Uganda begins fresh negotiations for oil refinery

Uganda is back to the negotiation table over the construction of a 60,000 barrels per day refinery following the failure of its agreement with its preferred bidder, Russia-led consortium RT Global Resources. PHOTO | FILE 

By HALIMA ABDALLAH

In Summary

• Uganda is back to the negotiation table over the construction of a 60,000 barrels per day refinery following the failure of its agreement with its preferred bidder, Russia-led consortium RT Global Resources.
• The government will have to negotiate with South Korea’s SK Engineering, which is the alternative bidder. The plan is for the talks to lead to the signing of an implementation framework, project framework and escrow agreements. 
• This latest development is likely to affect the general oil production timeline of 2022.

Uganda is back to the negotiation table over the construction of a 60,000 barrels per day refinery following the failure of its agreement with its preferred bidder, Russia-led consortium RT Global Resources.

This latest development is likely to affect the general oil production timeline of 2022.

The government will have to negotiate with South Korea’s SK Engineering, which is the alternative bidder. The plan is for the talks to lead to the signing of an implementation framework, project framework and escrow agreements. 

Following the signing of the final agreements, the parties will form a refinery company that will take over the engineering and financial aspects of the project.

SK Engineering lost its bid despite being a strong competitor all through because, “They came short of key government requirements including contribution to the private share and operating plan,” said Kaliisa Kabagambe, Permanent Secretary in the Energy and Mineral Development Ministry.

The government started negotiations with RT Global in March 2015, and the final agreement was expected to be signed last month in June.

READ: Russian firm wins contract to build Uganda's first oil refinery

However, instead of signing the documents, RT Global made additional demands on the government, and sought to reopen and renegotiate issues that had already been agreed on by both parties.

“Consequently, the government was left with no choice but to halt negotiations and withdraw the bid bond… We had 103 issues to negotiate on. They agreed on all the issues, but they returned the documents unsigned,” said Mr Kabagambe.

READ: Russian firm pulls out of Uganda’s $4 billion oil refinery

The RT Global Resources consortium members are: Telconet Capital Ltd Partnership, VTB Capital PLC, Tatnet JSC and GS Engineering and Construction Corporation.

The SK Engineering and Construction consortium members are: SK KBD Global Investment Partnership, Private Equity Fund, China State Construction Engineering Co-operation Ltd, Haldor Topsoe A/S and Maestro Oil and Gas. 

The construction of the refinery was planned to be completed by early 2018, but fresh negotiations are likely to delay the project.

The move by RT Global Resources comes as Russia faces several economic sanctions by the European Union and the USA, which have affected the country’s ability to raise finances.

READ: Uganda refinery deal risks controversy

In 2013, the Energy Ministry invited bids for the construction of the refinery, which will be located in Hoima district, western Uganda. The final bidder was expected to be announced in October 2014, but this was pushed to April 2015 after the two selected bidders requested the government for a tax waiver.

The winning bidder will also be required to build product storage facilities and construct a 205km product pipeline from Hoima to Kampala 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.

Transaction advisors, led by independent investment banking firm Taylor Dejongh, participated in selecting the best bidder.

In the meantime, projected oil volumes have risen to 6.5 billion barrels of oil with 1.4 billion barrels recoverable.

The refinery is expected to produce diesel, petrol, kerosene, jet fuel, liquefied petroleum gas and heavy fuel oil. This is expected to save the country $1 billion, the amount it spends on petroleum products imports annually. 

The government opted for a private-public partnership to develop the refinery at estimated cost of $4.27 billion. The government will retain 40 per cent shares in the refinery while the private investor gets 60 per cent shares.