Buyuma Weekly Uganda Energy Roundup(Wk 12)

Hello There,

Welcome to this week's?Buyuma Ugandan oil and gas weekly update?covering?the latest energy?news that made waves in Uganda.

The Ugandan government has expressed interest in optimizing its Uranium reserves by constructing East Africa’s first nuclear plant.

The construction of this plant would be done in collaboration with China National Nuclear Corporation (CNNC).

Once completed, depending on when, it could make Uganda the 2nd or 3rd African country with a nuclear plant, as SA has an active plant and Egypt has been developing one since 2022.?

Below are?updates that made the headlines in Uganda's Oil and Gas sector

Oil contracts: Ugandan companies pocket sh988b

Ugandan firms have received contracts worth sh988b since the Final Investment Decision (FID) was taken by the government and participating oil companies according to the Petroleum Authority of Uganda (PAU).

Ernest Rubondo, executive director at PAU said 92 contracts have been approved by PAU for the Kingfisher Development Project.

He made the remarks during the spudding (commencement of drilling) of Kingfisher oil wells at Buhuka village, Kyangwali sub-county in Kikuube district on January 24.

“PAU has approved 92 contracts since the FID was announced at the beginning of 2022 for the Kingfisher Project. These projects total $1b (sh3.6 trillion). And out of this, contracts worth $270m (sh988) have been awarded to Uganda companies mainly in the areas of civil works, hospitality management, transportation, and ICT.

PAU would like to congratulate the Ugandan companies that have met the standards,” he said. Uganda companies that have benefited include; Excel in civil works, DDG Logistics for transportation, City Medical limited from the health sector and Newrest from hospitality management among others.

He said the Kingfisher Development Project has also provided room for skills development. He noted that currently, 700 youth have received training in vocational skills like welding, heavy goods vehicle driving, and pipe fitting among other skills.

“The Kingfisher project is economically viable at $35 per barrel. At the current oil price which is about $87 per barrel, the project will account for about 15% of the total oil revenues which the government expects to receive from the oil and gas resources,” he said.

“The bigger production is going to be from the Tilenga Project which is operated by TotalEnergies EP. This (Kingfisher) will bring a total of $6.9b over the entire period of the project. This is averaging about $360m per year from this Kingfisher oil field.”

Uganda Targets Nuclear Power Generation by 2031?

The Ugandan government plans to produce up to 1,000 MW of power from nuclear sources by 2031 as part of efforts to diversify the country’s energy mix and introduce alternative forms of clean power to the national grid.

Power will be generated at the country’s inaugural nuclear facility, the Buyende Nuclear Power Plant, set to be located at Buyende approximately 150 km north of the capital city Kampala.

The announcement follows the signing of a contract with Russian state corporation Rosatom in 2017 for the development of nuclear power infrastructure as well as a memorandum of understanding signed with China’s National Nuclear Corporation whereby the parties agreed to cooperate on nuclear power and the building of atomic energy capacity for power-related purposed.

According to Ruth Nankabirwa Ssentamu, Uganda’s Minister of Energy and Minerals, “Preparation to evaluate the Buyende Nuclear Power Plant site is ongoing to pave the way for the first nuclear power project expected to generate 2,000 MW, with the first 1,000 MW to be connected to the national grid by 2031.”

Minister Ssentamu added that, “Uganda is making firm steps to integrate nuclear energy into the electricity generation mix to ensure energy security and provide sufficient electricity for industrialization.”

Shipping petroleum to reduce fuel prices by over 30%

The Uganda Revenue Authority (URA) said shipping petroleum products from Kenya by water will reduce fuel pump prices.

“We are looking are looking at a reduction in transport costs by 30 to 50 per cent. The cost of petroleum transportation is quite high by road with a cubic metre going by $40 (Shs148,000) and yet by ship its $20 to $25 (Shs74,000-Shs 92,000) per cubic metre.

The ultimate reduction in costs translates to reduction in the fuel pump prices” explained URA’s acting assistant commissioner in charge of the field services customs department, Geoffrey Balamaga.?

Mr Balamaga gave this remark after the maiden arrival of MV Kabaka Mutebi II with fuel from Kisumu to Bugiri, Bukasa, Wakiso district fuel terminal.

“Previously, we have been clearing about 300 to 400 tankers per day at our borders with Kenya at Malaba- Busia. Petroleum dealers will now have to seat down and review accordingly because this facility has reduced the cost of transport logistics,” he noted.?

Mr Balamaga said the maiden trip had a trial test of 1.1 million litres of fuel which in the consequent trips will see the vessels bring in their full capacity of 4.5 million litres of petroleum products.

“Uganda consumes 7 million litres of petroleum products daily. MV Mutebi will address many challenges faced by truck drivers and transport 4.5 million litres of petroleum products that are transported by 150 trucks on the road in just one trip,” he said.

According to authorities, MV Kabaka Mutebi II left Uganda on December 21, 2022, to collect fuel for the first time from Kisumu.

“It set off from Kisumu to Uganda on December 28 with a travel time of approximately 17 hours. It reached Uganda at 6:30 am on December 29, 2022,” observed?Mahathi infra Uganda Limited project manager Dinesh Donadi.

Mr Dinesh said a terminal in Uganda will become a hub for the trucks that have been transporting fuel from Kisumu to pick it up from Bugiri to different parts of Uganda and neighbouring countries like Rwanda, Burundi, DRC and South Sudan.

“By shifting from road to the water-based transport system, there should be a reduction of 50 per cent in the fuel rates,” he remarked.

?Questions linger over the Shs16t refinery project

President Museveni returned to the US to attend the second US-Africa summit convened by the Biden administration.

Most noteworthy from the trip to Washington DC, was the lightning-speed announcement of the looming Final Investment Decision (FID) for the $4.5b (Shs16 trillion) Greenfield refinery.

This followed a side meeting between Mr Museveni and executives of the Albertine Graben Energy Consortium (AGEC), a special-purpose vehicle of American and Italian firms.

AGEC was in 2017 awarded the tender to design, finance and construct the 60,000 barrels-per-day (bpd) refinery in Buseruka Sub-county in Hoima District. The land for the project is contiguous with the 29 sq. km acquired in 2013 to accommodate among others, the Kabaale International Airport and industrial park.

“The FID is the confirmation by all investors in the deal of their commitment under a shareholders’ agreement to invest equity,” the statement issued by State House, read in part.

Energy Minister Ruth Nankabirwa told journalists last week on Friday during a press conference to highlight 2022-2023 milestones for Uganda’s oil sector, that the refinery FID will be closed this June for the project to coincide with the start of commercial oil production in late 2025.

To start with, the Project Framework Agreement signed between the government and AGEC on April 10, 2018, is due to expire this year.?Upon expiry, with or without FID taken, the government has the option of granting AGEC an extension.

As such the meeting in Washington DC, which was conspicuously not attended by any Ministry of Energy official, and the resultant announcement was a good “overture” for a probable extension.

If at all AGEC opts out of the deal, the government through the Uganda Refinery Holding Company Limited (URHC) would claim intellectual property rights of the refinery designs and configurations and hit the streets again to scout for another developer/financier.

A due diligence team told the President in 2017 that awarding the refinery deal to the Americans and Italians was a good move to “balance foreign interests.”

West-East balance

In his October 8, 2006 address in which he announced that Uganda’s oil deposits were commercially viable, President Museveni stated firmly that it was his government’s intention to have a local refinery. Initially, starting with a production capacity of 6,000 bpd but would later be scaled up to 10,000 bpd to cater for local demand (10,313 bpd) at the time.

This, he said, would save the government the annual import bill of about $43m back then. Oil production, he expected, would start in 2009. The shuffling for an investor for the project also kicked off.

The WikiLeaks diplomatic cables released in 2011 revealed that President Museveni rubbed Washington the wrong way by visiting Tehran and cutting a deal with his counterpart, Mahmoud Ahmadinejad, to have Iran build Uganda’s oil refinery.

After the three-day call in May 2009, the cables detailed, Mr Museveni flew black with yet-to-materialise Iranian promises to fund the construction of oil-processing facilities here and train our oil scholars at its University of Petroleum Studies and other institutions.

“We remain concerned about the implications of Iran’s promised investment in the oil sector and for Uganda’s foreign policy decision-making,” Ms Kathleen FitzGibbon, the former political/economic chief at the US Mission in Kampala, wrote.

The Uganda-Iran deal suffered a stillbirth.

The Kampala regime is a key ally of Washington in the restive Great Lakes region. Uganda was one of the few countries to support the then [US President George] Bush administration's invasion of Iraq in March 2002.

In 2007, the government latched on the war on terror in the Horn of Africa enclave to recalibrate a profound friendship with the West—the US and its allies across the Atlantic in Brussels. In turn, the West doles out millions of dollars in military aid and other forms of donations in vital sectors such as health.

In 2014, the government went back to the drawing board to search for a refinery investor, the process facilitated by a US firm Taylor Dejongh. The search process zeroed on RT Global Resources, a consortium led by Rostec the Russian firm that manufactures the AK-47/Kalashnikov rifles.

In February 2015, the then US Ambassador Scott DeLisi told a meeting of select journalists, including this reporter, that it is “not a done deal.” Amid heavy US-EU sanctions following Russia’s annexation of Crimea in February 2014, RT Global Resources walked away in July 2015.

Later in October 2015, the Ministry of Energy announced a fresh search for an investor and attracted 40 bidding ventures. Eight reached the pre-final stage but only four were considered for discussion including the now AGEC and Chinese DongSong ventures.

Question marks

AGEC is a special purpose vehicle of Yaatra Ventures LLC, alongside Nuovo Pignone International Srl, a subsidiary of Houston-based Baker Hughes with vast business in oil and gas worldwide, LionWorks Group Ltd, a Mauritius-based private equity firm, and Italy’s Saipem SpA.

Saipem SpA is the engineering, procurement, and construction (EPC) contractor in the consortium while the other lesser unknown outfits are in charge of the other heavy lifting.

During the meeting in Washington DC, Ms Jandhyala tagged with executives of Africa Finance Corporation and Eastern and Southern Africa Trade and Development Bank (TDB Group).

Africa Finance Corporation was loosely described in the State House statement as “one of the early-stage investors” for the project while nothing was said about the TDB Group with respect to the project financing.

“The announcement today brings Uganda and the region one step closer to a long-held dream: to add value to our resources, and achieve energy security and economic prosperity for all its citizens,” Mr Museveni was quoted as saying.

Industry sources told Daily Monitor that both Africa Finance Corporation and TDB Group are what one might call “arrangers of the actual financiers.”

“In effect, the real statement out of DC was to announce that we have got arrangers that will help us secure the financiers who will help us finance the project whenever,” one person familiar with the refinery goings-on told this newspaper.

The source added: “As the arrangers, they could dangle some money—pledge some equity, but in absolute terms they will facilitate the process to look for the actual money.”

It is also worth noting that, closing project financing—$4b (Shs14 trillion)—for development of EACOP has been a headache and taking longer, including ostensibly due to the adverse campaign mounted by local and international NGOs to phase out fossil fuels.

“And AGEC wants us to believe that theirs is an easy ride?” a Ministry of Energy official intimated on condition of anonymity. “Of course, as you know there are a lot of international stakes involved and so, even the President has to string along.”

UNOC officials did not immediately respond to our inquiries on the matter.

In the 2018 Project Framework Agreement, the government committed to, among others, land acquisition, issuance of letters of commitment to support the project, approval of the technical Front End Engineering Design (FEED) studies and configuration, approval of the Environmental Social and Impact Assessment (ESIA), and negotiating and concluding the Host Government Agreement (HGA)— the main binding agreement, Implementation and Shareholders Agreement, and the Crude Sales Supply Agreement.

On the other hand, AGEC committed to designing, financing and building the refinery complex.

Other undertakings that have been ticked off are, approval of the configuration of the refinery designs, while the ESIA is due for completion and approval by the National Environment Management Authority (Nema) by March.

However, negotiation and closure of the HGA, Shareholders Agreement, and the Crude Sales Supply Agreement, are still behind schedule. Without these, it is unlikely that project financing and FID can be anywhere close.

Energy minister Ruth Nankabirwa revealed that the Front End Engineering Design (FEED)?report was submitted to the Petroleum Authority of Uganda in August 2021 and, accordingly approved in July 2022.

“The ministry is facilitating the negotiation of the three key agreements required to enable the refinery project. These negotiations cover the Crude Oil Supply Agreement (CSA), the Implementation Agreement (IA), and the Shareholders Agreement (SHA),” she added.

The refinery and the East African Crude Oil Pipeline (EACOP) were agreed upon in February 2014 between the government and the oil companies for commercialisation of Uganda’s oil project.

The refinery has the first right of call for 60,000 bpd of crude oil extracted from the oil fields in the Nwoya, Buliisa, Hoima, and Kikuube districts. In the absence of the refinery, this crude will be fed to EACOP but a long-term crude supply agreement is required.

Albertine Graben Energy Consortium (AGEC), was handed the refinery tender on the basis of among others the reputable companies, General Electric/Baker Hughes with an estimated turnover of $300b and Saipem SpA, which meant “good corporate governance and strong project risk management principles” capable of attracting private equity financing.

However, one official intimated that “it is not a go-get it process” as the EACOP experience has shown “to easily mobilise European and American money to throw it in backwaters like Uganda laden with risks. It takes a lot more than just announcements.”

“The earliest AGEC can see through that project is 2026/2027 thereabouts,” the Energy ministry official noted.

The refinery is expected to be financed in Public Private Partnership arrangement of a 60:40 ratio.?The government’s 40 percent equity share is equivalent to Shs2 trillion ($500m), and was defined in December 2017 by the Unoc shareholders; the ministries of Finance and Energy, at their annual general meeting.

On paper, Kenya and Tanzania offered to buy a 2.5 percent and eight percent stakes, respectively as part of Uganda’s 40 percent stake. TotalEnergies E&P also offered to buy a 10 percent stake leaving the government with roughly 19 percent stake. It remains unclear how far negotiations on both fronts have advanced.

Rwanda and Burundi declined participation in the project, while there is no Ugandan entity that has committed to take up shares.

The President has on various occasions argued that there is a ready market in Uganda for the locally refined petroleum products, and a captive market in Rwanda, east Congo and other neighbouring countries—making Uganda’s refinery viable. According to the Ministry of Energy, Uganda’s fuel/petroleum products imports as of last September averaged at 85 million litres with demand growing at seven percent per annum.

The planned refinery will produce Liquefied Petroleum Gas (LPG), diesel, petrol, kerosene, jet fuel and Heavy Fuel Oil (HFO).

Uganda’s daily consumption of petroleum products (petrol, diesel, kerosene and jet fuel) averages 6.5million litres, with demand growing at seven percent per annum, according to the ministry of Energy, hauled in almost daily which explains the high frequency of truck tankers on the road. One of the reasons for the daily haulage is national security-wise; the two major bulk fuel suppliers, Vivo and TotalEnergies, depots are situated within the central business district so they are never fully stocked.

?Oil pipeline land compensation to be concluded in March 2023

The compensation of over 3,000 persons affected by the crude oil pipeline will be concluded in March 2023, authorities have revealed.

According to the East African Crude Oil Pipeline (EACOP) company, the managers of the crude oil pipeline?are concluding the compensation exercise to pave the way for the project. Once compensation is concluded, the company will kick-start the processes to construct the pipeline.

The development was announced by Martin Tiffen, EACOP’s managing director.

“We are moving well with the project and we expect to conclude land acquisition during this the first quota of 2023,” Tiffen said.

He made the remarks while addressing journalists shortly after signing a memorandum of understanding (MOU) with the Institution of Surveyors of Uganda (ISU) on capacity building at Golden Tulip Hotel in Kampala.

Tiffen noted: “As part of the international best practices, we are required to conclude compensation before we move the project-affected persons.”

According to Tiffen, following the announcement of the Final Investment Decision (FID) last year, the teams had to ensure that both the processes of land acquisition and hiring of the contractors are handled simultaneously before the actual construction starts.

“At some stage, both the land acquisition and the Engineering Procurement and Contracting (EPC) will be joined and the project will kick off,” he observed.

The MOU is part of the national content requirements aimed at availing opportunities to Ugandan graduate surveyors at the oil company. On his part, ISU president Dr Nathan Kibwami said: “Our members have been working on the EACOP project for some time, and now this MOU will give them an opportunity to students to build capacity.”

3,000 accept compensation

Statistics obtained by?New Vision?indicate that at least 3,100 persons (representing 85%), out of the 3,648 total project-affected persons, have agreed to be compensated.

According to Tiffen, the 3,100 have since signed compensation forms and have either received their money or are in the process of getting it.

In addition, statistics indicate that at least 2,460 (representing 68%) of the total number of project-affected persons have been fully compensated.

According to the project Resettlement Action Plan, the affected persons have two options, either to compensate them in kind or receive cash. Those who will be compensated in kind will receive new houses and other livelihood packages.

According to the resettlement plan, only 15% of the affected land parcels will lose 50% or more of their area, whereas 70% of others will lose about 30% of their area. At least 180 houses will be constructed for the physically displaced people.

That's it for this week. Until next time, Cheers!