As East Africa’s oil producers race to meet their production
targets, funding and infrastructural development hurdles threaten to
delay the projects.
Uganda, for instance, has been
forced to rethink its early oil production date of 2020, after it became
evident that the refinery at Hoima, which is expected to serve the
domestic and neighbouring markets, will delay even further, because
regional countries are yet to commit to the joint project whose final
investment decision is expected within two years.
The
project operators now target 2023 to start producing petroleum products,
including jet fuel, petrol, diesel and liquefied petroleum gas.
According to 2017 figures, by refining oil locally, Uganda will save
$1.7 billion annually.
In Kenya, President Uhuru
Kenyatta is gearing up to roll out the Early Oil Pilot Scheme (EOPS),
which will involve trucking the oil to Mombasa, on June 3. This
programme has been marred by logistical and legal hurdles in the past
year, leading to delays.
Impassable roads
Even
as officials insisted that the scheme was set for launch, there were
doubts that it would immediately succeed, as Turkana County, where the
South Lokichar oil basin is situated, has experienced massive flooding
that has left its roads impassable and the vital Kainuk bridge further
dilapidated.
It remains to be seen if the two companies contracted by Tullow
Oil Plc will start moving the target 2,000 barrels to Mombasa next
weekend.
Government officials would not be drawn to
discuss the logistical challenges in the way of the scheme, but a source
in the Petroleum Ministry said at least four trucks were ready for the
launch.
In Uganda, besides a series of studies and
decisions as well as sourcing and securing funding, which will then
inform the final investment decision that would lead to construction of
the $4 billion refinery, officials are also edgy about Kenya and
Tanzania, which seem to have grown cold feet over investing in the
project.
The two countries, which were invited along
with other East African Community partner states to take up shares in
the refinery, which will be operated as a for-profit venture, are
waiting for Uganda to start pumping crude oil before they can come on
board.
“We are doing a commercial viability assessment
of the project. They [Kenya and Tanzania] cannot commit yet until they
know that the refinery will get crude,” said Michael Mugerwa, general
manager of Uganda Refinery Holding Company (URHC).
This
is in spite of the fact that on April 10, Uganda signed an agreement
with the Albertine Graben Refinery Consortium (AGRC) that will build the
refinery, giving the sense that the project was finally taking shape.
Under
this agreement, oil firms Total E&P and China National Offshore Oil
Corporation that were given production licenses for the oilfields that
they operate, are supposed to feed the refinery with crude oil.
The
companies are racing against time to beat government’s target to
produce first oil by end of 2020, but this “is looking less likely”, an
industry source told The EastAfrican during a tour of the oilfields.
No infrastructure
The
source said that infrastructure such as the crude oil pipeline from
Kabaale in Hoima District to the Tanzanian port of Tanga, the central
processing facilities and some of the roads were not yet in place.
Kabaale
Airport, another component of the infrastructure that is expected to
ease transportation of heavy equipment, company executives and supplies,
will also not be completed till 2021.
The airport’s
construction started in April this year, and its completion time is 36
months. According to the contractor’s senior project manager Mikhail
Gorachinov, the runway will be ready for use by aeroplanes.
“We are committed to 2020 provisionally for what is possible for landing,” he said.
The
framework agreement signed last month will not come into force “for
another couple of weeks” after which the processes to actualise the
refinery will start.
“The agreement that was signed [April 10] becomes effective soon. That is when the clock starts ticking,” says Mr Mugerwa.
This
will see the first of a series of major decisions towards construction
of the refinery within five months, leading to the launch of the
project’s front end engineering design.
Meanwhile, the
refinery operators AGRC and URHC will also conduct commercial and market
studies to determine whether the refinery should focus on gasoline or
diesel, a process that could take another 15 months before the companies
get a final report on this.
Officials also cite the process of raising financing through private equity as one that takes time.
With
all the pieces in place, construction of the 60,000 barrels of oil per
day capacity refinery will start and take a period of three years.
The operators also worry that the refinery could lose time as they mobilise financing from private equity and credit agencies.
The refinery, located at Kabaale in Hoima District and sitting on a 29km2
spread, will host other facilities including the crude oil pipeline
from Kingfisher, about 40km south of the site, a crude oil export hub,
cargo projects, fertiliser complex, staff quarters and a polymer plant.
Tanktainers
The
AGRC is a special purpose vehicle comprised of Mauritius incorporated
Yaatra Africa (a subsidiary of Ventures LLC) and Lionworks Group Ltd
(Mauritius), Nuovo Pignone International SRL — Italy incorporated
subsidiary of General Electric, Saipem SpA from Italy and Intra
Continental Asset Holdings, a Mauritius private equity fund.
Uganda
discovered commercially viable oil reserves in 2006 in the Albertine
region estimated to be 6.5 billion barrels, but the country has missed
several deadlines it set to start production as oil companies, which
favoured export of the crude, haggled with the government over viability
of a local refinery.
Meanwhile, in Kenya, Multiple
Hauliers EA Ltd and Oilfield Movers Ltd are understood to be mobilising
flatbed trucks to move crude oil in tanktainers provided by Primefuels
Kenya Ltd to Mombasa for storage pending export.
Each tanktainer is expected to carry about 130 barrels of crude.
“Preparations for trucks to deliver first cargo of crude to Mombasa are in high gear,” an official close to the operation told The EastAfrican.
President
Kenyatta on Wednesday met with Petroleum Cabinet Secretary John Munyes
officials of Tullow Oil Plc, Total SA and Africa Oil Corporation, and
Turkana County leaders led by Governor Josphat Nanok to discuss the
EOPS.
“We are ready to get started. This is important
for our country as a whole, and for the community in the producing
area,” the president said.
—Additional reporting by Kennedy Senelwa
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