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Russian firm selected to build refinery, but queries persist

Business

Russian firm selected to build refinery, but queries persist

Part of RT refinery

The Government of Uganda has selected the RT Global Resources – led consortium from Russia to build Uganda’s US$3 billion Oil Refinery Project over South Korea’s SK Engineering and Construction.

Energy minister Irene Muloni said: “The process of selecting a lead investor for Uganda’s refinery project has been highly competitive. We are pleased that the two bidders responded to the Request for Final Offers, an independent investment banking firm with expertise in oil and gas, as transaction advisor in evaluating the bid offers.

Muloni however noted that the designation of SK Engineering Group, as the Alternate Preferred Bidder, means that the government reserves the right to enter into negotiations with the South Korean company in the event that final negotiations with RT do not meet the expectations of government.  

Government will proceed to hold negotiations on the principal agreements with RT Global Resources led consortium starting in March 2015 with an aim of reaching an agreement within 60 days.

Energy Permanent Secretary Kabagambe Kaliisa said: “The objective of these negotiations is to conclude the Project Agreements to the satisfaction of Government and the Lead Investor. These include the Project Framework Agreement, Shareholders Agreement, Implementation Agreement and the Escrow Agreement.”

Upon execution of the different project contracts, the lead investor and Government will constitute a Refinery Company that will take forward the engineering and finalise the financing aspects for the development of the refinery.

Kabagambe-Kaliisa explained on why SK, which operates the world’s biggest refinery, was beaten by RT: “The SK Engineering and Construction led Consortium has been a strong competitor throughout the selection process leading to the final offer, however they came short on key requirements of Government including contribution to the private share and operating plan.”

Uganda’s refinery project is to be developed under a public private partnership (PPP) arrangement with the Government holding 40% equity. The East African Community Partner States have shown interest in participation in the Public Shares.  The Project involves development of a refinery with a capacity of 60,000 BPD, development of crude oil and product storage facilities on site, as well as a 205-kilometer product pipeline to a terminal near the capital city, Kampala.  The first phase of the refinery is expected to be in place by 2018.

Government says that 74% of the Project affected persons (PAPs) in the 29 Square kilometres of land which is now being acquired for the Refinery Project have now been compensated and payment for the remaining PAPs is in final stages. Civil society groups such as the Africa Institute for Energy Governance (AFIEGO) however say that a large number of people were forced to accept money as compensation, while the remaining few are still being threatened with eviction if they continue to reject offers for land and property improperly valued by the district land board.

Uganda’s Petroleum resources are now estimated at 6.5 billion barrels of oil initially in place from the 21 oil and gas discoveries made in the country to date.  Less than 10% of the Albertine Graben is currently licensed and plans to hold the Country’s first competitive licensing round during 2015 are underway.

Uganda’s oil exploration and production process has been criticised for lacking transparency. The government is battling three court cases over the release of Production Sharing Agreements (PSAs) with private foreign oil exploration companies.

Negotiations with RT and SK have neither been an open process. Some experts have dared government to publish the contracts, bidding documents and the financing arrangements so that Ugandans can see what kind of deal their government has chose.

There are questions over the financial viability of  RT because of sanctions slapped by the American government against the RT’s parent company Rostec. The American government imposed sanctions on Rostec, a Russian government-owned arms manufacturer because the government’s interference into Ukraine. Observers argue that the recent sharp fall in global oil prices may make it even harder for the Russian company to secure funds to build the Ugandan refinery.
 

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