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Uganda refinery bidders down to two: SK Energy or RT-Global

Authorities rejected two out of the four bids they received for the inland refinery in Uganda

The project to construct a refinery in inland Uganda will be led either by South Korea’s SK Energy or by Russia’s RT-Global Resources, after the authorities rejected two of the four detailed bids they received for the venture. Negotiations are now being held with the two remaining bidders, which will be asked to submit their best and final offers by the end of August. 

SK Energy is heading a group which includes SK Engineering & Construction, China State Construction Engineering Corporation and SK-KDB Global Investment Partnership, while RT-Global heads a group which includes VTB Capital and Tatneft. The government said it rejected a bid from Marubeni because the firm did not provide the required bid-bond, and it said it rejected a bid by a group of Chinese companies led by China Pipeline Petroleum Bureau because bid requirements were not satisfied. 

The two European companies which had expressed an interest in the venture did not submit bids. Engineering company Petrofac said it wanted to concentrate on its upstream work, while trading company Vitol cited “internal reasons”. The bid evaluation was carried out by officials from the ministry of energy and mineral development and by the ministry’s transaction adviser, US company Taylor-DeJongh.

The government wants the successful bidder to take a 60% interest in the project, which will cover the construction of a refinery of 60,000 barrels a day (b/d) capacity, located near Hoima and processing crude to be produced from the Lake Albert oilfields. The other 40% will be held by the Ugandan state, although the governments of neighbouring Kenya, Tanzania, Rwanda and Burundi will be invited to take a combined 10% out of Uganda’s interest. Kenya has indicated it will take 3%.

The government says it expects to conclude negotiations with the winner in the year’s fourth quarter. Start-up of the refinery’s first phase, of 30,000 b/d capacity, is targeted for 2017-18. The project includes the construction of storage capacity for crude oil and refined products, and the construction of a 205 km products pipeline to the capital, Kampala. 

With all equipment having to be transported some 1,300 km from the coast, the refinery will be very costly to build for its capacity – $2.5 billion has been estimated. But the ministry says there is a robust case for the facility. The refinery will show margins significantly higher than worldwide levels, it says, because of the inland location, the composition of the crude and the target markets in east Africa. Products demand in Uganda and neighbouring countries is forecast to amount to 232,000 b/d by 2020, and is seen as growing to over 350,000 b/d by 2030. 

At present, inland east Africa receives refined products either by road or through a pipeline which runs from Mombasa to Eldoret, Kenya, with distribution by road from there. According to the ministry, product prices in east Africa can be 30%-110% higher than in the US. This will allow the refinery to benefit from relatively high selling prices, “which will be determined on an import-parity basis”, the ministry says. But the refinery’s crude procurement costs will be low because the price will be set on a netback basis, giving a high margin. 

Meanwhile, there is still no credible target for the start of exports from the Lake Albert upstream development. The three licence-operators, Tullow, Total and Cnooc, signed an outline agreement with the government earlier this year agreeing that crude will be supplied initially to a generating plant and to the refinery, with completion of an export pipeline to the Kenyan coast following subsequently. Completion of the pipeline will allow the Lake Albert fields to produce at least 200,000 b/d. 

But the pipeline is now being viewed as a regional export scheme, to handle crude from the recent discoveries in northern Kenya as well as Uganda’s oil. With Kenya’s fields being some way behind Uganda’s as development prospects, it seems that the big decisions on the pipeline will not be taken for some time. 

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