Uganda To Meet Regional Demand With Oil Refinery

Uganda, the East African country that will soon to join the league of oil producers, is set to build a refinery before its own production capacity comes online. The justification for wanting to have a refinery—the first in Uganda—before oil production begins derives from the country’s peculiar situation, according to Irene Muloni, minister for Energy and Mineral Development. “Once we start producing, we need to add value and meet the energy need of the country,” she said in an interview with Global Finance.

The refinery will meet the demand for petroleum products not only in Uganda, but in parts of the East African community, including Kenya, Rwanda, Tanzania and Burundi. Uganda currently consumes 30,000 barrels of petroleum products per day, all of which is imported. But taking into account all of the countries in East Africa that also depend on imports, total consumption rises to 200,000 bpd, according to the minister. To achieve economies of scale and reduce cost, the whole community bands together and imports its requirements en mass.

This means that for the Ugandan plant there already exists a ready market. Indeed, at full capacity it still will not satisfy the whole region in terms of capacity. The plan is to have capacity of 60,000 bpd and construction is expected to commence in 2015. “It will come in quickly. We are [expecting] that in 2-to-3 years it will be up and running,” Muloni noted. The plant has a “quick target” of 30,000 bpd and in another three years it will ramp up to the 60,000 bpd target, she explains.

Funding Structure

A Russian consortium led by RT Global Resources, a subsidiary of Rostec, emerged the preferred bidders to construct the refinery—at a cost of $3 billion. The consortium comprises Tatneft, VTB Capital, Telconet Capital, and GS Engineering & Construction. As the lead investors, they will provide 60% of the funding, while the public (governments of the East African countries) will contribute the remaining 40%, minister Muloni said.

Uganda will commence final negotiations with the consortium in March and talks are expected to conclude in 60 days. After that the government will sign production-sharing contracts with the companies.

Investments are already flowing into Uganda’s oil sector as exploration activities increase. By the end of 2013, oil companies had invested $2.3 billion into the country, Kabagambe Kaliisa, permanent secretary in the Energy ministry, said recently. This amount was expected to rise to $3 billion by the end of 2014, he said.

Uganda’s profile as a new oil producer rose in February, when it announced its first competitive licensing round covering six oil blocks in an area of approximately 3,000 square kilometers. While exploration activities are already going on at some concessions in the country, such blocks were not awarded through competitive bidding processes, according to the minister.

The six blocks are located in the Albertine Graben, which is a proven prospective sedimentary basin, according to a statement issued by the minister. The Graben is located in the western part of the country. Uganda currently has estimated reserves of 6.5 billion barrels of petroleum resources and 500 million cubic feet of gas, based just on 40% exploration of the Graben area, Muloni said.

Three international oil companies participated in the bidding for the six blocks: China National Offshore Oil Corporation, Total E&P, and Tullow Uganda. Once they go into production, Uganda will use part of the output for refinery, while some will be for exports.

Uganda will also develop a 205-km export line, since part of the oil will be exported. The line will run to a terminal near Kampala, according to the minister.