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Uganda refinery decision raises hopes for oil in 2018

The country's Lake Albert oilfields could start producing within the next three years

Production could start from Uganda’s Lake Albert oilfields in 2018, following the government’s selection of a group to construct an inland refinery. But output will be limited to the capacity of the refinery — 30,000 barrels a day (b/d) initially, later doubling to 60,000 b/d — until an export pipeline can be constructed. 

The government chose a mainly-Russian group to build the refinery and own 60% of the venture, with the Ugandan state and neighbouring countries holding the other 40%. The group is headed by RT Global, a wholly-owned unit of the Russian state-owned defence company, Rostec, and in-cludes Russian oil producer Tatneft, Russian investment companies VTB Capital and Telconet Capital, and South Korea's GS Engineering and Construction

The ministry of energy and mineral development said it is negotiating with the group as preferred bidder, with the target of reaching an agreement by mid-April. If talks break down, it has the option of negotiating with the alternate preferred bidder — a group headed by South Korea’s SK Engi-neering and Construction. Four groups had submitted detailed bids for the job, although groups headed by Marubeni and China Pipeline Petroleum Bureau subsequently dropped out.

In March, the Kenyan government agreed to take a 2.5% interest in the venture, to come out of Uganda’s 40% share. Uganda wants its four partners in the East African Community — Kenya, Tanzania, Rwanda and Burundi — to take a combined 10%, reducing its share to 30%. 

Estimates for the cost of the first phase of the refinery — to be at Kabaale, in Hoima district, some 1,300 km inland from the east African coast — now extend to $3 billion, and the ministry has said the second phase could lift the total to $4bn. The first phase is targeted for start-up in 2018, to be supplied with crude from an early production system at one of the Lake Albert fields. Crude will also be used for electricity generation nearby.

The refinery contract will include the construction of refined product storage facilities and a 205 km pipeline to deliver products to the capital, Kampala. From there, products could be piped on into Kenya and Rwanda.

Meanwhile, there is still no sign that the development of the Lake Albert oilfields is about to launch. The three licence participants — Tullow, Total and China National Offshore Oil Corporation  — signed a memorandum of understanding with the government early last year, setting out that there will be a crude export pipeline to the coast as well as the refinery, and a basin-wide development plan has been drawn-up. 

But Tullow, at its annual report presentation in February, said sanction for the development is not expected until 2016, with first oil targeted for three-and-a-half years after sanction. The company is cutting costs, increasing its borrowing and suspending its dividends in response to the oil price fall. Capital expenditure is to be focused on “high-quality, low-cost oil production in west Africa”. 

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