Uganda picks Dubai firm to develop $4b oil refinery

The Ministry of Energy announced yon January 23 it had handpicked United Arab Emirates’ Alpha MBM Investments LLC led by Sheikh Mohammed bin Maktoum bin Juma al Maktoum, a member of the Dubai Royal Family, to finance and construct the proposed 60,000 barrels per day (bpd) oil refinery in Buseruka Sub-county, Hoima District. 

The ministry said in a statement that “final negotiations” on the $4b (Shs16 trillion) Greenfield project commenced on January 16 after the Emirate firm was selected as the preferred bidder out of five firms that expressed interest.

“The ministry engaged stakeholders to develop a strategy for the refinery project and received Expressions of Interest (EOIs) from potential investors, including Alpha MBM Investments LLC, Africa Economic Aid Limited, Bakertilly Middle East Limited, and St Ignatius Energy,” Energy Minister Ruth Nankabirwa was quoted in a statement.

After thorough consultations and evaluations, she added, a MoU outlining cooperation and negotiation terms for the multi-billion project was signed between the government and Alpha MBM Investments LLC on December 22.

“Negotiation of the key commercial agreements between the government and Alpha MBM Investments LLC are currently underway,” she said. 

The announcement comes seven months after expiry of the key Project Framework Agreement (PFA) with the Albertine Graben Energy Consortium (AGEC), a special purpose vehicle of American and Italian firms, to design, finance and construct the refinery. 

The firms in the consortium included Yaatra Ventures LLC and LionWorks Group Ltd, a Mauritius-based private equity firm, buttressed by Italy’s Saipem p.A alongside Nuovo Pignone International Srl, a subsidiary of Houston-based Baker Hughes with vast business in oil and gas worldwide.

The PFA first signed on April 10, 2018 and extended twice, expired on June 30 with the latter way behind schedule on key obligations agreed upon.

The PFA provided for the government through the Uganda Refinery Holding Company Limited (URHC) to lay claim to the intellectual property rights of the refinery designs including its configurations in case AEGC ran into a brick wall. 

URHC is a subsidiary of the Uganda National Oil Company (Unoc), the statutory body mandated to manage Uganda’s commercial interests in the oil sector.

Also, AGEC has undertaken several activities including the technical Front End Engineering Design (FEED) studies, and refinery configuration designs, which two studies were approved by the government while Environmental and Social Impact Assessment (ESIA) due is for submission after paying the requisite fees.

It remains unclear whether the new investor will pick up from where AGEC left. Ms Nankabirwa reported the Emirati firm as describing Uganda as “an untapped market with the power to create opportunities where none were perceived”.

While there are reservations about AGEC from day one—it scored 66 percent during due-diligence behind the Chinese Dongsong, which scored 83 percent but was nonetheless given the deal to placate the Americans ever nosy about President Museveni’s 38-year stay in power and governance deficiency—it was the second investor that was dropping the oil refinery investment ball. 

Eight years ago, in July 2016, officials of RT Global Resources, the consortium that had been awarded the first refinery tender returned to Moscow to discuss with their superiors about renewal of the performance bond but never returned. RT Global Resources was led by Rostec, a Russian firm that manufactures the AK-47/Kalashnikov rifles.

In his October 8, 2006 address in which he announced that Uganda’s oil deposits were commercially viable, President Museveni stated that it was his government’s intention to have a local refinery. Initially, starting with production capacity of 6,000 barrels per day (bpd) but would later be scaled up to 10,000 bpd—to cater for local demand (10,313 barrels) per day at the time.

Time lines 
This, he said, would save the government the annual import bill of about Shs146b ($43m) back then. Oil production, he expected, would start in 2009. The search for an investor for the project also kicked off.

The WikiLeaks diplomatic cables released in 2011 revealed that President Museveni rubbed Washington the wrong way by visiting Tehran and cutting a deal with his counterpart, Mahmoud Ahmadinejad, to have Iran build Uganda’s oil refinery.

After the three-day call in May 2009, the cables detailed, Mr Museveni flew black with yet-to-materialise Iranian promises to fund construction of oil-processing facilities here and train our oil scholars at its University of Petroleum Studies and other institutions.

“We remain concerned about the implications of Iran’s promised investment in the oil sector and for Uganda’s foreign policy decision-making,” Ms Kathleen FitzGibbon, the former Political/Economic chief at the US Mission in Kampala, wrote.

The Uganda-Iran deal suffered a stillbirth.

The President and his technocrats have variously argued that there is a ready market in Uganda for the locally refined petroleum products, and a captive market in Rwanda, East Congo and other neighbouring countries—making Uganda’s refinery viable. According to the Ministry of Energy, Uganda’s fuel/petroleum products imports as of last September averaged at 85 million litres with demand growing at 7 percent per annum.

The planned refinery will produce liquefied petroleum gas (LPG), diesel, petrol, kerosene, jet fuel and heavy fuel oil (HFO).

Viability
Despite these developments, there are lingering questions from oil experts on whether Uganda should actually invest in an oil refinery. 

This comes at the backdrop of the recent findings from a report by a UK based think tank, Climate Policy Initiative (CPI), which reveals that Uganda’s oil refinery could be unviable in the long run.  

Uganda’s decision to build a refinery has been discouraged on the basis that the facility is not only an expensive venture but also lowers the value of the East African Crude Oil Pipeline (EACOP).

[email protected]