Russians to build Hoima oil refinery

By David Mugabe

The countdown to Uganda processing its own oil just got closer.

On Tuesday, the Government announced the selection of Russia’s RT Global Resources as the preferred bidder for Uganda’s refinery project, bringing to an end a long and tedious process that mirrored the ever shifting timelines of production.

South Korea’s SK Engineering and Construction-led consortium, the other front runner in the about $3b procurement process, was also announced as the alternate preferred bidder.

The oil and gas industry received the news with delight, contending that the development would spark renewed activity in a sector that has been dormant for almost two years.

Kenneth Kitariko, the chief executive officer of African Alliance Uganda, the firm that at one time was the advisors of Tullow’s aborted cross-listing onto the Uganda Securities Exchange, described the news as a “tremendous development”.

“The resultant trickle-down effect to the economy of $2b dollars cannot be overstated — it accounts for approximately 10% of GDP of Uganda,” Kitariko said.

The multiplier effect across the economy is immense — jobs during and after construction, the spawning development near the refinery and the reduction in price of refined oil products.

Katariko says we now have to ensure the refinery will be utilised in time. What remains is the confirmation of commencement of production for the country that sits on 6.5 billion resource base, with about half recoverable.

 Mugabi Godfrey, the commercial director at SEKO Logistics, who have been trained in handling project logistics in the oil and gas said the development would reinvigorate people’s confidence in the economy.

“The dimension of the project is huge, a lot of clearing and forwarding will take place and a lot of companies have skills that were not being used,” Mugabi said.

Patrick Ruharuza, the chief executive officer of Quest Energy, said it was good news at a time when things were slowing down.

“We are going to see pitching up of things, a refinery will go a great deal in leveling things than if we were only trading in crude,” Ruharuza said.

Energy minister Irene Muloni said in a statement on Tuesday that the process of selecting the lead investor has been highly competitive.
 

Uganda's energy minister Irene Muloni. (Photo credit: Enock Kakande)

“We are pleased that the two bidders responded to the request for final offers from which RT Global Resources emerged as the selected preferred bidder.

"We have confidence that we will execute the projects agreement and go ahead to develop Uganda’s refinery project,” said Muloni, who also later in the day addressed Parliament on the progress in the industry.

The minister said several negotiations would commence in March, with an aim of reaching an agreement within 60 days.

Fred Kabagambe-Kaliisa, the energy ministry permanent secretary, said the objective of the negotiations is to conclude the project agreements to the satisfaction of government and the lead investor which will include the project framework agreement, shareholders agreement, implementation agreement and the escrow agreement.

It was not immediately clear what aspects of the procurement process SK Engineering got trounced by the Russians.

But Kaliisa said SK Engineering and Construction, who he described as “strong competitors throughout the selection process” were short on their contribution to the private share and operating plan.

But he also warned that if, at the end of negotiations with RT Global Resources, the Government is not satisfied, it will exercise its option to commence negotiations with the alternative preferred bidder — SK Engineering and Construction.

Uganda’s refinery will be developed under a public-private partnership arrangement with government holding 40% and producing 60,000 barrels per day at full capacity. A 205km product pipeline will also be built to a terminal near Kampala.

 The refinery first phase is expected in place by 2018. In Parliament, members tasked Muloni to explain how the company was selected without the involvement of the Petroleum Authority and the National Oil Company in place.

“How could the process be possible when the two vital bodies are not in place. The President was supposed to appoint the persons to head these institutions sometime back?” MP Eddie Kwizera asked.

Muloni, however, explained that the oil company and the authority’s role is not to procure but regulate and monitor the oil companies.

The ministry said 74% of the people affected by the project have been compensated.