Shs14.7billion allocated towards in-country refinery

Tuesday June 14 2011

Shs14.7billion allocated towards in-country refinery


By Esther Nakazzi

Uganda is set to promote the development of an in country oil refinery with preliminary work commencing this financial year following the allocation of Shs14.7 billion ($6.2 million) in the 2011/12 budget.

The funds will cater for the structuring, promotion and selection of developers and investors, for the refinery after the feasibility was completed last year.

Development of the oil refinery is expected to last 3 – 5 years at Kabale in Hoima.

“Uganda is eagerly looking forward to the development of this refinery so as to secure optimum benefits from its oil and gas resources,” said Robert Kasande assistant commissioner in charge of geology at the Petroleum Exploration Production Department (PEPD).
Committing funds for the $2 billion refinery will accelerate early commercialization of the petroleum resources estimated at 1 billion barrels proven reserves so far in the Albert basin with a potential of a further 1.5 billion barrels.

But Uganda has also shown its preference to add value to its crude oil, build capacity and enjoying spin offs from the refinery for its domestic economy in form of employment, contrary to commercial companies that want quick gains by exporting it using a pipeline.

According to the 2011/12 Budget, Government is considering the phased approach, which will start production with 20,000 barrels per day in an early refinery in the short term by 2015.

The refinery will later be upgraded to 60,000 barrels per day in the long term with a possibility to upgrade it to 120,000 barrels per day in future. Development of a refinery in Uganda is in line with the East African Community (EAC) strategy, adopted in 2008, for development of a regional refineries. Uganda’s refinery would satisfy the East African region market which stands at 60,000 barrels per day, and is growing at 5 percent annually, according to a study on oil consumption in the region by The East African Community (EAC). Uganda consumes 11,000 barrels per day.

However, although it has committed initial funds, the government does not intend to finance the $2 billion refinery using only domestic revenues.

Mrs. Maria Kiwanuka, the newly appointed minister of Finance said they would also source finances from bi-lateral and multilateral institutions as well as use non-concessional funding. But ultimately, it will be implemented through private public partnerships (PPP).

Building a refinery comes after a feasibility study by a Swiss engineering company, Foster Wheeler, which determined that Uganda would save over a billion dollars annually if it were to build its own refinery.

The cost benefit analysis study published last year also recommended construction of a pipeline from Hoima to Kampala to move petroleum products from the refinery to the market.

According to the study, a refinery would also fetch more revenue, $2.6 billion per year compared to $1.3 billion from the pipeline that also poses enormous challenges like security and heating it, given the type of Uganda’s crude oil.
Experts say Uganda has a sweet, waxy crude benchmarked against the North Sea Brent, has low sulphur under 0.5 percent per weight. It is easy to refine and its gasoline and jet fuel products fetch a premium.

Under the 2011/12 budget Shs7 billion ($3.1 million) has also been given for the construction of a Petroleum Resources Database at the Ministry of Energy and Mineral Development.

“Everything in the oil industry is dictated by the amount of information we have so a database is very important,” said Reuben Kashambuzi the chief technical advisor, oil and gas industry.

During the 2011/12 financial years, Uganda is also targeting institutional development through the establishment of a Directorate of Petroleum in the Ministry responsible for oil and gas; a Petroleum Authority of Uganda; and a National Oil Company.