Uganda to sign refinery deal in October as investors raise concern over land and roads

A picture of an Oil refinery. Photo by Getty Images

A picture of an Oil refinery. Photo by Getty Images

The government of Uganda expects to conclude the first negotiation phase of the 60,000 bpd refinery development project come October 2015 and embark on signing of the Final Investment decision Uganda Oil has learnt.

The revelations were made by the Principal Engineer of the Refinery at the Directorate of Petroleum, Steven Enach at the closure of the Inaugural Uganda International Oil and gas Summit (UIOGS) in Kampala.

” The competitive bidding round was launched and it is now in advanced stages. We have an inter-ministerial steering committee that is overseeing the process of refinery development in support of the transaction advisory team,” He said

“The selection process is expected by the end of October with the signing of Key project agreements,” he added

The agreements according to Enach Include; The Project Framework agreement between government of Uganda and the lead investor; RT Global Resources, The Implementation agreement between government and the Refinery company and The Shareholder Agreement to signed between the National Oil Company (NOC), The Refinery holding company and the lead Investor Special Purpose Vehicle.

The Uganda refinery project was a decision by East African heads of State in the Northern Corridor project in need to boost petroleum production as a back-up to the defunct Mombasa Refinery.

However, Enach said it is only the government of Kenya which has since expressed interest in the project. Other East African states are still skeptical about the deal he said. The refinery will be funded as a Public Private Partnership (PPP) of 60 percent Private and 40 percent Public (60:40 Equity).

“Government of Uganda extended an offer to EAC (East African Community) member states. So far, the government of Kenya which has confirmed its participation. The other EAC Member states are still evaluating their participation,” Enach Said.

The proposed refinery output capacity at the initial development phase is expected at 60,000 bpd and 120,000 bpd midterm and 180,000bpd long term, based on more discoveries in the country. Enach said the project is already on course.

He said government is concluding on the acquisition of 29 square Kilometers of Land on which the project will be situated. The relocation and compensation exercise of Project Affected Persons (PAP) is expected to concluded in February 2016.

See: Uganda parliament finds gaps in land compensation of the oil refinery construction project

The land will among others host a refinery, an industrial park, Energy based and Petrol chemical industries and airport. The airport whose feasibility study is underway will in the initial stage feature a landing and run way to be used during refinery construction.

The Pipeline(s)

The detailed routing survey and the environmental impact study of the product pipeline which will run from the refinery to an assembly point near Kampala is expected to be concluded in February of 2016. Government has also commission a commercial viability study of a finished product pipeline from Kampala to Rwanda capital Kigali.

The government also says it will commence the relocation survey exercise in mid 2016.

However, the Joint Crude Export pipeline between Uganda and Kenya earlier announced is still in doubt in doubt Uganda Oil has learnt.

Uganda according to Enach is considering three alternative routes including; Hoima-Lokichar-Lamu route, Hoima Mombasa route and Hoima Tanga (Tanzania) route.

A source from the Directorate of Petroleum who spoke to Uganda oil on condition of anonymity said the nation is under pressure from financiers to look for a cost effective and secure route, alternative to the the crude export pipeline that was earlier proposed.

Lead Investor raise Concerns

Meanwhile the East Africa regional representative of Russian company, RT Global Resources a unit of a state-owned Russian company that won a contract to build an oil refinery in Uganda, Andrey Kozenyashev voiced concerns about the project.

He said there are challenges impeding the consortium which need to be addressed in order to expedite the project.

Kozenyashev said the project is likely to face setbacks during the movement of logistics due to the road infrastructure and Railway infrastructure.

“The road infrastructure is poor. Regardless of which port to be used including Mombasa Dar es Salaam or Lamu in future we will face problems while transporting heavy weight lift Cargo” Kozenyashev warns

He asked government to review the implement all oil and gas infrastructure development projects “without delay”

He also said as the leader in the consortium, RT Global Resource is concerned about the said 29 square kilometers which according to the project size is still so small to accommodate a refinery, Petrol-chemical industries, and industrial park and an airport.

“A serious threat emerges if according to the existence place, a refinery, an airport and petrol chemical industries to be positioned on a relatively small piece of land it is only 29 square kilometers’, he said

He said the company has recommended to government to construct the airport way from the refinery and the petrol-chemical industries and was optimistic the proposal was considered.

RT Global is expecting to sign the first phase of the agreement with government of Uganda by the end of October but Final Investment Decisions are subject to delay because they require utmost evaluation Kozanyashev said.

Kozenyashev also revealed that the company is eyeing for an opportunity in the crude pipeline construction project

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