Uganda’s Oil Refinery Project Good for East Africa

African Update – 23/08/12

Uganda’s progress in transforming its oil assets and the plan to build a refinery project has attracted criticism, skepticism and resistance, a challenge that will test the government’s stamina to make independent decision for the benefit of its citizens.

This is after protracted efforts to search for oil and gas in the Lake Albert basin confirmed 2.5 billion barrel of crude oil in reserves meaning that at least one billion barrels oil equivalent can be recovered.

Amongst oil producers

Such asset base propels Uganda in the league of countries like Peru, Trinidad & Tobago, Denmark, Italy and Romania in Europe and Latin America.

In Africa, Uganda is in the rank of Chad, Congo Brazavile, Equatoria Ginea and Tunisia. While in Asia, the discovered oil base puts Uganda in the group of Brunei and Thailand.

But Uganda is still a long way from the tens of billion in Nigeria, Libya and the United States or the hundreds of billions of barrels in Iran, Iraq, Kuwait, Venezuela or Saudi-Arabia.

Moreover, Uganda boasts of over 90% of success discovery rate meaning that from the total of 72 drilled oil wells only 4 wells did not encounter oil or gas.

Interestingly the cost of finding oil in Uganda is far cheaper compared to global trends. Finding oil in Uganda is less than a dollar per barrel. In the global scale the finding cost ranges between $5 and $20 per barrel.

Value addition

With the established asset base of 2.5 billion barrels in place, Uganda intends to deliver natural gas as the initial feedtock to supply a 50 Megawatt dual power station to increase electricity supply.

In addition to gas, heavy fuel oil from extended well tests will be used for the power station. This is also aimed at to increase capacity and life the power station to 25 years.

Most important is that a detailed feasibility study for the development of refinery in Uganda confirmed economically feasible and beneficial compared to export of crude oil.

The Net Present Value for a Ugandan refinery project to process 60,000 barrels of oil per day at an initial investment of $3.2b has post tax rate of 33% Plans are underway to execute the project under the private public partnership.

Skepticism and resistance

However, such good intentioned plans are facing criticism and resistance mainly from donors, civil society groups and international oil companies.

Donors argue that a world class refinery in a landlocked country like Uganda with undiversified crude supply undoubtedly will face severe commercial challenges.

That even a small-scale refinery tailored to Uganda’s domestic fuel needs will diminish the scale economies of export infrastructure without necessarily reducing domestic fuel prices and that there will be a temptation to embed hidden fuel subsidies within a domestic refining entity.

Reducing the price of crude oil feedstock to improve the profitability of the refinery would reduce the value of the upstream oil production ventures where large resource rents are set to be captured.

However, the greater risk for Uganda is that protracted debate over domestic refining strategy will delay important export infrastructure decisions.

NGOs with negative perception and propaganda

And the mushrooming civil society groups backed by externally and wealthy agencies have complicated matters. Their capacity and skills are weak in research, advocacy, negotiations and engagements.

They have failed to come up with policy-evident research and augments or alternatives and it is difficult to take them seriously

The amateurish NGOs forget that accountability can be addressed through Constitutional provisions like separation of powers (Cabinet, Parliament and Judiciary), legislative investigative commissions, fiscal such as formal accounting and auditing systems.

Accountability can also be addressed in form of administrative such as hierarchical reporting, norms of public sector probity, public service codes of conducts, rules and procedures of transparency, public oversight and legal such as anticorruption agencies, ombudsmen and judiciary.

International Oil Companies are using the discovery of oil in Kenya to put Uganda’s government in a panic mode and de-campaign the refinery project.

They are blaming Uganda’s government for delaying approving of their field development plans claiming that “Uganda has no clarity and vision towards oil development.”

The companies prefer exporting the crude oil through pipeline to Port Mombasa to the global market.

Then there are those miscalculated elites with their academically crippled minds what think they know better what is good for Ugandans and they will use whatever it takes to talk bad about the oil projects.

Road to value addition

But delays in approving plans are strategic because it has helped government understand the available oil and gas reserves.

For example in 2006 know reserves in place were 300 million barrels today it known that over 2.5 billion barrels of oil is in place and over billion barrels are recoverable.

Secondly the national petroleum data repository systems are under establishment and creation of new institutions (Petroleum Authority, National Oil Company, directorate of petroleum) once the bills are passed into law.

East African Community has only one refinery at Port Mombasa. The refinery is suffering from inefficiency that it cannot refine the commodity to full capacity.

For now Uganda is not interested to know Kenya, Rwanda, Burundi or Tanzania discovered oil/gas.

Uganda is concerned about its goal of using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.

In fact building a second refinery in Uganda will make EAC a big producer and stronger like the Gulf region. And the more discoveries in Kenya, Tanzania, Burundi and Rwanda will provide feedstock to both Hoima and Mombasa refinery making them competitive.

Parliament need to pass the various petroleum bills to enable the effective and efficient management of the nascent oil and gas sector.

Source: African Globe: Uganda’s Oil Refinery Project Good for East Africa

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