EAC states to invest 40% in oil refinery

By Ibrahim Kasita

Uganda has invited the four East African partner states to invest in the 40% public shares in the proposed Uganda oil refinery.

All the members will confirm participation in the project by October 15. The multi-billion dollar refinery will be developed on a public-private partnership basis where the public owns 40% shares and the private sector takes 60%.

Robert Kasande, the team leader of the Uganda Oil Refinery project, said the public shares will be shared among the East African Community partner states of Uganda, Kenya, Tanzania, Rwanda and Burundi. “We have extended the invitation for the public stake to our regional partner states. They will have 10%,” he said Several potential investors have expressed interest in the lucrative refinery project.

What is being done?

The petroleum exploration and production department stated that a US energy investment firm, Taylor DeJongh, was contracted for the services of a transaction advisor for the project. The firm is supporting the Government in sourcing for the lead investor and financing for the refinery.

The ministry of energy and mineral development 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 the same size of Entebbe International Airport, waste management facilities and petrochemical industries.

A consultant was contracted to undertake a Resettlement Action Plan for the required land. The objective of the plan was to develop a framework for managing the loss of economic activities and livelihoods through compensation or relocation of the affected people.

Background

After confirmation of commercial oil reserves in 2006, a National Oil and Gas Policy was formulated in 2008 to address the entire spectrum of oil exploration, development, production and valuable utilisation 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 later formulated a Refinery Development Programme to guide the development of a refinery.

The programme 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, the Government contracted a UK energy firm Foster Wheeler Energy Ltd to conduct a feasibility study on building a refinery in Uganda in 2010. 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 $3.2b at a 10% discount rate and an Internal Rate of Return of 33%.

Refining capacity

The Government plans to developa refinery with an input capacity of 60,000 barrels per day; 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 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, diesel, petrol, kerosene, jet fuel and heavy fuel oil. Uganda’s petroleum products consumption is at 27,000 barrels/ day and growing at an annual rate of about 7%.