Sunday, December 29, 2013

Uganda shortlists 6 companies for the oil refinery tender

Uganda’s Energy Ministry announced that six consortia qualified for a second phase of the public tender aimed at selecting a lead investor who will develop and operate a 60,000 barrels of oil per day (bpd) refinery. Photos/FILE

Uganda’s Energy Ministry announced that six consortia qualified for a second phase of the public tender aimed at selecting a lead investor who will develop and operate a 60,000 barrels of oil per day (bpd) refinery. Photos/FILE 

By Halima Abdallah Special Correspondent

Uganda is yet to receive commitments from Kenya and Rwanda on participation in the ownership of its oil refinery.

However this has not stopped it from shortlisting six companies from among the 15 that had applied for the multimillion-dollar tender.

Transaction advisors led by an independent investment banking firm, Taylor Dejongh, are participating in the selection of the best bidders from the six shortlisted companies: China Petroleum Pipeline Bureau, Marubeni Corporation from Japan, Petrofac from UK, RT–Global Resources from Russia, SK Energy from Korea and Vitol from the Netherlands.

An official in the Energy Ministry revealed that the project is still open to East African Community partner states, and not just Uganda, Kenya and Rwanda, which have since June this year taken on the tag of the Coalition of the Willing (CoW).

During the November CoW meeting in Kigali, it was agreed that Kenya and Rwanda commit to ownership and participate in the funding of the refinery by December 31.

The decision on where the refinery will be located was also made during the June retreat by Presidents Paul Kagame, Yoweri Museveni and Uhuru Kenyatta in Kigali. It was agreed that all the countries will co-own the refinery, which is expected to be completed in 2017.

However, the two countries still have time to commit to the project before the year comes to an end.

Robert Kassande, the refinery project manager, said that Kampala had sent proposals to Burundi, Kenya, Rwanda and Tanzania to take equal shares of 2.5 per cent each from the 10 per cent owned by the government.

As of last week, no offer to buy shares had been received as “the countries are still evaluating the proposals, and the offer remains open,” Mr Kassande said.

Uganda’s Energy Ministry last week announced that six consortia qualified for a second phase of the public tender aimed at selecting a lead investor who will develop and operate a 60,000 barrels of oil per day (bpd) refinery. The refinery project had attracted 75 applicants.

Mr Kassande said that in addition to building a refinery, the investor will be required to build product storage facilities as well as a 205km product pipeline from Hoima to Kampala to serve Burundi, Rwanda, eastern DRC, northern Tanzania and western Kenya.

“We have assessed the market in Uganda, which is currently at 30,000 bpd. We have also seen that on a daily basis, trucks carrying the petroleum products to Burundi, Rwanda, eastern DRC and South Sudan pass through our country. Collectively, that is a market we can tap into,” said Mr Kassande.

He said the government is doing a study on the viability of a product pipeline going northwards to South Sudan. Estimated regional petroleum products consumption is about 200,000 bpd, with a growth rate of 7 per cent.

Uganda has 3.5 billion barrels of crude oil in place with 1.2 billion barrels recoverable. The oil is located in the Albertine Graben, where the refinery will be established on a 29 square-kilometre piece of land in Hoima district.

The winner, to be announced in the first quarter of 2014, will operate under a public private partnership arrangement. The lead investor will take a majority shareholding of 60 per cent, while the government retains 40 per cent. The government and the lead investor will then create a new a company.

In 2008, the five EAC states approved a regional refinery development strategy that aims at harmonised planning and development of a refinery in the region for a sustainable utilisation of crude resources.

That approval was informed by the fact that the region had only one refinery in Mombasa Kenya with a 70,000 bpd capacity, but was then operating at only 30,000 bpd. The refinery has since been shut down.

Modular approach

Although Kenya hosts East Africa’s only oil refinery, the 50-year old Kenya Petroleum Refinery Ltd co-owned by the state and India’s Essar Energy is inefficient because of low investment in upgrade.

Oil marketers who are by law required to buy part of their oil from the refinery often complain about the quality of its products. As a result, the refinery now operates at half its capacity.

In June, the Parliamentary Departmental Committee on Energy, Information and Communication recommended the refinery be overhauled to enable it to process Kenya’s crude oil.

It is expected that Uganda’s refinery will be expanded in a modular fashion — starting with a 60,000 barrels per day refinery that will later be increased to 120,000 and 180,000 barrels per day at peak oil production.

Initial crude supply will be sourced from the consortium of upstream producers, comprising China National Offshore Oil Corporation (CNOOC), Total SA, Tullow Oil and the government of Uganda.

A feasibility study for the smaller refinery [60,000 barrels] without a product pipeline shows that it would cost $2 billion, but Mr Kassande said that actual costs will be determined by the front end engineering design to be done by the lead investor.

Additional reporting by Steve Mbogo.

This story first appeared in the Eastfrican

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