Tuesday February 25 2014

Government to announce oil refinery investor

Mr Kabagambe Kaliisa

Mr Kabagambe Kaliisa, the ministry of Energy permanent secretary 

By Isaac Imaka & Frederic Musisi

The year started on a high in respect to the signed MoU, what are your reviews of last year’s performance of the oil sector?

Performance is measured by how much work has been done over time. Here, you have to look at sustainability. By the end of 2013 we had drilled a total of 115 wells - that is cumulative but important. 101 wells have hydrocarbons, signifying an 85 per cent success rate.
In the course of last year Tullow submitted production licence applications for eight fields. Total submitted one whereas Cnooc had in 2012 been granted a licence for Kingfisher.
And as we move forward, nine production licences are currently under evaluation, which is a significant step, because of the complexity of these operations.
It should be noted by the end of last year oil companies had invested up to $2.3 billion (about Shs5.6 trillion). However, our projections indicate that by the end of this year they would have invested up to $3 billion (Shs7 trillion) in exploration, development and production.
From a policy perspective, two laws, including Petroleum (Exploration, Development and Production) and Petroleum (Refining, Conversion, Transmission and Midstream), were assented to.
Besides, we acted on policy issues of local content, evaluation and training needs. We have also established the Uganda Petroleum College in Kigumba and Makerere University passed out contingents of graduates in petroleum/engineering studies.
Also on our part as government we sent out a number of staff from selected government ministries, agencies and departments, to train in various oil related disciplines to boost our understanding of issues related to oil.
Most importantly we are making good progress on the refinery, as we shall soon announce the lead investor from a consortium of six companies that were short-listed recently. We hope to start construction works by 2015.
Your review of the sector suggests little participation of local players; there are concerns of lack of information about available opportunities. What is your take on?
Well, local content is still a challenge and as government we think this requires immediate attention. Contrary to reports we as government have tried to put out required information to the public.
We have been publishing reports about oil since 2000 including reports in the electricity and minerals sectors.
There might be a few challenges here and there, but we keep the pubic in the know of what is going on.
Our staff from the Petroleum Exploration and Production Department are always on radio conducting sensitisation and making public announcements.
Obviously, the feeling has been (and is) that everyone will work in the oil which is not the case. But there are several opportunities in the service sector, agriculture, transport and hospitality, which revolve around oil that can be tapped into. We have a couple of local examples who started out very small like Bemuga in clearing and crane lifting, MSL, but have since grown big over time.

What were the major challenges for the sector in 2013?
Managing peoples’ expectations. People thought that once oil had been discovered, production would start there and then, however, this is the case. Oil production is a process and things cannot happen overnight.
Secondly, land acquisition remains a sticky issue. Getting the 29 square miles - land where the refinery will stand was a challenge and even now compensation of people for their land has not been without challenges, finger-pointing and speculation. Not only for the refinery but even for other projects we intend to embark on.
Additionally there are constraints in relation to manpower and knowledge. We have less manpower available locally thus a number of projects have been put on hold or delayed.
We also read press of complaints from locals and companies on how production has been delayed, this and many other issues. This clearly to me indicates that people have not learnt to separate issues from non-issues.
Oil companies are looking forward to start early production; quick diversification of the market and quick returns on their investments, but as government [we] are looking at long term plans and benefits of oil.

Recently the government and Joint Venture Partners signed an MoU, what exactly does it mean for Ugandans?
The MoU puts across a platform for further investments. We agreed on a refinery, an oil pipeline and a crude power plant, which we shall build as we move towards production.
The agreement allows partners to invest further and agree on equity levels amongst themselves. Basically this involves the commercialisation of oil from the current status to when it will reach market.
The MoU also boosts investor confidence, meaning those who have identified opportunities, know where to invest.
It details a well-defined roadmap for production; revenues, and several other activities which bring in taxes. You see its not only companies which pay taxes, but they also employ people and do a lot of importing, which all are liable to taxes.
In simple terms it’s a window for new opportunities and further investments.
The major processes of the equation are development of the oil fields, production, processing, refinery and pipeline, onto the market. Oil companies are part of the equation but not in entirety.

Is the MoU a public document?
Well, like any other agreement it was between two parties-government and IOCs. Every detail of it remain only known by the two parties for mutual understanding, but in case a member of the public wishes to accesses it, then the two parties have to consent.
But we anyway, revealed its content and I have restated them, so there is no need for alarm.

What is the biggest focus for 2014?
Our biggest focus of this year should be reaching negotiation with the selected investor on the commercial financing of the refinery.
Oil companies should also be finalising production licences which government will approve anyway
We look forward to starting Front End Engineering development for the upstream and midstream projects, or basically, the production facilities.

Looking at the immensity of the projects and investments required, what financing models are being considered for the FEED and isn’t it likely to push ahead the production date?
The, MoU, like I said details the responsibilities of both the government and the joint venture companies.

When we conclude the rigorous negotiations for a lead investor who will finance the refinery, construction should start by 2015 and by 2017 we should have its first phase of 30,000 running.
And by the way, the MoU provides for short, medium and long-term implementation actions for these investments. Short-term means between now and the next three years and we will focus on production licences, development of oil fields and crude for electricity generation.
The medium time covers three to six years and covers the first phase of the refinery. Then, the long term covers the doubling of the refinery capacity to 60,000 barrels-per day after the year 2020.

In the meantime, government, and oil companies and other interested parties will work on the pipeline.
Realistically, the pipeline will come after the first phase of the refinery-because the latter is more advanced and beneficial for Uganda and people should ignore the academic arguments against the refinery. The pipeline is another huge investment which requires land, a detailed feasibility study, which is ongoing but certainly it will need pre-planning.
It’s not an issue of competition but rather one (refinery) project has to move first and fast, but does not rule out the pipeline.
I also read in the papers about oil companies complaining about the slow progress, but that to me, I don’t see it as a very important issue. They have never written to us [government] complaining, but if it’s true, then that’s their problem because they clearly know how careful we should be with such huge investments.
After the refinery, we will move forward to final investment decisions and harmonisation of the fiscal regime, which should ideally take between three and four years, leading to 2018.

Moving forward, there have been complaints from the joint partner companies that government is uncooperative, and has delayed to award them a license even after submitting applications months back. How would describe your relationship with those partners?
It’s not a necessarily sour relationship but a business one. Our mission as government is to manage natural resources for the country, even for the future.

Are we seeing Tullow’ production license awarded soon?
Yes, I don’t see any problem there. We are finalising and addressing all the issues in a very coherent manner. It’s a back and forth technical discussion.
We don’t want to off course to get blood from the stone but at the same time we don’t want to leave juice in the fruit.

Relatedly, there were concerns from companies that during the MoU negotiations government pushed for a Basin Wide Approach—of developing the oil fields separately going against the joint partnership venture that was being pushed by the companies. What prompted this move?
I think there are two aspects to that move. First of all, each individual field has got its own production license granted, so you cannot transfer costs from one field to another. It has to be understood that all practices and problems [if any] related to one field have to be handled there particularly.
To a good extend it did not apply to management of the field or method of production, in between they would choose to have a pipeline, but nonetheless it doesn’t affect the economies of the scale.
So to me, it was a matter of reaching an understanding on the subject more than the academic arguments carried.

When is the next licensing round for the upper Graben?
We are in the due course of preparing, to see that later in year we have a robust round of bidding, especially for the areas where we have sufficient data, we have wells and 3-D seismic data, to set off the process.

Which areas are these?
They include, the Semliki area, areas which have been relinquished by some of the companies but now have new data on them, there is Taitai, and others.
So in the course of this year we’ll be putting out announcements inviting prospective companies.

What is the status of regulatory bodies like the National Oil Company, and Petroleum Authority?
Consultations are getting finalised. Remember the members are appointed and approved by cabinet. When Parliament resumes in full-swing the names shall be forwarded.
Has Cabinet received the names for vetting and for how long is this going to take?
Off course Cabinet proposes names with the help of the Energy minister and appointments shall be eventually made.

Do you support the proposal of electronic money transfers to individuals, budgetary allocation, among others?
I think the bottom line is to invest in durable infrastructure and knowledge, as the most important thing, because you can invest in those money transfers but don’t have a direction of investments.
Good expenditure lies in investments in durable infrastructure, which will span times over, such that we know that once upon a time there was money and this is what it did—and most importantly Ugandans should be able to continuously benefit from such investments.

Your last word?
First and foremost, there is information about oil. People should stop going out there to say everything is marked in secrecy.
Secondly, we want ensure that there is sustainable production of oil in this country; hence energy security will stimulate industrial growth. At the same time, with revenues we’ll invest in durable infrastructure and knowledge.

Ugandans should therefore be expectant that everything will be better for them with oil resources, management and production.

Kaliisa on the relationship between oil companies and government

I have personally not seen a statement from any oil company indicating how uncooperative the government is and I would not want to believe what I see in the media. But most importantly they have their own interests and as government we have ours but the relationship is that our interests converge at a certain point despite a few disagreements.

They want to start production and we are eager to start producing oil. You see, government is the regulator and the oil companies are the investors; so the regulator and the investor always have issues, for example if I was a producer, I would want to minimise costs, but with a bigger return on investment and at the same time may not use the most efficient way.

But if I am government, my intention is to make every drop of oil in the sub-surface get out, which is always the haggle. It’s not necessarily a sour relationship but a business one. Our mission as government is to manage natural resources for the country, even for the future.

His take on Tullow

We are finalising and addressing issues related to Tullow’s licence. It’s a back-and-forth technical discussion.
We don’t want to get blood from a stone but at the same time we don’t want to leave juice in the fruit. There have been reports about Tullow planning to farm down to a new company. This has to be approved by government.
Like I said, Tullow has not contacted government about it and I don’t want to speculate because there is no formal communication to that effect yet.

What the MOU provides

The implementation phases. The MoU provides for short, medium and long-term implementation actions for these investments. Short-term means between now and the next three years and we will focus on production licences, development of oil fields and crude oil for electricity generation. The medium term covers three to six years and covers the first phase of the refinery.

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