Ugandans to own 40 per cent of oil refinery

Debate has been about the viability of the phrase “oil in Western Uganda” and why the refinery will be put in Kabaale in Hoima District yet data in the petroleum department shows that northern Uganda has more oil than the west or southern Uganda. Isaac Imaka & Fredric Musisi explore the sector.

Whenever there is a political hitch on the Nairobi side of the Mombasa – Kampala Highway, it is Uganda that suffers. This is when fuel trucks, or the rail line are blocked. From time immemorial, one of the things that have governed the economic relationship between Kenya and Uganda is that the latter has been offering the former the lifeline, both in access to the sea and in terms of oil and gas products.

However, last week, the Ugandan government and the oil companies agreed to construct a refinery to cater for the country’s domestic fuel needs and, later, a pipeline to cater for the international crude market. According to the Permanent Secretary, Ministry of Energy, Mr Kabagambe-Kaliisa, Uganda’s decision to construct a refinery is in line with object four of the national oil and gas policy 2008 that seeks to promote the valuable promotion of the country’s oil and gas resources. The plan is to construct a refinery with a midterm (three to six years) refining target of 60,000 barrels per day and expand it in six years.

Current status
East Africa has only one refinery producing 70,000 barrels per day at half the capacity.
However, Uganda’s daily demand is 30,000 barrels per day and that of the region is 200,000bpd with a growth rate of 7 per cent.

In preparation for the final construction, government has procured a US- based energy investment financial advisory firm, Taylor- DeJongh, to offer transaction advisory services. The firm will, among other things, recommend the appropriate ownership for the refinery and the associated elements, including crude and product pipelines terminal and also evaluate and recommend the best ownership structure for the refining company.

The refinery will sit on 29 suare kilometres of land, approximately 13 villages in Kabaale. The land will accommodate the refinery, an aerodrome, waste management facilities, future associated industries such as petrochemical industries, staff quarters.

Mr Kabagambe-Kaliisa, says the refinery will be developed on a Private–Public Partnership basis through a joint venture company with a proposed 40:60 sharing between public and private entities. EAC Partner states, too, have been proposed to participate with up to 10 per cent out of the 40 per cent public shares. But will a refinery in Uganda be a political or economic game changer both nationally and regionally?

Benefits or a mirage?
A refinery is most likely to improve the country’s balance of payment by reducing the petroleum import bill which stands at $2 billion. But Dr Frederick Kisekka-Ntale, a political researcher, says having a refinery does not mean access to cheap fuel by the Ugandan consumers.

This is because oil companies have been doing capital investments and government may use borrowed money to finance its part of the bargain in constructing the refinery. “We may begin at a point of indebtedness; the cost of paying back the loan will eat into the cost of production hence driving the cost at the pump higher,” Mr Kisekka-Ntale says. “All these costs will be borne by the consumer and so by the time we will build our refinery and Kenya has started production, Kenya oil maybe cheaper than ours and it is not a paradox because it has happened in other African oil producing countries.”

The former Makerere Institute of Social Research lecturer says even if all oil producing countries in the region construct individual refineries, the law of consumption will dictate that whoever will have the lowest product on the market will access the clients’ money.

Refinery location
Another debate has been about the viability of the phrase “oil in Western Uganda” and why the refinery will be put in Kabaale in Hoima District yet data in the petroleum department shows that northern Uganda has more oil than the west or southern Uganda.

Former Leader of Opposition in Parliament Morris Ogenga Latigo, argues: “That alone tells you a lot about this country, but for the good of us as a country it is something we should bypass.”
Prof Latigo adds: “But regardless of this disenfranchisement our focus as people of the north is on how revenue will be split.”

However, Refinery Officer Irene Batebe says the decision to put the refinery in Kabaale was neither emotional nor political because seven other sites were considered, but the final decision was driven by the need to transport the waxy crude oil and availability to water. “In order to make the refinery viable, we had to look at the cost of transporting the crude oil to the refinery; then easy access to the market and existing infrastructure and how easy it is to transport equipment,” Ms Batebe says.

The Engineering Procurement Construction is slated to start in 2014 and first commissioning of a 30,000 capacity refinery in 2016 and expand to 60,000 capacity in 2018 and 120,000 in 2022.