Tanzania secures 8pc stake in Uganda’s $2.5b oil refinery

Workers at a Tullow oil rig in Turkana: The firm expects an airborne survey in the Kerio Valley basin to confirm oil finds. PHOTO | FILE 

By KENNEDY SENELWA

In Summary

• The refinery is to be built in modular form, starting with 30,000 barrels daily with a similar capacity added later.

Tanzania has agreed to acquire an 8 per cent stake in the $2.5 billion crude oil refinery plant that the Uganda government plans to build in Hoima.

The refinery is to be developed under a public-private partnership, with lead investor taking a 60 per cent stake and the Uganda government 40 per cent.

Uganda has invited each East African Community member country to buy 8 per cent equity in the 60,000 barrels-a-day plant.

In Kenya, the Kenya Pipeline Company (KPC) intends to buy the Mombasa-based refinery designed to process 80,000 barrels of oil per day.

Tanzania’s Energy Minister Sospeter Muhongo said Dar es Salaam will invest in the plant in Hoima.

“We are determined to take all 8 per cent shares. Our initial calculations indicate it will cost $150.4 million,” he said.

The refinery is to be built in modular form, starting with 30,000 barrels daily with a similar capacity added later.

Oil export

Exploration firms have discovered 6.5 billion barrels of crude oil in Albertine basin in western Uganda and the refinery will produce refined petroleum products for domestic use with the surplus exported to neighbouring countries.

The refinery project will involve building 205-kilometre refined fuel pipeline from Hoima to a depot on the outskirts of Kampala.

The Tanzanian and the Italian Petroleum Refining Company Ltd (Tiper), which used to produce 600,000 tonnes of products annually, ceased operating in 1991 at Kigamboni in Dar es Salaam.

KPC plans to acquire the Mombasa-based crude refinery after Essar Energy of India sold its 50 per cent share in the plant to the Kenya’s government.

KPC said it intends to buy Kenya Petroleum Refineries Ltd (KPRL) but crude oil refining will not start due to the need for a feasibility study on the viability of the Mombasa based plant’s products competing against imports.

KPC decided to acquire KPRL after Essar last month signed an agreement to sell 9.9 million shares to the National Treasury for $5 million. Each share has a par value of Ksh20 ($0.22).

“This transaction marks Essar ’s complete exit from KPRL,” said Essar.

The Kenya government and Essar each owned 50 per cent of KPRL, which stopped operations on September 4, 2013 after exhausting its last stock of Murban crude oil leading to the region to depend on imports from the Middle East and India.

KPC managing director Joe Sang said KPC intends to acquire KPRL as part of the corporation’s expansion plan but refining of crude oil is not being considered in the medium term because of technical challenges.

A detailed risk assessment will be undertaken to ensure balance of risks, returns and growth. KPC is procuring a transaction advisor to carry out a due diligence on KPRL before acquisition.

KPC will establish risks and costs of redundancy as KPRL has about 300 employees.

It is anticipated this will be managed through retirement and negotiated separation terms and assimilation into KPC establishment.

KPC’s strategy is to use KPRL for storage of crude oil from South Lokichar in north western Kenya before exporting the oil through Lamu port.