Russia’s Rostec wins contract to build oil refinery in Uganda

February 18, 2015 | Africa, Government & Regulations, Refining & Processing

Kampala, Uganda |  — A consortium led by Russia’s RT Global Resources has won the contract to build and operate Uganda’s $2.5 billion crude oil refinery, the energy ministry said on Tuesday, in a vital step to hasten oil production.

Drilling for oil in western Uganda. Uganda has begun moving people to make way for the construction of an oil refinery to be commissioned in 2017. File Photo.

Drilling for oil in western Uganda. Uganda has begun moving people to make way for the construction of an oil refinery to be commissioned in 2017. File Photo.

The east African nation struck hydrocarbon deposits in 2006 but commercial production has been delayed and is not expected to start until 2018 at the earliest. Wrangling over taxes and the viability of the refinery have delayed crude production.

Uganda plans to build the refinery to process its hydrocarbon reserves, estimated at 6.5 billion barrels, which lie along its border with the Democratic Republic of Congo.

“RT Global Resources emerged as the selected preferred bidder,” Irene Muloni, the minister for energy and mineral development, said in a statement.

The government will start negotiations next month with RT Global on a project that includes a 205-kilometer (127-mile) oil-product pipeline. The winning bidder will hold a 60 percent stake in the 60,000 barrels-a-day refinery, while Uganda has the option of selling part of its 40 percent interest to the neighbouring states of Kenya, Tanzania, Rwanda and Burundi.

“The objective of these negotiations is to conclude the project agreements to the satisfaction of government and the lead investor,” Fred Kaliisa-Kabagambe, the energy ministry’s permanent secretary, said in the statement. A joint-venture between the government and the RT Global-led group will organize project finance and engineering, the ministry said.

Other companies in the group include Telconet Capital Ltd., VTB Capital, Tatneft JSC and GS Engineering & Construction Corp., the government said. Sergei Chemezov, chief executive officer of Rostec Corp., which controls RT Global, was added to a list in September of those people affected by EU sanctions against Russia.

Britain’s Tullow Oil, French oil major Total and China National Offshore Oil Corporation (CNOOC) are developing Uganda’s fields.

Tullow and the government had a dispute over the size of the planned refinery. The government had wanted to build a refinery with capacity to process 120,000 barrels per day (bpd). It later agreed to scale that back to 60,000 bpd.

The refinery’s private developer will take a 60 percent stake, while the government will take up the remainder. The refinery will start with an initial output of 30,000 bpd in 2018.

Opposition lawmakers, however, raised doubts about the selection of a company closely linked to Russian arms exports.

“Museveni is looking at Russia as the guys who will sell him all the arms he wants without any questions,” Francis Mwijukye, deputy spokesperson for Uganda’s largest opposition party said, referring to President Yoweri Museveni.

George Boden of London-based Global Witness, an extractive industries transparency pressure group, said the government had to show it had selected the best company for the job and not entered into any other deals to secure the investment.

“Transparency is key to the success of the refinery project,” Boden said.

Robert Kasande, the energy ministry official overseeing the refinery project, said the selection process was transparent, adding doubts raised over the project were “an old cliche.”