Posts tagged as: graben

Chinese Firm Returns for Uganda Oil Refinery Talks

By Halima Abdallah

Chinese consortium Guangzhou DongSong Energy Group Company has returned to negotiations with Uganda for the planned 60,000 barrels-per-day refinery.

Their return comes just weeks after the unceremonious sacking of Energy Permanent Secretary Dr Stephen Isabalija about whom the company had expressed displeasure.

Sources say that the government is also considering exiting all financial investment in the refinery as it seeks an investor ready to cover the entire project cost.

The new development also comes as parliament pushes government to share more information on progress on the refinery side of its oil production plans in the Albertine Graben.

While briefing MPs on the status of developments in the oil and gas sector in preparation for first oil in 2020, Energy minister, Irene Muloni said the government is still in the process of identifying the lead investor who will design, finance, build and operate the refinery at 100 per cent.

DongSong and Albertine Graben Refinery Consortium were the final two pre-qualified bidders, but a disagreement emerged and DongSong was dropped off along the way when, according to correspondence we have seen, it failed to attend meetings, signing non-disclosure agreement and payment of bid bond fee with the government of Uganda.

The Energy ministry has indicated that the consortia presented an acceptable proposal on financing and technical aspects of the project.

Initially it was proposed that government would raise finance through equity, but the Permanent Secretary Robert Kasande explained that the latest position, which has been already agreed upon, is that the investor bears all the project cost. A tentative estimate puts the refinery cost at $4.27 billion.

“We are discussing with the two companies and we expect to conclude discussions by the end of the year,” Mr Kasande said, without giving details of how DongSong was drawn back into the negotiations.

Unlike in the past, where government has had a preferred and alternate bidder, that procedure was abandoned as the government opted to rely on unsolicited expressions of interest.

Some 40 entities applied, out of whom four were prequalified and subjected to due diligence before the final two were selected.

The lead investor will be selected based on a model Project Framework Agreement (PFA) that will be signed with a consortium that offers best terms.

The PFA will detail the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investment and financing for the project.

The signing of the Project Framework Agreement will in turn pave the way for commencement of pre-final investment decision activities such as front-end engineering and design, project capital and investment costs estimations, Environmental and social impact assessments, among other things.

It was expected that the lead investor would be announced last month, but the delay is likely to have knock-on effect on the refinery construction timelines. Initially, it was projected for completion in 2018, but has now been revised to 2020 to coincide with first oil.

How Chinese Firm Dongsong Lost Lucrative Refinery Deal

By Halima Abdallah

As Uganda pushes ahead to deliver both a refinery and a pipeline to evacuate oil from the Albertine Graben finds by the year 2020, Chinese consortium Guangzhou DongSong Energy Group Co Ltd seems to have lost out on the deal despite being one of two pre-qualifiers for the next stage of negotiations.

Sources at Uganda’s Ministry of Energy say that the Chinese failed to show up for a negotiation meeting, did not return a non-disclosure agreement (NDA) and failed to execute a bond with the government – critical steps for negotiations on the construction of the 60,000 barrels per day refinery.

The government is therefore proceeding with negotiations with the Albertine Graben Refinery Consortium (AGRC), the other finalist.

“We did not issue a call for bids, we received expressions of interest from at least 40 firms, from these we selected four to do due diligence; out of the four we selected two including DongSong to progress to the next stage

“But out of the two we did not have a preferred or alternate bidder — we wanted to negotiate with both on the same terms,” Energy Ministry Permanent Secretary Stephen Isabalija told The EastAfrican.

He declined to discuss the matter further only saying that as far as the Ministry was concerned it was making progress towards delivering the refinery within the agreed timelines.

“By 2020 we must have a refinery — that is not stopping; we have a directive from the President,” said Dr Isabalija.


In interviews with various sources at the Ministry who are familiar with the oil refinery project, The EastAfrican has established that on June 8, Lv Weidong wrote to Dr Isabalija on behalf of Guangzhou DongSong Energy Group Co Ltd seeking a number of clarifications from a letter by the Permanent Secretary that indicated the firm had been selected to progress.

“The Consortium notes from the letter that two consortia have been selected to progress to the next stage. The Consortium seeks clarification on whether there is a preferred and alternate consortia, and if so, whether the Government of Uganda will negotiate with the Consortium as the preferred or alternate bidder,” the Chinese said.

Term sheets

DongSong also asked to be given term sheets for the project framework agreement and the implementation agreement “to enable it understand the terms offered by the Government of Uganda,” warning, “It is not possible for the Consortium to prepare meaningful negotiations by June 26, 2017 without the term sheets requested above.”

DongSong further wanted to know the “rules that will apply to the selection process going forward,” noting, “clarification on the above matters is critical for the Consortium’s next course of action.”

The DongSong consortium had been notified of the progress on May 29.

Its members are Guangzhou DongSong Energy Group Co Ltd, Guangdong Silk Road Fund, China Africa Fund for Industrial Corporation, China Petroleum Engineering and Construction Corporation and East China Design Institute.

Ministry response

The Ministry was uncomfortable sharing the details without first locking the Chinese in by signing a non-disclosure agreement which had apparently been shared but not returned to it.

In response, the Ministry instead dug up the long process leading up to the two selected to progress to the next stage, a process dating back to March when due diligence visits to the four consortia that had been selected for that process were done.

The Ministry also stated that once two consortia had been selected from that process there was no preferred or alternate consortia.

The request for term sheets for the project framework and implementation agreements were also denied, to be signed only with the “consortium that offers the Government of Uganda the best terms.”

The EastAfrican understands that the South African law firm Webber Wentzel was retained as an independent advisor to support the negotiations led by the government. The move, sources say was aimed at ensuring transparency at the negotiation stage.

With the Chinese pulling ropes, it is understood the Ministry opted to move forward with negotiations with the other consortia.

Information from the Energy Ministry indicates that the consortium has presented an acceptable proposal on financing and technical aspects of the project.

The AGRC consortium is made up of General Electric Oil and Gas, YAATRA Ventures LLC, Intracontinent Asset Holdings Ltd and Saipem SpA, in the role of Engineering, Procurement and Construction partner.

The agreement of the core project terms signals the start of government discussions and negotiations with the consortium on the project framework agreement.

The deal will detail the proposed solutions, validation of the solutions, risk mitigation measures and additional due diligence necessary for accelerating investments and financing for the project.


In not selecting a preferred and alternate bidder, sources intimate to The EastAfrican said government was keen to avoid falling into the same trap as it did in 2016 when it selected the Russian firm Rostec Global Resources as the preferred bidder, but it pulled out at the last minute of the process leaving government hanging.

While in the previous efforts to identify a lead investor for the refinery government opted for a competitive bidding process, this time around it called for expressions of interest which falls within the Licensing Act and not the Bidding Act.

The selected consortia were asked to execute a bid bond of $2 million. The EastAfrican understands that the Albertine Graben Refinery Consortium executed the bond through PTA Bank.

Govt Officials Divided Over Tullow’s Farm-Down

Photo: Daily Monitor

Uganda’s oil: Commercial discoveries of oil reserves have been made in a number of areas including, but not limited to, Butiaba, Ngassa, Kaiso-Tonya, Kingfisher, among others. Despite Tullow Oil’s numerous contribution towards these discoveries, the oil firm has started to ease out of Uganda through sale of its stake.

By Edward Ssekika.

Ministry of Energy argues that the farm-down creates monopoly in the Albertine Graben

Officials in the Ministry of Energy and Mineral Development (MEMD) and Uganda National Oil Company (UNOC) are in contention on whether Tullow Oil Plc’s farm-down to Total E&P Uganda should be approved, Oil in Uganda can reveal.

In January this year, Tullow Oil Plc announced that it had agreed to a substantial farm-down of 21.57 percent of its 33.33 percent in Exploration Areas 1, 1A, 2 and 3 to Total E&P Uganda B.V. for a total of $ 900million. The farm down is currently pending government approval and once the transaction is completed, Tullow will cease to be an operator in Uganda but will however retain its presence in the country to manage its non-operated position.

Speaking at the recently organized Extractives workshop organized by the Office of Auditor General (OAG) at Audit House Kampala, Honey Malinga, the Commissioner Petroleum Exploration and Production Department (PEPD) revealed that Tullow’s farm-down to Total is likely to create a monopoly which will not be good for the country.

“We are yet to sit down and discuss whether Tullow’s farm-down to Total will not create a monopoly. Goverment’s policy has always been against creating monopoly in the oil sector,” he argued.

“This is one of the issues that we shall be considering before giving Tullow the go-ahead.”

If approved, the farm down will consolidate the position of Total E&P Uganda B.V. with a majority and controlling stake of 54.9 percent.

According to the Tax Appeals Tribunal ruling in the case of Tullow Uganda Ltd Vs Uganda Revenue Authority (URA), 2014, Ernest Rubondo, the then Commissioner PEPD told the tribunal that government ‘forced’ Tullow to sell 16.7 percent of the interests in the Albertine Graben to Total and CNOOC in order to break the monopoly.

“Mr. Rubondo testified that the Government of Uganda did not indicate to Tullow who to sell its interests to but wanted to avoid a monopoly in the Albertine Graben,” the ruling reads in part.

During the tribunal hearings, Richard Inch, the Head of Tax at Tullow, also informed the Tribunal that Tullow had intended to sell only 50 percent of the interests in Exploration Area (EA) 1, 2, and 3A.

“… . before government of Uganda would grant the necessary consent, it required Tullow to sell a further 16.67% of its interest to break Tullow’s monopoly,” he stated, adding that, in a meeting held on February 02, 2010 with Mr. Lawrence Kiiza the Director of Economic Affairs, government’s position was not to allow a sale of only 50% of Tullow interests and wanted a single distinct operator for each PSA, with each taking 33.33% interests.

According to Malinga, if government said no to monopoly in the oil sector during that time, then the recent farm-down by Tullow should not create the same situation it has been against as it will give Total 54.9 percent control hence indirectly creating the monopoly.

However, Chief Operating Officer at the Uganda National Oil Company (UNOC), Nabbanja Proscovia supports Tullow’s sale to Total arguing it will fast-track Government’s target of having first oil by 2020.

“UNOC welcomes the farm-down because the sale of Tullow’s interests to Total is meant to meet the obligations of Final Investment Decision (FID) by the end of this year and finally ‘first oil’ by 2020,” she stated.

According to Chris Byaruhanga Musiime, the Head of Programs at African Center for Energy and Mineral Policy (ACEMP), Tullow’s farm-down was expected and it is no surprise that Tullow has downsized its interests in Uganda.

“There were indications of this earlier since Tullow seemed over stretched especially by its Ghana operations and I think it never really anticipated to be a major producer in Uganda,” he told Oil in Uganda.

Nigerian Firms Dominate Bid List for Uganda’s Oil

By Mark Keith Muhumuza

Kampala — Uganda has announced that seven companies have submitted bids for exploration of oil in the next round of licensing.

In October 2015, government announced that at least 16 firms had expressed interest in acquiring oil exploration blocks in the Albertine Graben.

A statement released by the ministry of Energy reveals that three of the seven companies are from Nigeria.

The seven companies are; Armour Energy Limited of Australia, WalterSmith Petroman Oil Limited of Nigeria, Oranto Petroleum International Ltd of Nigeria, Niger Delta Petroleum Resources Ltd of Nigeria, Rift Energy Corporation of Canada, Glint Energy LLC of USA and Swala Energy Ltd of Australia.

“The attraction of seven bidders is significant taking into consideration the current low global oil and gas prices,” the statement reads.

Mr Fred Kabagambe-Kaliisa, the permanent secretary in the Ministry of Energy, said: “The good success of the bidding process is largely attributed to geological success within the Albertine Graben and the fact that majority of the blocks on offer have proven oil and gas potential.”

Tullow missing out

Tullow Oil, one of the companies that had expressed interest in October 2015, did not submit bid documents to qualify for the next round.

The firm has paid the price for the slump in crude oil prices which has resulted in the company cutting back on any planned exploration. Releasing the 2015 results in February, the company revealed it was scaling back on exploration expenditure.

Also absent on the list is the integrated company, Sasol from South Africa; and none of the Ugandan registered firms that expressed interest were able to submit bid documents.

Hope for more oil

Further exploration of at least six blocks in the Albertine has the potential of increasing Uganda’s oil prospects from the current 6.5 billion barrels.

Mr Kabagambe-Kaliisa said the next step will be an evaluation of the bids and will be based on the proposed work programme, technical and financial capability, national content, health safety and environment, proposed royalty and signature bonus.

About the project

The areas on offer are: Ngassa in Hoima District, Taitai & Karuka (565 Km2) in Buliisa District, Ngaji (895 Km2) in Rukungiri & Kanungu Districts, Mvule (344 Km2) in Moyo and Yumbe Districts, as well as Turaco (425 Km2) and Kanywantaba (344 Km2) in Ntoroko District.


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