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Uganda’s oil projects stall

Uganda’s oil projects stall

Uganda’s hope of becoming East Africa’s biggest oil producer have been hampered by the government’s inability to attract investors to build a planned oil refinery.

RT Global Resources, a Russian and South Korean consortium, which had won the bid early 2016 has since reneged on the agreement to fund the 30,000 barrels a day refinery in the western district of Hoima where oil was discovered almost a decade ago. According to the Ministry of Energy of Communications Specialist Ibrahim Kasita, RT Global Resources was to finance 60% of the estimated $6bn needed for the project, leaving the Ugandan government to provide 30%, while Tanzania was to raise 10%.

However, the Ugandan government was unable to raise its share of the required capital because of fiscal challenges facing the East African country. The World Bank and the International Monetary Fund recently withdrew budgetary support to Uganda cuts to government expenditure.  

The consortium withdrew after Uganda and Tanzania did not make their contributions to the project as per the agreement. As a result, the plan to have the refinery ready by the end of 2017 has been delayed and Energy and Minerals Development minister Irene Muloni now says it will be ready in 2020. However, finding new investors has proven to be difficult partly due to the low global oil prices. The price of brent crude oil has fallen from over $100 per barrel in June 2014 to $$56.49 per barrel on Wednesday 4 January.

Investors have also been turned off by President Yoweri  Museveni’s insistence that the oil refinery will be built in the remote Hoima district, where oil has been discovered, according to an official in the Ministry of Energy and Minerals Development’s department of exploration, who declined to be named. The Ugandan government also hopes to obtain additional investment for the oil refinery from both Tanzania and Rwanda.

However, analysts have raised concerns that Uganda losing sovereignty of the project by bringing in regional partners. ”When you invite neighbouring countries to invest in the sector, it is difficult to see the free hand of the market in the oil Uganda hopes to produce,” said Stephen Yendha, an economist at Uganda’s Ministry of Finance.

Nevertheless, it seems that the Ugandan government will continue to search for investors to build the refinery, however, some analysts have questioned the viability of the project in Hoima. An official from Total, the French oil firm involved in Uganda’s oil industry, who also declined to be named, said that it would make economic sense if Uganda piped crude oil to a refinery in the Kenyan coastal city of Mombasa, which has the required infrastructure for competitive marketing of oil.

Kenya was expected to contribute to the building of the refinery, but the discovery of commercial oil deposits in the northeastern Kenya potentially means that East Africa’s largest economy will rethink its commitment to the Ugandan oil project. Kenya’s oil discovery has also thrown into doubt Uganda’s potential market share of oil production in the region.

Epajjar Ojulu

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Written by African Business Magazine

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