Uganda, AGRC Consortium Agree on Oil Refinery Development Terms

The Government of Uganda has agreed core project terms for the Uganda Refinery Project with the Albertine Graben Refinery Consortium (AGRC) for the development of a Greenfield oil Refinery to be located in the southwestern district of Hoima in Uganda.

The initiative follows a “thorough review process” of 4 investors who were shortlisted for the development of the much anticipated oil refinery in Uganda of the over 40 companies that had expressed interest.

The above came after negotiations with the selected Refinery Development Lead Investor, price RT Global Resources, a unit of Rostec State Corp. of Russia, collapsed in 2016.

The Minister of Energy and Mineral Development (MEMD), Irene Muloni, commenting on the issue, said RT Global had set “new impossible conditions which were unfavorable to our government” hence the termination of the talks.

The Permanent Secretary of MEMD, Dr. Stephen Robert Isabalija, in a statement noted that “The AGRC consortium is made up of General Electric (GE) Oil and Gas, YAATRA Ventures LLC, Intracontinent Asset Holdings Ltd (IA) and Saipem SpA, in the role of Engineering, Procurement and Construction partner (EPC).”

The Consortium, Dr Isabashaija writes, has proposed to government a financing approach and a path to establish, develop and operate a commercially viable refinery company with a strategic benefit to the country and the region.

The planned 60,000-barrel-a-day refinery will receive supplies from oil fields in the Albertine region.

Government expects to begin exploitation of the entire 6.5 billion barrels of crude resources by 2020.

The agreement of the core project terms, according to the statement, signals the start of government discussions and negotiations with the Consortium on the Project Framework Agreement (PFA).

“The PFA will detail the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investments and financing for the project,” states Dr Isabashaija.

The PFA, the permanent secretary says, is expected to conclude and be signed within the next 2 months.

The statement also indicates that “the signing of the Project Framework Agreement will in turn pave the way for commencement of pre-Final Investment Decision (FID) activities such as Front End Engineering and Design (FEED), Project Capital and Investment Costs Estimations (PCE), Environmental and Social Impact Assessments (ESIA), among others.”

When the agreement is signed, “the Consortium will be granted the rights and licenses to develop and manage the refinery as lead investor in a joint venture partnership with Government.”

Muloni, a few months ago, communicated that the government will participate in the refinery project through the Uganda Refinery Holding Company (URHC), a subsidiary of the Uganda National Oil Company (UNOC).

It is through the URHC that the confirmed interests of the East African Partner States will be held, she said.

Museveni, Magufuli launch oil pipeline

The 1,443km pipeline, worth $3.55b will transport 200,000 litres of oil per day.It will be the world’s longest electrically heated crude oil pipeline.

President Yoweri Museveni of Uganda and his counterpart, John Magufuli on Saturday laid the foundation stone for the construction of a crude oil pipeline from Hoima in Uganda to Tanzania’s Indian Ocean seaport of Tanga.

The 1,445 kilometre East African Crude Oil Pipeline (EACOP) worth $3.55b will be able to transport 216,000 barrels of oil per day once the project starts its operation. It will be the world’s longest electrically heated crude oil pipeline.

Authorities said construction of the EACOP is expected to commence early 2018, and is projected to take 36 months with the prospect of creating between 6,000 and 10,000 jobs.

Uganda’s current oil reserves stand at 6.5 billion barrels with 1.7 billion recoverable from the ground.

The event was witnessed by high-ranking officials, ministers, senior government officials from different institutions which are involved in the project.

Speaking at the historical event, which brought on board thousands of people from the two east African nations, Magufuli described the project as a landmark for swift development of the two countries and east African region at large.

In Tanga region alone, Magufuli said that more than 45,000 youth will benefit directly and indirectly with the implementation of the giant project, which upon completion is to completely change the outlook of the northerly seaport city of Tanzania.

He, however, challenged Tanzanian youth to explore opportunities available in the project, which touches on almost every sector.

“It is high time Tanzanians chipped in and benefited from the regional project, which has countless benefits,” he said.

Magufuli further lauded Uganda for choosing Tanga route for the crude oil pipeline, which will also be a source of revenue for the two east African nations.

Museveni described Tanga Port as key because of its geographical location and security.

He said the project will also make fuel cheaper hence foster aviation industry, whereby regional airlines will get cheaper jet fuel.

Museveni further stated that the pipeline shows the importance of integrated decision-making for the two states.

Medard Kalemani, Tanzania’s Deputy Minister for Energy and Minerals, said the construction will be carried out by three firms, two from France and one from the United Kingdom.

According to Kalemani, on the Tanzanian side, the pipeline will pass into 8 regions namely Kagera, Geita Shinyanga, Tabora, Singida, Dodoma, Manyara and Tanga. It will also cover 24 districts and 184 villages.

Construction of the three-year project will commence early next year, the deputy minister said.

According to feasibility studies, the Tanga route was deemed the cheapest for Uganda to transport its oil from the production point in Hoima to the international market.

Tanga route has convenient flat terrain, not interrupted by other activities, has lowest environmental challenges, and provides the shortest schedule for Uganda to see the first oil exports around mid-2020.

Oil & gas: ‘Uganda cannot afford to make mistakes’

If we do not manage these reserves well, we shall not get a second chance.”

As Uganda moves ever closer to the magic year of oil production — 2021, Dozith Abeinomugisha, the director for exploration at the Petroleum Authority of Uganda, has warned that the country cannot afford to make mistakes because of the limited nature of the resource.

“We do not have the reserves that many countries have. We do not have the reserves that Nigeria and Angola have. What Nigeria produces in one day, maybe we shall produce in twenty days or a month,” he said.

“We are at the level of probably of Gabon or Equatorial Guinea of 200,000 barrels a day.”

‘We need to get it right’

He was speaking at a dialogue on transparency and accountability in Uganda’s oil and gas sector organized by Friedrich-Ebert Stiftung (FES) and the Parliamentary Forum on Oil and Gas (PFOG) on Thursday.

He said it is prudent for Uganda to manage her reserves well.

“If we do not manage these reserves well, we shall not get a second chance. Nigeria made mistakes in the past, and is correcting those mistakes now, for us, we do not have that luxury. We need to get it right because we do not have those huge reserves.”

Uganda’s oil reserves are estimated to be at around 6.5 billion barrels, with only about 1.6 billion of that oil recoverable.

At peak production, the country is expected to produce 230,000 barrels a day.

Nigeria’s oil reserves, on the other hand, stand at 25 billion barrels, according to the country’s National Petroleum Investment Management Services (NAPIMS).

Although Uganda discovered oil in commercial quantities in 2006, production is yet to start, with government opting to first develop the legal framework of the country.

Then there have been issues with transparency in the sector, which have increased calls for government to sign up to the Extractives Industries Transparency Initiative (EITI), a global standard that promotes transparency in the oil and gas industry.

Gov’t selects four firms for oil refinery

According to Irene Muloni, the Minister of Energy, out of the four companies, which have been shortlisted in the bid to construct the sh15 trillion oil refinery, one company will be selected at the end of this month.

Government has selected four investors in the first round of the oil refinery bidding process. According to Irene Muloni, the Minister of Energy, out of the four companies, which have been shortlisted in the bid to construct the sh15 trillion oil refinery, one company will be selected at the end of this month.

Muloni didn’t reveal the four shortlisted companies. However, Uganda had picked a consortium led by RT Global Resources, a Russian company, but it pulled out, forcing over six other companies to bid–SNC Lavalin of Canada, Yatra Ventures LLC and Apro, both from the US, IESCO of Turkey, Guangzhou Dongsong Energy Group from China, Spain’s Profundo, Bantu Energy, a Canadian and Ugandan consortium and Italy’s Maire Tecnimot.

Muloni said at the end of this month, a winner will be announced.Uganda has set 2020 as the oil production target.
Commenting on the Hoima-Tanga pipeline, Muloni told journalists on Wednesday that inter-governmental meetings between Uganda and Tanzania are ongoing, and at the end of the year, an agreed position will be communicated.
“We expect to get $2.5b every year from oil,” she said, warning NGOs and other detractors to stop destabilising the oil-related projects that the country has undertaken.

Muloni cited land acquisition and funding gaps as the major setbacks to her sector.
The minister added that plans to set all the infrastructure to spur the production of oil will be finalised by the end of this year, especially the oil refinery and pipeline.

Uganda, Tanzania sign off Hoima -Tanga oil pipeline construction

By FREDERIC MUSISI

Kampala. President Museveni and his Tanzanian counterpart John Pombe Magufuli have signed the East African Crude Oil Pipeline Agreement (EACOP), which now paves way for construction of the proposed crude oil export pipeline from Hoima, in mid western Uganda to Tanzania’s Indian Ocean port of Tanga.
The agreement, signed on Sunday almost a year after Uganda under the thrust of Total E&P snubbed Kenya’s Lamu port for the Tanga route, also contains agreed points on the sticking tax issues over which technocrats from Uganda and Tanzania had been split for months, according to sources privy to the pact.
The two countries operate different tax regimes and the major fear was that high construction and operational costs occasioned by an uncoordinated tax policy would render the project uneconomic and spark jitters among international lenders.
Under the signed agreement, Value Added Tax (VAT) should be deemed paid during the three years of the construction phase.
Depreciation should be 5 percent straight line throughout the lifespan of the pipeline and the application of Branch Profit Tax by the two states when the pipeline structure is complete and communicated.
In 2015, Uganda amended the VAT Act 1996 to remove VAT incurred during the investment phase, after protest by the international oil companies.
In Tanzania an investor is required to pay VAT and claim a refund later.
However, this poses risks of foreign exchange rate fluctuation and is subject to bureaucracy. After months of haggling a harmonised position of VAT exemption was adopted.
On depreciation, the two countries opted to use the commonest method of “straight line” against other approaches such as “sum of years digits or double-declining balance.”
The straight line method means that the “scrap value” of the pipeline at end of its lifespan will be subtracted from the value of the original cost to compute a depreciation rate.
The 1,445km pipeline, according to earlier estimates, will cost $3.5b (about Shs12 trillion).
Discussions are ongoing to form a Special Purpose Vehicle (referred to as Pipe Co), to construct, own and operate the pipeline and will also negotiate the Shareholders Agreement, Project Financing Agreements and Transportation Agreement between Shippers of oil from Tanga port to the international market. Pipe Co will pay back the (international) lenders from the project returns.
Therefore, pending formation of Pipe Co, the agreement the two presidents have signed holds that Branch tax (on repatriation of profits) cannot be applied.
Pipe Co shareholders will fund the pipeline through a mix of equity and project financing, seeking to achieve between 60 percent and 70 percent of external debt.
However, the financing plan is still subject to discussions pending engagement of a “transactionary adviser” and completion of the Front-End Engineering Design (Feed) for the pipeline. The process is ongoing.
Early in January a contract for FEED was awarded to the Houston-based Gulf Interstate Engineering to study technical requirements that will give a clear picture of the project and lead to Final Investment Decision (FID) before end of the year. FID will lead engineering, procurement and construction, which are expected to start next year.
According to the Uganda-Tanzania agreement, the two presidents also directed their respective Attorney Generals to urgently finalise an Inter-Government Agreement (IGA) to operationalise the terms agreed upon and harmonise laws of the two countries that will apply to the project.
The heads of state also directed the IGA to be signed by Energy ministers, Irene Muloni for Uganda and Prof Sospeter Muhungo of Tanzania, not later than next week.
The IGA will be followed by the Host Government Agreements (HGA) that defines the rights and obligations between each State on the project, and will be ratified by the respective parliaments.
“A date for the two heads of state to lay a foundation stone either at Hoima or Tanga should be arranged as soon as possible,” the agreement reads in part.
At the signing ceremony at State House in Dar-es-Salaam, President Museveni was flanked by Energy minister Irene Muloni and the PS Stephen Isabalija, Deputy Attorney General Mwesigwa Rukutana, acting director of Petroleum Directorate Robert Kasande and Dr Josephine Wapakhabulo, executive director of Uganda National Oil Company (Unoc).
The Tanga route, according to feasibility studies, was deemed the cheapest for Uganda to transport its oil from the production point in Hoima to the international market.
It has convenient flat terrain, not interrupted by other activities, has lowest environmental challenges, and provides the shortest schedule for Uganda to seeing the first oil export – earliest mid 2020.
Besides Tanzania’s convenient land tenure system of no freehold ownership, President Museveni said at the signing that the choice of the Tanga route was premised on the country’s political stability.
“This oil pipeline shows the importance of integrated decision-making. The Chinese have been able to move and become the second biggest economy in the world,” Mr Museveni noted.
President Magufuli commended Uganda for choosing the Tanga route for the pipeline, which he said will not only create employment but also be a source of revenue for both countries.

Construction

Construction of the pipeline, expected to commence early 2018, is projected to take 36 months with prospect of between 6, 000 and 10, 000 jobs created. Uganda’s current oil reserves stand at 6.5 billion barrels with 1.7 billion recoverable from the ground.

musisif@ug.nationmedia.com