KAMPALA: President Museveni’s return to the US, in four years, in December to attend the second US-Africa summit convened by the Biden administration was remarkable news. Before the Covid-19 pandemic upended life three years ago, the jet-setter president was a routine visitor to foreign capitals.
The noteworthy development out of the US capital, however, was the announcement of the imminent Final Investment Decision (FID) later this year for the $4.5b (Shs16trillion) Greenfield refinery. The announcement followed a side meeting between the President and executives of the Albertine Graben Refinery Consortium (AGRC), the joint venture of American and Italian firm, which was awarded the tender to design, finance and construct the 60,000 barrels per-day (bpd) refinery in Buseruka sub-county in Hoima district.
“The FID is the confirmation by all investors in the deal of their commitment under a shareholders’ agreement to invest equity,” the Petroleum Authority of Uganda said in a statement.
While the development, if at all will happen, is welcome news for the Ugandan oil industry, the Project Framework Agreement signed between the government and AGRC in 2018 is due to expire this year. Upon expiry, with or without FID taken, the government has the option of giving AGRC more time.
As such, one industry player said, the Washington D.C. meeting and photo-op was a good “overture” for the company to request for an extension. If AGRC opts out of the deal, the government, through the Uganda Refinery Holding Company Limited (URHC), would claim intellectual property rights of the refinery project designs and configurations and begin the process of scouting for another developer/financier.
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. During the DC meeting, AGRC executives were led by Ms Rajakumari Jandhyala, the managing partner of Yaatra Ventures LLC, a Washington DC-based infrastructure development and financing outfit. Ms Jandhyala previously worked in Kampala as deputy assistant of the US government’s overseas development aid agency, USAID.
Prior to joining USAID, Ms Jandhyala worked as senior advisor and head of the Peace and Security division in the State Department office of the Special Envoy to Sudan. While at the State Department, she also advised the Ugandan government for three years on the bungled Peace, Recovery and Development Plan (PRDP) in Northern Uganda through the Office of the Prime Minister.
She, and the US embassy in Kampala, were central in swaying the refinery deal for AGRC, which had been beaten by a consortium of a Chinese joint venture. A due diligence team told President Museveni in early 2017 that awarding the refinery deal to the Americans and Italians was a good move to “balance foreign interests.”
In the upstream—development of the oil fields—at the time were, the Anglo-Irish Tullow Oil PLC which has since closed shop in town, China’s Cnooc, and the French super major, TotalEnergies EP. The latter are involved in the development of the East African Crude Oil Pipeline (EACOP) that will transport Uganda’s waxy crude oil to the international market via Tanzania’s Indian Ocean Tanga port.
Not yet Uhuru
Yaatra Ventures LLC is the lead in AGRC alongside Nuovo Pignone International Srl, subsidiary of Houston-based Baker Hughes with vast business in oil and gas worldwide, LionWorks Group Ltd a Mauritius-based private equity firm, and Italy’s Saipem S.p.A, the Engineering, Procurement, and Construction (EPC) contractor in the consortium.
During the D.C. meeting, which was conspicuously not attended by any Ministry of Energy official, Ms Jandhyala tagged with executives of Africa Finance Corporation and Eastern and Southern Africa Trade and Development Bank (TDB Group), respectively.
Africa Finance Corporation was loosely described in the official statement as “one of the early-stage investors” for the project while nothing was said about the TDB Group in respect to the project financing.
“The announcement today brings Uganda and the region one step closer to a long-held dream: to add value to our resources, and achieve energy security and economic prosperity for all its citizens,” the statement quoted President Museveni.
Multiple industry sources reported that Africa Finance Corporation and TDB Group are the “arrangers of the actual financers.”
“In effect, the real statement out of D.C. was to announce that we have got arrangers that will help us secure the financiers who will help us finance the project whenever,” one executive said after the meeting. “As the arrangers they could dangle some money but in absolute terms they will facilitate the process to look for the actual money.”
The dark cloud hovering over AGRC closing the refinery FID this year also stems from the fact that besides finding interested financers, several pre-FID activities committed to by both sides in the 2018 project framework agreement are behind schedule.
The government committed to, among others, land acquisition, issuance of letter of commitments to support the project, approval of the technical Front End Engineering Design (FEED) studies and configuration, approval of the Environmental Social and Impact Assessment (ESIA), and negotiating and concluding the Host Government Agreement— the main binding agreement, Implementation and Shareholders Agreement, and the Crude Sales Supply Agreement.
AGRC committed to designing, financing and building the refinery complex.
The refinery, according to existing agreements between government and Cnooc and TotalEnergies EP, has the first right of call of 60,000 bpd of crude oil extracted from the oil fields in Nwoya, Buliisa, Hoima, and Kikuube districts. In the absence of the refinery this crude will be fed to EACOP but a long-term crude supply agreement is required.
Unoc officials have been contacted to comment on the several unanswered questions about the refinery.
Approval of the configuration of the refinery designs has been done while FEED was completed in August 2021 and approved last July. The ESIA, meanwhile, is reportedly complete but pending submission to both the National Environment Management Authority (NEMA) and the Petroleum Authority of Uganda, the oil sector regulator.
Also worth noting is that negotiation of the project agreements is laborious and subject to butting heads. It took the governments of Uganda and Tanzania and the joint venture partners—TotalEnergies and Cnooc—four years to sign off the key agreements for the EACOP.
Big dreams are made of this
However, even with all the key agreements signed off and FID for both development of the oil fields and EACOP announced last year in February, closing project financing—securing $4b (Shs14.5trillion) for development of the 1,443km duct remains a headache.
The shareholders for the EACOP are Total Holdings International B.V which holds majority shareholding of 62 percent, Uganda National Oil Company (UNOC) and Tanzania Petroleum Development Corporation (TPDC), each with a 15 percent stake as well as China’s oil company—Cnooc, with eight percent.
The refinery and the EACOP were agreed upon in February 2014 between the government and the oil companies for commercialisation of Uganda’s oil project.
AGRC was handed the refinery tender on the basis of, among others, the reputable companies, General Electric/Baker Hughes with an estimated turnover of $300b and Saipem SpA, which meant “good corporate governance and strong project risk management principles” capable of attracting private equity financing.
However, one official intimated that “it is not a go-get it process” as the EACOP experience has shown “to easily mobilise European and American money to throw it in a backwater like Uganda laden with [political] risk. One has to prove themselves.”
The refinery is expected to be financed in Public Private Partnership arrangement of 60:40 ratio. The government’s 40 percent equity share is equivalent to Shs2trillion ($500m), and was defined in December 2017 by the Uganda National Oil Company (Unoc) shareholders; the ministries of Finance and Energy, at their last annual general meeting.
Kenya and Tanzania had initially offered to buy a 2.5 percent and eight percent stakes, respectively out of Uganda’s 40 percent stake. TotalEnergies E&P also offered to buy a 10 percent stake leaving government with roughly 19 percent stake. It remains unclear how far negotiations on both fronts have advanced.
After announcing discovery of commercial oil volumes in 2006, President Museveni stood his ground on developing a local refinery even when the project economics remain unconvincing for some industry players.
The President has variously argued that there is a ready market in Uganda for 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 85 million litres with demand growing at seven percent per annum.
The planned refinery will produce Liquefied Petroleum Gas (LPG), diesel, petrol, kerosene, jet fuel and Heavy Fuel Oil (HFO).
Uganda’s daily consumption for petroleum products (petrol, diesel, kerosene and jet-fuel) averages at 6.5million litres, with demand growing at seven percent per annum, according to ministry of Energy, hauled in almost daily which explains the high frequency of truck tankers on the road. One of the reasons for the daily haulage is national security wise; the two major bulk fuel suppliers, Vivo and TotalEnergies, depots are situated within the central business district so they are never fully stocked.
Earlier attempts
Whether AGRC sees through the project or not, the government has been steadfast in its quest to realise the refinery project. The first search for a lead investor to help the government achieve the project, the process facilitated by a US firm Taylor Dejongh, zeroed down on RT Global Resources in 2014, a consortium led by Rostec the Russian firm that manufactures the AK-47/Kalashnikov rifles. RT walked away in July 2015 leaving President Museveni and his technocrats heartbroken.
The government, at the time, was seemingly unbothered by RT’s walkway because they had retained another consortium, South Korea’s SK as alternative bidder but discussions between the two also fell-through two months later.
Later in October 2015, the ministry of Energy announced a fresh search for an investor and attracted 40 bidding ventures. Eight reached the pre-final stage but only four were considered for discussion including AGRC and Chinese DongSong ventures.
