$4.5bn Refinery Project: Uganda Looks for New Investors as U.S. Firm-led Consortium Fails to Raise Money

Uganda has started a fresh search for new investors for its $4.5 billion refinery after its Project Framework Agreement (PFA) with a consortium of American and Italian firms expired on June 30, 2023. 

Uganda’s Energy Ministry on Monday night said it had registered considerable achievements on the refinery project with the Albertine Graben Energy Consortium (AGEC) but that the consortium had failed to raise capital. 

The key achievements so far include the completion of the Refinery Configuration or Front-End Loading 2 (FEL-2), the Front-End Engineering Design (FEED), which defines the technical design of the Oil Refinery, the project Environmental and Social Impact Assessment (ESIA) study, logistics study and commercial and marketing study;

“There are, however, a number of outstanding aspects, including mobilisation of financing for the project and the Government of Uganda is now open to receiving offers from public sector capital providers to participate in this nationally and regionally strategic project,” said Energy Ministry spokesperson, Solomon Muyita.

The AGEC consortium, which comprises American companies Yaatra Africa, Baker Hughes (part of General Electric) and Italian firm Saipem SPA, had in 2018 committed to making a Final Investment Decision by June 2023 which did not materialise.

Options

This means Uganda could explore the option of raising capital from East African countries.

Considering that AGEC would raise 70% of the required capital, the refinery shareholding structure was 60 percent owned by the private developer AGEC, while Uganda had 40 percent. 

The development also comes just months after Uganda signed an MoU with Sonatrach, the Algerian oil company on the development of oil and gas resources.

 The General Manager Uganda Refinery Holding Company, Dr. Michael Mugerwa signed for Uganda while Sonatrach Chairman and CEO, Toufik Hakkar represented Algeria.   

The MOU, signed in March, 2023 in the presence of President Museveni and his Algerian counterpart, Abdelmadjid Tebboune, covered oil and gas cooperation-Upstream, Midstream (refining and petrochemicals), Downstream, capacity building plus oil and gas services. 

In a Tweet following the signing ceremony, President Museveni stated, “We are looking at Algeria investing in our refinery. We want to build an inland refinery. It is absolutely necessary because it will cut transport costs seeing that we are far away from the coast.”

Algeria has the tenth-largest proven natural gas reserves globally, is the world’s fourth-largest gas exporter, and has the world’s third-largest untapped shale gas resources.  It also ranks sixteenth in proven oil reserves and exports roughly sixty percent of its total production.

On the other hand, Uganda has 6.5 billion barrels of crude oil in place. Of this, 1.4-1.7 billion barrels of crude oil is recoverable. First Oil is expected in the first quarter of 2025.

The refinery is one of Uganda’s key strategic projects, located at the Kabaale Industrial Park in Hoima and it is planned to refine 60,000 barrels of crude oil per day. 

Uganda National Oil Company (UNOC) recently said the compensation of project affected persons was completed. 

Ongoing are the Crude Supply Agreement negotiations and the final investment decision was expected this year.  

According to a macro-economic study by Stanbic Bank in consultation with the UNOC, the refinery will add $3.3 billion to Uganda’s gross domestic product per annum and $8.2bn per annum to the national capital formation. 

It will also improve Uganda’s balance of payments by $591m as most petroleum products will be manufactured from Uganda.

Regarding jobs, 32,000 will be created, of these, 1,200 are direct, 16,900 indirect and 13,900 induced, according to the study.   

Officials said the refinery will produce 658 metric tonnes of Liquified Petroleum Gas per day, reducing Uganda’s widespread reliance on charcoal and firewood.