WHILE TULLOW WANTS TO EXPORT CRUDE OIL, THE GOVERNMENT INSISTS ALL UGANDAN OIL HAS TO BE REFINED HERE
BY IBRAHIM KASITA
FIRST, they promised that Uganda would produce refined oil by 2009. As the new year approached, Ugandans were told
BY IBRAHIM KASITA
FIRST, they promised that Uganda would produce refined oil by 2009. As the new year approached, Ugandans were told the scheme would delay by some months because the refinery site had to be shifted. Now due to major disagreements between the oil exploring companies and the Government, Uganda is not likely to start oil production next year.
Hopes for early oil production rose in 2007 after Tullow Oil, a firm exploring oil in the Lake Albertine Graben, signed a memorandum of understanding with the Government to begin production.
The earlier plan was to start production of 4,000 to 5,000 barrels of oil per day from Mputa oil wells. Initially, the refinery would produce diesel, kerosene and aviation fuel to enable Uganda end the fuel shortage. It would save about $600m (sh1,300b), which is spent on importing petroleum every year.
It would also include a 57MW thermal electricity plant, a transmission line from Mputa to Fort Portal and Nkenda and a distribution power network from Kaiso-Tonya to Hoima.
The Early Oil Production Scheme was expected to boost generation of thermal electricity and end load shedding and lower electricity tariffs.
All these projects were supposed to be running by September 2009. However, disagreements over oil pricing, construction of the refinery and the tendering process led to postponement, initially to 2010.
Tullowâ€™s plans for this year focuses on â€œfast-tracking the commercialisation of Ugandan reserves and executing selective high-impact exploration and appraisal campaignsâ€ and not refining. On the contrary, in Ghana, where oil was discovered at the same time as in Uganda, Tullow is importing oil extraction equipment to begin production in 2010.
However, even before the original disagreements are sorted out, new bottlenecks have cropped up. Experts believe these may further delay the project up to 2013. And when oil exploration starts, it wonâ€™t be 4,000 barrels a day Tullow Oil intends to begin with 500 barrels per day instead. They will then increase to 2,000 barrels a day after three years of production. Paul McDade, the chief operations officer, says they will increase production to over 100,000 barrels per day in about 10 years. But analysts say by starting small, Tullow might be buying time to negotiate for exporting crude oil.
In its annual report 2008, Tullow outlined a plan to construct a 1,300km oil pipeline to take crude oil to Mombasa for refining and exportation. The company says oil exploration will be more profitable if they refine it in Mombasa and distribute it regionally. The region would pay the same price, but Uganda gets royalties.
But the Government argues that oil should be used to satisfy local demand before export. â€œWe want all of the oil discovered in Uganda to be processed domestically. Our aim is to get an economic return, to get jobs and investments. We donâ€™t want anything raw to get out,â€ said Hilary Onek, the energy minister.
If the Government agrees that Tullow should refine the oil in Mombasa, the early production scheme will delay further for more than three years to allow mobilisation of finances and construction of the pipeline. The oil pipeline requires about $1.3b.
Due to disagreements over the oil refinery construction, the Government has asked the companies to begin extracting gas, which requires less sophisticated facilities. The Government has also asked the companies to set up gas-powered generators to produce electricity as opposed to heavy fuel thermal plants.
Another bottleneck is that Uganda is not yet prepared for oil production for lack of a â€œmidstreamâ€ department that is supposed to oversee, monitor, and regulate the oil business.
The Public Service Commission last year invited applicants to fill the vacancies in the department but to-date, the recruitment has not happened. Before oil production starts, this body should be functional.
All these bottlenecks imply that oil production is unlikely to start in the next two years. Oil experts explain that after the order is placed, it may take eight months before the equipment arrives and another year to build the refinery. However, in the case of Uganda, the tendering process is not yet resolved.
Where is Ugandaâ€™s oil?