After the trauma Uganda’s oil project has faced over the last couple of years as shareholder requests for loans for the East African Crude Oil Pipeline (EACOP) were swiftly turned down, the government has decided not to return to the debt market for its other project, the oil refinery.
Instead, Uganda’s government and its equity partner for the 60,000 barrels of oil per day refinery project – Alpha MBM Investments from the United Arab Emirates – have agreed to fully finance the oil refinery using equity, a shift from their earlier plan of including a debt component of 60 per cent.
Under the shareholding structure of the oil refinery project, Alpha MBM holds a 60 per cent stake, while the government of Uganda has the remaining 40 per cent.
Alpha MBM is said to have a strong financial war chest, and has drafted a number of credible partners in its consortium to move Uganda’s oil refinery project forward. The partners include Honeywell UOP from the United States of America, and CBTL from China.
Uganda’s cabinet has agreed to ensure that the Uganda National Oil Company (UNOC) – the commercial arm of the country in oil-related activities – has the funds to meet its cash calls. Therefore, UNOC is expected to meet any funding needs for the oil refinery, which is estimated to cost $4 billion.
Currently, Uganda’s cabinet is negotiating a number of agreements, such as the Crude Oil Supply Agreement, and the Implementation Agreement, which are needed before the mobilisation of financing for the construction of the oil refinery can start. Those negotiations have been going on for more than a year, and have bought government some time to get its financing in order.
The remodelling of the financing structure of the oil refinery at a time when Uganda’s debt levels are worryingly close to the East African cap of 50 per cent of a country’s gross domestic product (GDP) will most likely see the project miss its 2027 commissioning target.
Matia Kasaija, the Finance Minister charged with finding the funds
The change in the financing model is likely to see both parties struggle to mobilise internally-generated funds for the refinery, considering the competing needs for money. The challenge is sourcing funds could see a delay in the construction of the oil refinery.
A delay in the commissioning of the oil refinery has a major effect for the exploitation of Uganda’s oil resources. Under the policy directives that Uganda has passed in the oil sector, the oil refinery has the first call on the country’s oil resources, ahead of the East African Crude Oil Pipeline (EACOP).
However, this condition is only applicable if the oil refinery is in place. Short of that, the crude oil pipeline has the right to ship out oil at its full capacity.
The oil pipeline is expected to be commissioned in 2027, and it will have a capacity to move 246,000 barrels of oil per day, an upgrade from the 212,000 that had been agreed earlier.
So far, Uganda has discovered 1.4 billion barrels of recoverable oil. If the crude oil pipeline is to ship out this entire amount at full capacity every day, the oil would be depleted in 15 and a half years. That is a short window if one considers the emergence of an oil refinery.
Uganda, therefore, will have to promote the exploitation of other oil fields if the co-existence of the pipeline and the refinery is to make sense, and limit any tension that might arise as a result of the limited availability of oil resources.
So far, results from the exploitation of other oil fields have been below par.
For example, Nigeria’s Oranto Petroleum is yet to drill a single well at the Ngassa deep and shallow play, more than five years after getting a license. Australia’s DGR Global has also not done much at the Kanywataba contract area beyond undertaking seismic studies.
UNOC is still scouting for a partner for its Karusuban oil area after initial discussions with Algeria’s Sonatrach failed to materialise into a formidable partnership.
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