious people,” she said earlier this year, “And there are a good number of them who have come on board who are serious.”

Refinery not wanted

But the same minister had promised that government would announce its decision on a few selected candidates by March. Three months later, the decision has not come. The delay throws a lot of question marks on the likelihood of the refinery project taking off, considering that it has never been favoured by almost all companies holding oil production licenses in Uganda.

The refinery only received a nudge from Total E&P which, early this year, offered to take a 10 percent stake in the project. 10 percent is easily over US$ 400 million – not a terrible offer given that all the government needed last year to kick start the project was US$500 million.

Total E&P’s offer is not only important because of the money, it also represents a positive shift for government.

Previously, the international oil companies—CNOOC, Total E&P and Tullow—have been opposed to the refinery. The oil companies were keen on the $3.55 billion pipeline, which hit a milestone with the signing on May 26 of a construction agreement deal between Uganda and Tanzania.

Their only compromise was a small refinery of 30,000 b/d, which would possibly be expanded later.

The refinery remains in play mainly because President Museveni has insisted on it. He has also said the refinery would reserve the right of first call on oil produced.  Museveni’s demands effectively mean there will be no oil production without a refinery. However, with no cash to implement the project and investors jumping out of the deal at the last minute, opponents of the refinery have been making gains without even saying a word.

This group has always said that a refinery will become another worthless but expensive liability on the government. They say, even before global oil prices fell, refineries world over were already struggling. The situation seems to have only gotten worse, critics say, and a refinery in Uganda cannot be economically viable.

But government officials, led by President Yoweri Museveni, dismiss any critics. A senior petroleum official, Enerst Rubondo, who now heads the Petroleum Regulatory Authority (PRA), has for a long time defended as “a strategic decision to construct a refinery”. Apart from creating jobs, he has said the refinery would save Uganda a yearly petroleum products import bill between US$ 1 billion (2.5 trillion).

Indeed, Uganda has in the past suffered fuel shortages leading to price hikes and in 2007, the country was cut off from the supply of petroleum products due to riots that rocked Kenya following a disputed election.

And demand for petroleum products in the region keeps growing at over 7 percent. That is why Uganda interested regional peers to acquire a stake in the refinery. Tanzania is expected to take up an 8 percent stake and Kenya a 2.5 percent stake. Given that Total E&P is bringing on board some 10 percent, which caters for 22.5 percent.

Initially, government had structured the deal to have the lead investor bring 60 percent and then government and the regional peers take 40 percent.

But after being frustrated by both the Russians and South Koreans because it turned out they could not martial the investment money, the government restructured the deal again.

Last year, Dozith Abeinomugisha, who was heading the project, said that the government would now be the lead investor injecting 60 percent into the project, and the private investors would bring on board the 40 percent.

Apart from the boost it has from having GE on board, the Yantra Ventures consortium might win the deal because Museveni might be looking at another strategic objective; political and economic risk diversification.

3 comments

  1. Typical of Ugandan public purchases. New vendor evaluation team, New set scorecards and new technical opinions of technocrats to sort the troubles. Lobbying should be highly prohibited and culprits should be referred to government investigation institutions. If not well handled, the project will be a laughing stock in the EAC block. GOD help Uganda.

  2. James jones bantu

    Andrew I want to if the two deals are connected or they independent from each other. The pipeline deal and the refinery. I want to point out that building a refinery alone can cost less than £200 million, so where that that figure of 4 billion us dollars come from, it’s pretty cheap to construct a refinery. Unless you tell me that it’s the same company building a refinery and the pipeline for that some 4 billion, still alot of mone to dish out to a foreign company. I think ugandans can now appreciate my argument that we need to quickly invest in knowledge creation rather than wealthy creation that Mr museveni is pre ocupied with. We should use local talent to build those projects handed to foreign companies. Think again ,Mr museveni think about creating local knowledge .

    • My question is if we have a Ugandan company(bantu energy) that’s willing to invest in this project why are we looking at other investors

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