Uganda's Oil Refinery - An Opportunity for transformation

Compiled by Samuel Ouga.

Uganda’s petroleum products consumption is at 27,000 barrels/day and growing at an annual rate of about 7%. This fact presents an opportunity to Uganda, with the confirmation of over 1.2 billion barrels of recoverable oil in the country.

Following the discovery of commercial oil reserves in 2006, Government formulated the National Oil and Gas Policy in 2008 to address the entire spectrum of oil exploration, development, production and valuable utilization of the country’s oil and gas resources. Objective 4 of the Policy is to promote valuable utilisation of the country’s oil and gas resources through in-country refining of crude oil.

The Ministry of Energy and Mineral Development therefore formulated a Refinery Development Programme (RDP) to guide the development of a refinery in the country. Uganda’s RDP is in line with the East African Regional Refineries Development Strategy that was adopted by the EAC Partner States in 2008 that recommended a second refinery in East Africa be developed in Uganda.

Subsequently, Government contracted Foster Wheeler Energy Limited Ltd from the United Kingdom to conduct a feasibility study on building a refinery in Uganda in 2010/2011. The study considered the crude production potential and also undertook a comparative analysis between building a refinery and a crude export pipeline to the Indian Ocean coast. It also recommended the size and configuration of the refinery, location, financing options, social and environmental assessment, among others.

The feasibility study recommended that a refinery was a more commercially viable option with a Net Present Value (NPV) of US$ 3.2 billion at a 10% discount rate and an Internal Rate of Return (IRR) of 33%.

Government plans to develop a refinery with an input capacity of 60,000 barrels per day in a modular manner, starting with a capacity of 30,000 barrels per day by 2018 which will be increased to 60,000 barrels per day before 2020. The enactment of the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Act 2013 gives a firm legal foundation for this development.

The refinery configuration and complexity determines which products can be produced from the crude oil. The planned refinery will produce Liquefied Petroleum Gas (LPG), diesel, petrol, kerosene, jet fuel and Heavy Fuel Oil (HFO).

Location and Land Acquisition

Out of the six potential locations that were assessed, the feasibility study recommended Kabaale Parish in Buseruka Sub County, Hoima district as the most suitable location for the refinery. This is due to its centrality in relation to the entire Albertine Graben, proximity to the oil fields, sparse population and relatively low laying terrain among others.

The Ministry is in the process of acquiring 29 sq.km of land for the refinery. This land will host staff quarters, a health facility, an aerodrome with a runway of the same size as Entebbe International Airport, waste management facilities and petrochemical industries among others. A consultant was contracted to undertake a Resettlement Action Plan (RAP) for the required land during 2012.

The objective of the RAP was to develop a framework for managing the loss of economic activities and livelihoods through compensation and/ or relocation of the affected people.

The RAP study was conducted between June and October 2012 after engagements with the district, local, cultural, and religious leaders together with the affected communities. It involved sensitization about the project and resettlement options, a socio-economic baseline study, cadastral survey of individual parcels of land and valuation of property. The valuation report was approved by the Chief Government Valuer in December 2012.

The compensation rates for crops and non-permanent structures are set by the District Land Boards and approved by the Chief Government Valuer in Ministry of Lands, Housing and Urban Development. The value for land is determined by professional valuers after conducting a survey to establish the prevailing market price for land in a given locality using a comparative method. These rates are verified and approved by the Chief Government Valuer.

RAP implementation involving compensation and/ or resettlement is an extensive and comprehensive process. A number of activities must be undertaken before actual payment. These include verification, disclosure of compensation values, livelihood improvement and financial management training, identification of resettlement areas and construction of resettlement houses, among others.

Implementation commenced in July 2013 with disclosure of compensation values to verified land, crop and property owners. The ongoing disclosure is a transparent and voluntary process done in the presence of the Village RAP Committee and Local leaders. Affected persons are shown a detailed breakdown of their property including acreage of land and the monetary value. It is projected to take a minimum of eight months.

This exercise is aligned with the existing laws and international guidelines such as the Equator Principles/IFC/World Bank operational guidelines and other safeguard policies on resettlement. RAP implementation is being undertaken by a consultant and is monitored by local and central government officials on a daily basis to ensure compliance.

Financing the refinery

Uganda contracted the services of a Transaction Advisor (TA), Taylor DeJongh, an energy investments firm from USA for the project. The TA is supporting Government in sourcing for the lead investor and financing for the refinery, which will be developed on a Public Private Partnership basis. Several investors have expressed interest in developing the refinery and the Ministry plans to put out a request for qualification before the end of September 2013 for potential investors to formerly express interest.
Benefits of Uganda’s Refinery

The East and Central African region has only one refinery in comparison with other regions like South Africa with seven refineries and North Africa with 21 refineries. Uganda, like other EAC Partner States, therefore faces challenges in stability of supply of petroleum products. The refinery in Uganda will boost the region’s refining capacity and ensure security of supply of petroleum products especially for the land locked Partner States such as Rwanda and Burundi.

Besides being a strategic investment for the country and the region, developing a refinery in the country will improve Uganda’s balance of payments by reducing the petroleum products import bill.

The construction of the refinery and development of attendant industries such as the petrochemical and manufacturing industries will create jobs for Ugandans and ensure the transfer of technology in the refining and associated industries.

Other benefits include enabling the rational exploitation of the resource to support sustainable development and contribution to the country’s growing energy requirements by providing Heavy Fuel Oils (HFO) which can be used for power generation and Liquefied Petroleum Gas (LPG) that will help offset use of trees for domestic cooking.

As a country and a region, let us rally behind Government in taking this project forward which is in line with the National Oil and Gas Policy. Government is committed to ensuring that the processes leading up to the development of the refinery are handled transparently and in accordance with the laws of the country and international best practice.

Source: PEPD Uganda.