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UNOC’s ambitious work plan faces reality check
Government officials and joint oil partners at a previous tour of the oil fields. Whereas UNOC already has undertakings that need financing, new ones are cropping up, which puts it in a tricky position. Photo / File
What you need to know:
- UNOC carries a 15 per cent stake in upstream in each of the nine production licenses for the oil fields operated by China’s CNOOC and French TotalEnergies EP
Uganda National Oil Company (UNOC) is at crossroads of securing project financing for its key ventures in midstream and downstream while at the same continuing to stick out like a sore thumb with new undertakings.
UNOC, wholly owned by ministries of Energy with 51 percent and Finance with 49 percent, respectively, is mandated to manage the country’s commercial interests in the oil and gas sector, including marketing of the country’s share of petroleum received in kind and developing in-depth expertise in the oil and gas industry.
Early this year, the company was thrown at the deep end to venture into oil exploration in the Kasuruban block working with a joint venture partner that brings on board both technical knowhow and financial muscle.
However, for its running ventures in midstream and downstream, UNOC requires not less than $200m (Shs753b) during the next two financial years running up to the commencement of commercial oil production.
The company carries a 15 per cent stake in upstream in each of the nine production licenses for the oil fields operated by China’s CNOOC and French TotalEnergies EP in Nwoya, Buliisa, Hoima, and Kikuube districts.
The company’s investment of 15 percent is currently borne by the two oil companies.
In midstream, UNOC carries Uganda’s 15 percent stake in the East African Crude Oil Pipeline (EACOP) that will transport Uganda’s waxy crude oil from Hoima to Tanzania’s Indian Ocean Port en route to the international market.
Separately, the company through its subsidiary - Uganda Refinery Holding Company Limited (URHC) - carries Uganda’s 40 percent stake in the long shot 60,000 barrels per day refinery.
The $4.5b (Shs16 trillion) greenfield refinery is one of President Museveni’s pet projects, and UNOC officials have described its internal rate of return as “extremely attractive” given the amount of money - $1.7b (Shs6 trillion) - Uganda spends annually on petroleum imports and the potential regional market.
While appearing before the Parliamentary Finance Committee last Friday to defend UNOC’s budget, Ministry of Finance officials revealed that $52.6m (Shs198b) has been provisioned as UNOC’s first equity in the project during the 2023/24 financial year.
The refinery, whose design, finance and construct tender was awarded to the Albertine Graben Energy Consortium, a special purpose vehicle of run-of-the-mill American and Italian firms, is expected to be financed in a public private partnership arrangement of 60:40 ratio.
Energy Minister Ruth Nankabirwa and UNOC executives have previously claimed that the Final Investment Decision (FID) for the project will be closed in June.
However Ministry of Finance told the committee that negotiations on debt financing haven’t commenced. The refinery FID cannot happen in June because several key project agreements are yet to be negotiated and closed.
Ministry of Finance officials revealed that negotiation of the Crude Supply Agreement is expected to be completed in the last quarter of this year, while negotiation of the Implementation Agreement and Shareholders Agreement, respectively, is expected to be completed by June.
Incorporation of the Refinery Company Schedule is due for completion later this year, while Environmental Social and Impact Assessment study is said to be at 97 percent.
Industry sources told Daily Monitor recently that Albertine Graben Energy Consortium had failed to raise $8m (Shs30b) demanded by the National Environmental Management Authority for the attendant Environmental Social and Impact Assessment review processes.
Separately, UNOC manages the Kabaale Industrial Park, which is contiguous of the 29 square kilometres of land acquired in 2013 to accommodate among others, the pumping terminal for EACOP, the Kabaale International Airport and the proposed refinery.
UNOC took charge of Kabaale Industrial Park in January 2018 for development and management in a joint venture partnership.
Ministry of Finance officials revealed last week that UNOC is currently reviewing bids for a private investor, while construction of a 30 kilometre fence around Kabaale Industrial Park is ongoing - at 40 percent.
In downstream, the state owned national oil company operates both the proposed Kampala Storage Terminal in Kiringete sub-county, Mpigi District, and the Jinja Storage Terminal established in the 1970s by President Amin as the country’s reserves for petroleum products but had been rundown until recently.
The Kampala Storage Terminal also to be developed through joint venture will serve as reserves, especially for refined petroleum products from the longshot refinery.
UNOC estimates $300m (Shs1.1 trillion) for development of the Kampala Storage Terminal.
Last week, Ministry of Finance officials told MPs that Cabinet had approved 51 percent as UNOC shareholding in the project, while the private investor is expected to bring on board both technical knowhow and financial muscle.
The expression of interest for a suitable private developer was issued last week on Tuesday.
The project will be developed in two phases. The first phase of 105 million litres will cost $128.7m (Shs484b) while the second phase of 183 million litres will cost $77.9m (Shs293b).
As such, government is required to part with $65.6m (Shs247b) in the 2023/24 financial year and $39.7m (Shs149b) in the subsequent 2024/25 financial year.
However, the money is not charted in the medium-term fiscal framework, which details aggregate fiscal framework and overall budget resource envelope and is prepared on a rolling three-year basis.
Cash crunch
Meanwhile, as a result of a cash crunch the Ministry of Finance further revealed that late last year UNOC fingered the holding account for monies for EACOP to buy eight million litres of fuel to restock the Jinja Storage Terminal to cushion the country as neighbouring Kenya went to polls.
The funds which were used were drawn from reimbursement costs incurred by UNOC as EACOP promotion activities and realised foreign exchange gain resulting from the company’s equity disbursements from the Ministry of Finance.
