Posts tagged as: refinery

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.

Nigeria: How Govt Can Accelerate Self-Sufficiency in Sugar By 2021 – GMD Dangote Sugar

interviewBy Franklin Alli

Engr. Abdullahi Sule is the Acting Group Managing Director, Dangote Sugar Refinery Plc. In this interview, he spoke on the many challenges, prospects and opportunities which backward integration in the sugar industry presents to the economy. Excerpts:

Against the targets of the Sugar Master Plan, what are the prospects and the challenges so far from investors’ perspective?

Well, land acquisitions had been at the forefront. To acquire massive land to produce sugar in commercial quantity is a major challenge. I would give you examples of states where we have gone and spent two to three years just to acquire land. When you are talking of acquiring 20-30, 000 hectares of land, you will see that you are encroaching into several communities and what one community likes doesn’t agree with what other communities like.

So, we go through consultation, sensitization meetings and a lot of discussions with the government and sometimes, we end up abandoning the entire projects. So, land acquisition comes at the forefront; as you know, Nigerian is a sugar consuming country and the skills needed for this kind of industry is a challenge, and that is why often times, we have to go outside the country to hire people to come and manage the projects, and then, the equipment needed have to be imported, and challenges of access to foreign exchange to import raw materials is also another challenge.

Also, sugar project is capital intensive and the gestation period is much longer than other investments. That is why some people prefer to put their mony in other investments where the return on investment is faster.

How is the Nigerian sugar industry responding to positive numbers in the macroeconomic environment especially the steady reversal from the recessionary situation into positive growth in the second quarter, 2017, has demand, market size and volume of sales increased?

I will answer the question in two folds. There is sugar we sell to corporate customers; those are people that buy our sugar as raw materials to produce other products. There are beverage, confectioneries, biscuits and the rest of other companies that buy our sugar. So, these are some of the biggest consumers of our sugar and then of course, the bakeries.

When it comes to the sugar industry, we try to see how those companies fared; a lot of them really shut down their lines as a result of the recession that you mentioned, so they shut down their production lines and some of them are just beginning to reopen the lines. Recession is one thing but what has hit the corporate world in Nigeria the most is actually insufficient Foreign Exchange, forex, because most of the companies are still import most of their own inputs , so when forex is not available, a lot of them end up shutting down production.

So, the companies were hit from high costs of materials, and lack of forex. We are beginning to see a little bit of relaxation as some of the companies have started re opening their lines and some of their productions are beginning to improve. So, we are seeing possibility of better affair than what we experienced in the recession.

The second aspect of it is what we sell to general consumers. For the general consumers, we look at how far they can go when it comes to their priority. Certain people would say, “Can we do without sugar, can we buy honey “, this depends on the cost of sugar. Our sugar price is also beginning to go down.

So, more people are going to patronize the consumption of sugar because historically, the lower the price of sugar, the higher the consumption, and the demand for our products. So, we are going down on our prices, and we are hoping that consumption will be higher and we will have a better second half of the year than what we had in the begging of the year.

What are your current capacity utilization and output volume?

We have two major operations, and our biggest operation is here in Apapa, Lagos, where we import raw sugar from Brazil, refine and sell. The capacity of the refinery here in Lagos is 1.4 million metric tonnes per annum, however, the whole sugar importation is usually designed by the federal government to redistribute inform of a quota because of the concessionary tariff that is being given to encourage backward integration in the sector.

So, as a result of that, our capacity utilization is limited to how much import quota we are allocated, for instance, this year, we were only allocated 750,000 metric tonnes of raw sugar; so our capacity utilization would be in that line which is a little above 50 per cent of the capacity of the refinery.

Our other operations are in the areas of our backward integration projects, where we go to the farm, development the land, planting of sugar canes, irrigating the sugar canes and producing sugar from there. In the process of doing that, we have two different factories at the moment: we have factory in Savannah Sugar Company Limited, Adamawa state, which is an existing factory that has been there for a very long time.

The second is the one we are just developing in Taraba state; we have other operations in places like Nasarawa, and an upcoming facility in Niger state, and we are discussing about land acquisition in Kwara state. So, these are the activities that we have across the country. The only site that is producing sugar is actually Savannah Sugar Company.

The current capacity of the factory is 50,000 metric tonnes per annum. So, this year; we are only going to produce a little above 20,000 metric tonnes which is about 40 percent of capacity utilization there. This is a factory we just took over and rehabilitating.

Why are you not producing cube sugar; what is your plan on this?

The cube business in Nigeria is actually a small business segment. Even when St. Louis was allowed to bring its sugar into Nigeria, the maximum they were able to bring was about 200,000 metric tonnes out of the 1.5 million metric tonnes of sugar consumed in Nigeria. So, the total cube sugar market in Nigeria is not more than 250,000 metric tonnes because even when St. Louis was bringing, there are one or two local companies that were also making their own cubes.

So, if you look at the total of what is consumed as cube sugar in Nigeria, it is not more than 250, 000 metric tonnes maximum in the country. So, as Dangote Sugar, we are more interested in large volume business. That is why we are not in that market. However, we have partners in the cube business that buy granulated sugar from us and cube them. So, there are small companies that are doing that, and when you ask them, they will tell you clearly that it’s not a big amount of money.

Could you put a date on when Nigeria will be self-sufficient in raw sugar production instead of continuous imports from Brazil?

Okay, there are two ways to approach that question. First, going by the federal government’s desire which is to ensure that Nigeria become self-sufficient in sugar production by the year 2021. The reason is because in 2012, the Federal Government of Nigeria came up with the National Sugar Master Plan, NSMP.

The Sugar Master Plan is for us to be able to identify sites or size where we will be able to produce sugar locally and the Federal Government came up with various sites where it estimated that the country can produce about 1.7 million metric tonnes of sugar in ten years period, starting from 2012-2021. Unfortunately, that is not going to be realistic because of the amount of investments involved and the challenges in land acquisition and the challenges in manpower requirements, the equipment requirements and the rest of them.

That is why in Dangote, as a company, we developed our own sugar master plan, saying that we are going to produce 1.5 million metric tonnes by 2013, and we gave our self-ten year’s period which end in 2023. However, in our effort to acquire lands, and manpower, we encounter a lot of challenges; so, we reviewed our position to 2016. In the new planning, from 2016, we plan five years to produce about one million tonnes of sugar. That will not give Nigeria self-sufficiency in sugar, but it will meet our production targets.

We hope that the other companies would produce the balance that Nigeria requires. Nigeria is a consumer of roughly 1.5 million metric tonnes of sugar per annum. So, if we produce 1 million and other companies produce the balance of 500,000 metric tonnes per annum, we are likely going to end up raw sugar importation in 2022 -2023, and Nigeria will be self-sufficient in sugar production.

The National Sugar Development Council, NSDC, recently released a new benchmark for sugar producers on domestic sugar production. What is your take on this?

Well, the benchmark they released was in line with the submissions by us- sugar producers. So, each of the three companies who are participating in the Sugar Master Plan (Dangote Sugar Refinery, Flour Mills of Nigeria and BUA Sugar Refinery) submitted their targets of what they want to achieve.

I just disclosed DSR own to you. What NSDC did is to release what we have purposes. If there is such a legislation that will be backed by laws, land acquisition will be faster and a certain period should be given to investors to go ahead and complete the process and all the parties involved will have guidelines on what they can do, where they can go in and where they cannot go in.

Zimbabwe: Export Incentive Boosts Zimplats

Platinum miner, Zimplats recorded a $45,53 million profit in the year ended June, 2017, up from $7,32 million achieved in the prior year, a performance the company mainly attributed to a Government export incentive scheme.

In its preliminary final report, the company said it was awarded a 2,5 percent incentive on export proceeds received in Zimbabwe.

“The profit for the year ended June 30, 2017, was boosted by a total of $34,8 million realised from the export incentive and disposal of treasury bills from the Reserve Bank of Zimbabwe (RBZ),” Zimplats said.

The company realized $20,8 million from the disposal of treasury bills. Revenue for the year increased by 9 percent to $512,5 million from $471 million due to improved metal prices.

Average metal prices improved from $1 638 in the prior year to $1 868 in the period under review. The increase in revenue was despite a 5 percent decrease in sales volumes which declined from 582 833 ounces to 555 892 ounces.

On operations, Zimplats achieved record ore production of 7 million tons due to improved production from the Bimha Mine which contributed 916 000 tonnes to total production. The company also achieved a record number of tons milled during the year.

“A record 6,7 million tons of ore were milled in the year compared to 6,4 million tons milled in the previous period,” it said.

“This was largely due to good plant running time achieved over the year and improved ore supply from the mines.”

But, the company said total platinum ounces produced and sold in the year under review decreased from 290 410 ounces and 288 063 ounces recorded in the prior year, to 281 069 ounces and 274 364 ounces, respectively.

On projects being carried out, Zimplats said the Selous Metallurgical Complex Base Metal Refinery refurbishment project remained constrained by cash flow challenges, with total project expenditure as at June, 30, 2017 standing at $23,4 million.

At least $20,6 million was spent on the redevelopment of the Bimha Mine in the just ended year and it remained on schedule to achieve design production capacity by April 2018.

“A total of $4 million was spent on expansion projects during the year compared to $27 million in the previous period.

“A total of $59 million was spent on stay in business projects during the period, 40 percent higher than the $42 million spent in the previous period.”

– New Ziana.

Zimbabwe

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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.

Clarifications

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.

Trap

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.

Chinese Quit President Museveni’s Refinery Deal

Photo: The Independent

An oil camp.

By Haggai Matsiko

Kampala — President Yoweri Museveni’s oil refinery project has once again suffered a major blow with a major Chinese contractor quitting. As has happened in many major infrastructure deals, frustration over in-fighting, intrigue and lobbying had already taken root with cabinet officials, President Yoweri Museveni’s relatives, diplomats and senior technocrats at the Energy Ministry being cited in this case.

The Independent has learnt that China Petroleum Engineering & Construction Corporation (CPECC) in June wrote to the government indicating that it had pulled out of the deal. The departure of CPECC is a major set-back because it is affiliated to China National Petroleum Corporation (CNPC), the world’s third largest oil company, and it is considered the largest company with specialties in oil engineering, manufacturing, construction, and contracting in China.

CPECC was part of a Chinese consortium put together by a well-known and highly connected Chinese group in Uganda; Dongsong Guangzhou Energy Group, that had following a June review emerged the best contender for the refinery project. That group had beat three others including an American consortium led by Yaatra/ Intra-continental Asset Holdings and including the renowned global manufacturing giant General Electric and Saipem; the Italian oil and gas contractor.

Insiders say the Dongsong win had everything to do with CPECC, which was being fronted as the Engineering, Procurement, and Construction (EPC) contractor or the main contractor in the consortium. Others in the group included China Africa Fund for Industrial Cooperation (CAFIC), Guangzhou Silk Road, East China Design and Engineering Institute, EXIM Bank of China, and Industrial and Commercial Bank of China (ICBC).

The Dongsong win appeared to have ended Museveni’s long and convoluted search for the refinery constructor in the best possible way because it was said to have the money and expertise needed for the US$4 billion job.

“They had the money and the technical capacity to build the project,” an official close to the deal told The Independent, “but they disagreed amongst themselves and the main contractor pulled out.”

Given the secrecy amongst Chinese companies, it is hard even for most insiders to pinpoint what exactly happened. However, the generally accepted view is that CPECC was unimpressed that Dongsong, which is a much smaller player although it had been fronted as the consortium’s leader, wanted to have controlling powers on the project; including over finances. Sources say CPECC was not ready to accept.

Matters are not helped by Dongsong’s incapability to deal with a project of that magnitude. It is already struggling with the Usukuru phosphates project in Tororo, eastern Uganda, which requires only $620 million. President Museveni, sources say, had been warned about Dongsong’s financial weakness but, for unclear reasons, he appears to rate it favourably most of the time. That is partly why the Dongsong deal went ahead.

Also, the Dongsong consortium defeated the competition mainly by claiming to have the financial muscle required.

In meetings with the ministry technical team, the Dongsong group provided their equity and debt financiers; China Africa for Industrial Cooperation and Guangzhou Silk Road, and EXIM Bank of China and ICBC, respectively.

The government team also noted that the Chinese consortium exhibited adequate assurance and availability of the required major contractors.

“The China Petroleum Engineering & Construction Corporation (CPECC) and the East China Design and Engineering Institute were presented as EPC and O&M partners respectively,” a memo prepared by the ministry review team reads in part.

On the cost of financing the project, the China consortium also had the best offer. The consortium put the cost of borrowing for debt finance in the range of 4%- 7% and both the EXIM Bank and ICBC expressed interest in providing the debt funds for the project.

All appeared on course for the refinery as it also appeared to have good will from one of the major players in the sector–Total E&P.

Early this year, the French major offered to take a 10 percent stake in the project. 10 percent is easily over US$ 400 million, just $ 100 million shy of the $ 500 million government officials indicated was needed to kick start the project.

Total E&P’s offer was important because it signaled a break from the past when the international oil companies–CNOOC, Total E&P and Tullow–opposed to the refinery. The oil companies were keen on the $3.55 billion pipeline, which hit a milestone with the signing on May 26 of a construction agreement deal between Uganda and Tanzania.

There was only a small glitch. ICBC, which intended to provide the debt finance for the project noted that for such type of financing, it would require a sovereign guarantee from the government of Uganda.

The technical team was concerned that the sovereign guarantee may involve the issuance of a financial guarantee from the Finance Ministry.

“This position is not desirable to GOU as it can expose the government to risks associated with debt repayment, especially if the consortium is inefficient,” a confidential brief noted.

Apart from this, all else appeared fine. Dongsong Group had already committed to provide up to USD 100million of Pre-Final Investment Decision (FID) funds. They also noted that they are prepared to provide a bank guarantee to GOU to assure availability of the said funds.

The Dongsong consortium had also already interfaced with a number of Chinese state-owned financial institutions to interest them in the refinery project and obtained letters of intent from both equity and debt financiers, which, the technical team noted, “demonstrates readiness to finance the entire project”. Up to this point, the deal appeared to be on track.

But now with CPECC out, the deal appears to have collapsed. This is because according to confidential documents seen by The Independent, the consortia were required to present among others; a co-signed letter of intent between the consortium financiers, a co-signed letter of intent between financier, EPC and Operations and Maintenance Company, conditions precedent for Pre-FID activity, proof of finances for pre-FID activity and proof of project financing.

The fall out, therefore, means the Chinese consortia cannot meet some of the necessary conditions.

Look at Plan B

The government might, once again, have to look at Dongsong’s nearest challenger, an American consortium led by Yaatra/ Intra-continental Asset Holdings.

This group; The Independent has learnt, lost marks when it said it did not have confirmed financing but would procure it as soon as it was awarded the contract.

It appears the Yaatra camp had been riding on the GE name for extra clout. With assets worth over $300 billion, GE is one of the biggest companies in the world. In 2016 alone it made revenues worth $ 123 billion or five times more than Uganda’s Gross Domestic Product (GDP). With the refinery deal requiring on US$4 billion, Yaatra’s lobbyists hoped it would ride on GE’s reputation to bag the deal.

However, when government’s technical team held meetings with the lead investor and equity financier (Intra continental Asset holdings), they indicated that they will still need to go to the market to raise additional equity and debt finance for the project.

A brief to Museveni on their meetings with the Yaatra team, the Ministry of Energy officials noted several major weaknesses about Yaatra.

They told Museveni that the American consortium had indicated commitment to provide only between US$ 80-100million of Pre-FID funds and will need to go to the market to engage with potential financiers to raise additional equity and debt funds for the project once the Final Investment Decision (FID) is taken. They demanded a non-disclosure agreement with the Government of Uganda.

“However, this is likely to cause a delay in implementation in case there are any contentious issues during interface with the debt finance partners once FID has been undertaken,” notes a brief seen by The Independent.

The consortium also did not agree with the government proposal of building a 60,000 bpd refinery in two phases starting with the 30,000 bpd pointing to the market and viability analysis.

Instead, they proposed to construct a refinery with capacity of 50,000 bpd.

But this, the technical team noted, may have an implication on the volumes of crude oil for export available to upstream companies during the initial stage of production.

The Yaatra team, therefore, did not present any of its intended financiers for the debt portion, did not provide adequate assurance of the availability of a company that will be responsible for operations and maintenance of the refinery, and did not provide an agreement or letter of intent from a potential operations and management partner. The Ministry officials said the Yaatra proposal lacked clarity and details on its intended debt financiers.

The Ministry officials, however, rated the consortium’s refinery EPC contractor, Saipem, as highly reputable.

“The EPC contractor has adequate experience in the industry and capable of attracting private equity financing to the project,” officials noted.

On the cost of financing, the American team also appeared more costly than the Chinese. Their indicative cost of borrowing for debt finance was mentioned to be in the range of 8%- 12%, unless backstopped by Export Credit Agencies.

The team expressed concerns that the cost of capital (interest rate) will have a bearing on the project’s rate of return and implies that the Refinery Company (consortium of the lead investor and the Uganda Refinery Holding Company) will assume the risks associated with high interest rates.

The Intra-continental Asset Holdings consortium also hinted on the need for sovereign support during their presentations and noted that they were not ruling out the requirement for a sovereign guarantee. As indicated earlier, this position is not desirable to GOU as it can expose the Government to risks associated with debt repayment, especially if the consortium is inefficient.

Finally, when the due diligence team scored the two consortia (Dongsong and Intra-continental Asset Holdings), and the Dongsong Group led consortium was ranked as the best with a total score of 83.38% and the Intra-continental consortium was ranked second with a total score of 66.78%. But with Dongsong out, it remains unclear if the Americans will return.

Two years wasted

The government might also want to look again at some of the less attractive investors it had thrown out. Among these are Profundo Technologies Limited of United Kingdom, which had China Overseas Construction, Petrofac and Chimera Corporation.

The Profundo Technologies-led consortium was kicked out over incomplete membership after Chimera Corporation, which was the consortium’s main financier, failed to appear for technical consultations.

Another contender, a Ugandan company, owned by a Canadian company, both owned by a one Eric Byenkya, are also interested in the deal. They petitioned Museveni claiming it had unfairly been locked out of the deal yet it had secured financing and all the right partners but was largely ignored and all the focus remained on the Chinese and Americans.

Government appears to be exactly back to where it was two years ago. At the time, it had picked Russia’s RT Global Resources as the preferred bidder and South Korea as the alternate bidder.

Museveni favoured the Russians because, apart from considering access to weapons, the Ugandan leadership was also counting on Russia’s world superiority as a counterweight to both the western powers; mainly America, and China.

The Russians pulled out and negotiations with the South Koreans also never took off.

With the Russians and the South Koreans out, Uganda appeared somewhat desperate. The Independent revealed last year that government was in negotiations with a shadowy international company registered in the British Virgin Islands (BVI), a major international tax haven, whose directors were not clear.

The Company, Burj Petroleum, had offered to invest 100 percent in the refinery, retain a stake of 80 percent and offer government 20 percent free of charge. This raised major concerns in the sector and the company was later dropped.

This time, since the Dongsong consortium emerged the best and had the money, it had expressed concerns about having an alternate bidder.

But even before they could conclude negotiations, the pull-out by their major contractor–CPECC–appears to be scattering what was seen as a solid deal.

With such disappointments, critics say government might have no choice but source funding for the project itself or revise its original stance that the refinery would reserve the right of first call on oil produced. This stance essentially meant that there would be no oil production without a refinery.

But with no cash to implement the project and investors jumping out of the deal at the last minute, opponents of the refinery say it is time for Museveni to ditch the whole project. This group has always said that a refinery will become another worthless but expensive liability on the government.

But proponents of the oil refinery, insist that apart from creating jobs, the refinery would save Uganda a yearly petroleum products import bill between US$ 1 billion (2.5 trillion) and benefit from regional demand of petroleum products, which continues to grow at over 7 percent. The problem is that with no capable investor on the table, the figures can only remain figments of imagination by the projects’ proponents.

Timeline

2010 AUGUST

Foster Wheeler feasibility study is completed, shows that the refinery project is economically viable

2013, DECEMBER

Six firms are shortlisted to build the refinery in Kabaale Parish, Hoima district.

2013, DECEMBER

Government commences the compensation of residents in the proposed refinery area, gives them a three-month ultimatum to vacate the land.

2014, JUNE

Selection for refinery contractor narrows down to two companies, a Consortium led by South Korea’s SK Group and another Consortium led by RT Global Resources from Russia.

2015, FEBRUARY

Russia’s RT-Global Resources-led consortium is announced winner of the bid to build the oil refinery. South Korea’s SK Group comes second.

2016, JULY

RT Global Resources, a consortium led by Russia, pulls out of negotiations with government as a lead investor for the oil refinery.

2016, SEPTEMBER

SK is no longer interested in any negotiations. Government commences new process of calling and reviewing interested investors

2017, FEBRUARY

Energy Minister Irene Muloni says government hopes to announce the potential investors for the refinery in March.

2017, MAY

Four consortia are announced as the new contenders for refinery deal

2017, JUNE

The Dongsong Energy Group-led consortium beats the competition. America’s Yaatra comes second. The same month Dongsong’s consortium loses major contractor–CPECC.

****

Earthquake Interrupts Sunday Morning Prayers

By Scovia Atuhaire and Alex Ashaba

There was panic in Rubirizi District in Western Uganda on Sunday following an earthquake that shook the ground for several seconds.

According to the United States Geological Survey (USGS), the 5.3 magnitude tremor which shook a 39 kilometre area with 10km depth happened at about 10am. At that time, most people had gone to church for Sunday morning prayers.

So far, no causalities have been reported but worshippers in several churches in the region were reportedly thrown in panic and prayers interrupted.

Uganda

Chinese Quit President Museveni’s Refinery Deal

President Yoweri Museveni’s oil refinery project has once again suffered a major blow with a major Chinese contractor… Read more »

MP Kabaziguruka Injured in Lugogo Car Accident

Former President Besigye has visited Nakawa Member of Parliament Michael Kabaziguruka who was involved in a car accident on Sunday.

The MP reportedly sustained a double fracture on one of his legs.

Dr Besigye went to Kololo hospital where Mr Kabaziguruka is admitted.

The van in which the legislator was travelling collided with a near the Uganda Manufacturers Association Showground in Lugogo, Kampala.

Uganda

Chinese Quit President Museveni’s Refinery Deal

President Yoweri Museveni’s oil refinery project has once again suffered a major blow with a major Chinese contractor… Read more »

Hoima Oil Refinery Villages Invaded By Pastoralists

By Francis Mugerwa

Hoima — Residents of Kabaale Parish, Hoima District, where the government intends to set up an oil refinery have clashed with pastoralists who they accuse of grazing their animals in their gardens.

The pastoralists have been cited in Nyahaira, Kitegwa, Bukona and Kyapuloni villages in Buseruka Sub-county.

“The pastoralists have caused fear and discomfort in the community because they are grazing their animals in our gardens,” said Mr Richard Orebi, the chairman of the Refinery Resettlement Committee.

The 76 families that have been awaiting government resettlement since 2012 claim the pastoralists are causing them food insecurity.

“They graze in our gardens and when we complain, they rush to police claiming that we have injured their animals. Several people have been arrested on tramped up charges,” Mr Orebi said.

He said that the affected families have complained to police and to Buseruka Sub-county authorities as well as Hoima District local government and to the Ministry of Energy but they have not got any redress.

According to Mr Innocent Tumwebaze, the chairman of the Oil Refinery Affected Residents Association (ORRA), pastoralists are acting with impunity and claim to have been cleared by government to graze in the area.

Government acquired the 29-square kilometer piece of land in Kabaale Parish where it intends to set up a green field refinery that has a capacity to produce 60,000 barrels of crude oil per day.

The chunk of fertile land will also host an airport and attendant oil industries and other required facilities.

During the implementation of the Refinery Resettlement Action Plan (RAP), the 7,118 people who were living on the land were asked by government whether they needed cash compensation or resettlement.

Those who asked for cash compensation were paid while those who opted to be resettled have been waiting to be resettled in Kyakabooga village in Buseruka Sub-county where government procured a 500-acre piece of land.

Mr Tumwebaze says he has witnessed several cases where people whose crops are destroyed by cows are instead arrested by police whenenever they complain.

He said that Abudalah Kigozi, a resident of Nyakasene village and Emmanuel Kisa, a resident of Nyahaira village are on police bond after being charged with injuring animals.

“The police that have been deployed to guard us have instead turned against us. Police seems to be giving preferential protection to pastoralists who have invaded us,” Mr Orebi said.

A pastoralist who declined to be identified or photographed claimed to have moved with his 300 heads of cattle from Kyankwanzi District in search of water and pasture during the dry spell.

“We are here temporarily. We are grazing in bushes. We cannot graze in gardens. That is a total lie,” he said.

Mr Bashir Twesigye, the executive director Civil Response on Environment and Development (CRED), an advocacy NGO offering legal aid to communities affected by oil projects said government agencies charged with enforcing the law should not tolerate impunity and lawlessness.

“Government seems to have forgotten its obligations to protect the refinery project-affected persons. This underpins the importance of monitoring before, during and after displacement. This should create lessons for future displacements relating to the oil industry,” Mr Twesigye.

The lands officer in the Petroleum Directorate, Mr Francis Elungat, said the pastoralists are on the refinery land illegally and have not been authorised to be in the area by government.

“Any trespasser on that land including the pastoralists should be handled by police. We have alerted the police accordingly,” Mr Elungat said.

The Albertine regional police spokesperson, Mr Julius Hakiza, said there are many people who have illegally settled on government land earmarked for a refinery.

“We have so far arrested 16 people, some are Rwandans and they are before Hoima Magistrates’ Court. We have charged them with illegal entry into Uganda,” he said.

He said it is unacceptable for pastoralists to illegally graze on government land and destroy crops of the families awaiting relocation.

Remove the Royalty Paid On Gold – Museveni Orders

By Mark Keith Muhumuza

Entebbe — President Museveni has ordered the removal of royalties on gold in order to limit the amount of gold that is smuggled through Uganda unprocessed. He also said he wanted the tax lifted to encourage gold miners to take their gold the newly African Gold Refinery located in Entebbe. He said the tax was encouraging the smuggling of gold out of the country.

“Therefore I am going to remove that royalty. The people of Mubende should bring our gold to the refinery. You were scared of the tax but now we have removed it. The royalty for those in transit has also been removed. There will be no excuse for anybody not to bring their gold to the refinery,” President Museveni said at the launch of the African Gold Refinery on Monday in Entebbe.

President Museveni said that after several demands from industry players who want to see most gold refined and gold bars exported. Uganda at the end of the last financial year exported gold worth Shs700bn, the highest figure in over decade mostly because of the value addition made to the gold. It is now Uganda’s second largest export after coffee.

However, the auditor general queried why the government did not collect royalties worth Shs42bn from the gold that was exported out of the country. Any gold in transit is required to pay royalty fees of about 5 percent of the value. Also, the Uganda Revenue Authority (URA) is required to collect royalties from all gold mined in Uganda. That money is distributed to the local governments where the gold is mined.

President Museveni said that artisanal miners, like those in Mubende do not file any returns and would rather sell the gold on the black market than pay the royalty.

Mr. Alain Goetz, a Belgian national and CEO of the African Gold Refinery said the move would allow the firm to invest more in Uganda and reduce the smuggling that affects their business.

“Those who smuggle jobs do not create jobs or even invest directly in this country like we have. Any incentive is an encouragement for them to move from the black market to the formal market,” he said on the sidelines of the launch.

The plant has the capacity to refine up to 300kgs of Gold per week and one tone in a month. The $15m facility employs about 75 people and produces gold bars. Alain also requested the government for an income tax incentive. The refinery already benefits from other incentives.

“Because of the importance we are attaching to this facility, the government has provided for manufacturing under the bond facility, which will help the licensed traders and importers to supply gold to the refinery for refining and export free of taxes. This will facilitate the competitiveness of the refinery,” he said.

Uganda is currently reviewing the mining policy and law to attract private investment and value addition. There are concerns around the refinery though especially the source of the gold. Of all gold refined in the last one year of operation, 90 per cent of it was not from Uganda yet import statistics don’t show any gold entries.

“Uganda’s gold sector is shrouded in mystery – you have to ask who is really benefitting. The gold trade was worth 200 million dollars to the Ugandan economy last year but there are no official figures on where the gold came from or where it is going,” said George Boden, Campaign Leader at Global Witness.

“This raises serious questions about whether gold that may have funded conflict and human rights abuses in Eastern DRC and South Sudan could be entering the international supply chain and whether the right taxes are being paid.”

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Govt Seeks Consultants for Crude Oil Pipeline

By Jeff Mbanga

A week from today, the government will start evaluating submissions companies made on how Uganda should participate in the construction of a 1,445km crude oil pipeline from Hoima district to the port of Tanga in Tanzania.

Uganda is looking for advisory services on different levels – from legal, financial to commercial interests – as the country prepares to take up a stake in a special purpose vehicle for the crude oil pipeline.

The other shareholders in the special-purpose vehicle will include the three main upstream oil companies and the government of Tanzania. A recent statement from the ministry of Energy and Mineral Development noted that government would start evaluating the consultants on October 24. The ministry will display the shortlist of the final candidates four days later.

During the evaluation, government will, among other things, be looking at a number of issues such as a minimum of eight years of proven experience in similar assignments and a minimum average annual turnover of $1 million in the last three years.

“Experience in energy or natural resources infrastructure projects is a must,” the ministry noted.

The call for consultants is an indication of how fast plans are moving in trying to put in place a pipeline that will export 200,000 barrels of oil per day to the port of Tanga. French oil firm, Total SA, is spear-heading the construction of the pipeline. The project is valued at about $4 billion.

Total has a strong presence in East Africa’s petroleum industry. In May, the company announced that it was widening its footprint in the region’s downstream sector by acquiring Gulf Africa Petroleum Corporation, which operates under the brand name of GAPCO.

Total noted that in Uganda, it has a retail network of 121 service stations, dealing in different lubricants, liquefied petroleum gas, aviation fuel and general retail businesses, commanding an estimated market share of 22 per cent.

It is the construction of the crude oil pipeline, however, that will cement Total’s position as the top oil major in the region. The company has promised to spend more money at a time when oil prices on the international market remain depressed.

Total said it would sustain its capital expenditures between $15 billion and $17 billion per year from 2017, according to the company’s latest financial statement. It is not clear how much of this has been set aside for the Uganda pipeline.

Many other oil companies are, instead, cutting down their expenditures. Uganda allocated funds for oil-related infrastructure, according to the National Budget Framework Paper released this year.

It is the refinery, however, that government continues to consider as its signature infrastructure in the oil industry. Not only does government view the refinery as a cash-cow – the private sector’s import bill for oil products was $536.97 million in 2015, according to Bank of Uganda – but also a source for employment.

A number of offshoot industries are expected to emerge out of the refinery, such as an industry for liquefied petroleum gas. According to the framework paper, government had earlier budgeted for just over Shs 1 trillion (roughly $330 million) for the finalization of refinery development studies and government’s contribution for the equity it is expected to own in the refinery company.

The government says it has compensated all the people who were displaced to make way for the construction of the refinery.

However, finding an investor to partner with in the refinery remains a challenge for government nearly one and a half years since it chose a Russian consortium.

The media last week reported that the Rostec Global Resources of Russia, who, in late June, walked away from the negotiation table with government, were back to holding talks.

The refinery is valued at between $4 billion and $4.5 billion. Government’s plan is to start with a refinery with a capacity to produce 30,000 barrels of oil per day, before increasing it to 60,000.

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