Uganda’s Billion-Dollar Oil Refining Ambitions

Uganda is a country with rich natural resources and one of the most diverse in Africa. It has everything from copper, gold, and cobalt, to tin, tungsten, uranium, as well as natural gas and crude oil for which it is looking to attract major investments to drive its economic growth. 

Uganda has an estimated 6.5 billion reserves of oil of which 1.4 billion barrels are recoverable. The first oil exports are expected in 2025, according to state-owned firm Uganda National Oil Company (UNOC).

Last year, President Yoweri Museveni officially commissioned the start of drilling campaign on the Kingfisher oilfield, which is part of a $10 billion scheme to develop Uganda’s oil and gas reserves under Lake Albert in the country’s west and build a vast pipeline to ship the crude to international markets via an Indian Ocean port in Tanzania. 

The large scheme includes pre-production financing and significant infrastructure projects in the oil sector such as central processing facilities, refined products pipelines, a $3.5 billion export pipeline, and the $4.5 billion oil refinery.   

The Kingfisher project is expected to produce 40,000 barrels of oil per day at peak production. The second project, Tilenga, is located on the north of Lake Albert and is expected to have an output of 190,000 barrels per day at its peak

French oil firm TotalEnergies and China state-owned company China Offshore Oil Corporation (CNOOC) are the main operators of the two oilfields in Uganda. CNOOC and TotalEnergies hold 28.33 per cent and 56.67 per cent respectively in Kingfisher.   

In Tilenga, TotalEnergies owns 56.67 per cent holding and CNOOC controls 28.33 per cent holding. Uganda National Oil Company (CNOC) owns 15 per cent holding in each of the two projects. 

Plans Underway to Finance the Project

The bigger question around developing oil and gas is always about attracting investors later alone with the right financing. It is always tricky to get investors to buy into the idea of investing billions in capital-intensive projects like these.

That is perhaps why it has taken so long for Uganda to commercialise its oil and gas sector. Uganda discovered commercial oil reserves almost 20 years ago but production has been delayed by lack of infrastructure.

The government of Uganda has done all the right things to build the foundation to attract financing, including putting in place the right laws and regulations, and putting aside a fair budget to co-invest with the private sector. But it has struggled to attract the right investors into its oil projects. 

One particular project it has struggled to attract investors into is its refinery project in Kabaale in the country’s west. The government wants to build an refinery that will produce 60,000 barrels of oil per day. 

The government hopes the refinery project will be a private sector led project, with government’s share held by the Uganda National Oil Company, through its subsidiary Uganda Refinery Holding Company. 

In total, the project is estimated to cost $4 billion through a debt-to-equity ratio of about 70:30, which means the government wants to raise 70 per cent of the debt and sell 30 per cent as equity to investors who will invest into the project.

Raising this money hasn’t been an easy undertaking. Many petroleum multinational companies have expressed interest into the project, even East African Community partner states including Kenya and Rwanda have expressed interest. 

There are no details of who specifically in Rwanda or Kenya would want to invest in the project. But in Rwanda’s case you would expect the country’s leading petroleum company, Societe Petroliere (SP Rwanda), to express interest in the project given that the company is looking to expand into the region. Already, SP Rwanda has operations in Kenya and Tanzania where it recently opened its first gas station. 

It is also sensible to think that sovereign wealth fund Agaciro Development Fund or Rwanda Social Security Board (RSSB) or even Crystal Ventures, would want to invest in such a project. Both Agaciro and RSSB have offshore investments and it would not hurt to see them expanding their investments into the region.

Having said that, neither of those who have expressed interests have made any significant move and the promises that Uganda may have received for its oil ambitions are not materializing.

Last year, Uganda terminated a contract of a consortium that had expressed interest to invest in the project over its failure to mobilize funding. However, the government announced recently that it was in negotiation with a potential investor from the Dubai Royal family. 

The Dubai-based investor, Alpha MBM Investments, could take on the project if negotiations go as planned.

The project, along with supporting infrastructure, represent $20 billion in investment into Uganda’s economy. This could give edge to Uganda and enable the country to serve its petroleum needs. The country currently spends $2 billion on petroleum imports, but this could soon change.

Uganda Doing the Right Thing 

Whether you like it or not, Uganda is doing the right thing. Commercializing the oil and gas sector will usher Uganda into a new era. To start with, Uganda imports billions worth of oil many times at inflated prices.

The President added: "The whole of Uganda, North-western Tanzania, Rwanda, Burundi, Western Kenya, South Sudan and Eastern DRC will benefit."

President Museveni was referring to the potential that the country’s planned refinery has to serve the region, but he was also expressing concern over inflated prices of fuel products that his country has been purchasing through middlemen in Kenya.

Museveni took a decision recently to ban oil imports from middlemen in Kenya saying they were inflating prices, and instead resorted to signing contracts directly with bulk producers in the Middle East to cut out costs created by middlemen. 

Uganda currently imports an average of 2.5 billion litres of petroleum annually valued at $2 billion. If the country could fast-track the development of its oil drilling ambitions, it could reduce or stop the heavy oil imports and channel these funds elsewhere.

The oil and gas development could also enable the country to make oil and gas products affordable to the masses as well as generate thousands of jobs to ordinary Ugandans through exploration, refinery and export activities, as well as jobs that will be created by factories of petrochemical and fertilizer products will open as a result of the existence of oil.