Oil refinery deal hits a dead end

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Officials have repeatedly said oil production is expected to start in 2025, a timeline set following multiple previous deferrals.
The PFA expired on June 30 when AGEC remained behind schedule on key agreed obligations. PFA, the name for the main project’s contractual agreement, specified parties’ rights and obligations.
The initial expiry date of the agreement, industry sources familiar with the matter told this newspaper, was extended twice on account of Covid-19 pandemic and its world-wide disruptions in 2020 and 2021.
Still, AGEC was gasping for air to deliver on its end of the bargain especially closing key project agreements and securing financing that would lead to Final Investment Decision (FID).
The FID is the confirmation by investors of their commitment under a shareholders’ agreement to invest equity in the project. The greenfield project is tagged to a cost of $4.5b (Shs16.5 trillion).

The government through the Ministry of Energy issued a statement yesterday saying in working with AGEC, they over the years made significant achievements in development of the refinery.
Aspects such as mobilisation of financing remained outstanding, officials noted in the statement.
“The government is now open to receiving offers from public sector capital providers to participate in this nationally and regionally strategic project,” it read in part. The PFA provided for the government through the Uganda Refinery Holding Company Limited (URHC) to lay claim to the intellectual property rights of the refinery designs including its configurations in case the consortium ran into a brick wall.
“It is disappointing, but not all that bad,” one Ministry of Energy official said optimistically. 

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“Some work has been done and most especially we have the designs. We have something to work with; we know what we want in case we get a new player.”
However, for some government officials ever tasked with the onerous assignment, the latest setback could not be more troubling.
About seven years ago, in July 2016, officials of RT Global Resources, the Russian consortium that had been awarded the first refinery tender, returned to Moscow to discuss with their superiors about renewal of the performance bond. They remained a no-show forever.
RT Global Resources was led by Rostec, a Russian firm that manufactures the AK-47/Kalashnikov rifles and other weapons.
It later emerged that the heavy sanctions slapped on Rostec’s executives - christened by the West as Russian President Vladmir Putin’s cronies - following Moscow’s annexation of Crimea in February 2014, weighed the firm down financially.
The government then returned to the drawing board during which the Americans and Italians snapped the deal which, like its predecessor, hit a dead-end last Friday.
The day before, AEGC executives met with government counterparts, among them, officials from Energy and Justice ministries to thrash out details of the divorce.

Optional plan
Sources familiar with the discussions told Daily Monitor last evening that the government side , including URHU, toyed with three options: going back to bed with AGEC while optimistic about a better outcome, mobilising resource to execute the refine project alone or scout for new partners.
URHC is a subsidiary of the Uganda National Oil Company (Unoc), the statutory body mandated to manage Uganda’s commercial interests in the oil sector.
“Insanity is doing the same thing many ways expecting things will turn out differently,” a senior official speaking anonymously said. “We have seen how things have been tough for AGEC and the prospect of going back in bed with them isn’t exciting.”

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AGEC is a special purpose vehicle of Yaatra Ventures LLC and LionWorks Group Ltd, a Mauritius-based private equity firm, buttressed by Italy’s Saipem p.A alongside Nuovo Pignone International Srl, itself a subsidiary of Houston-based Baker Hughes which holds substantial stake in oil and gas businesses globally. 
The consortium previously known as Intra-Continental Asset Holdings (IA) during the tendering exercise in 2016, was rated second during due diligence which was marred by blackmail and infighting among government officials.

However, in a surprise turn of events, it was awarded the tender in what insiders said was a strategic balance of interests of the Western and Eastern blocs  - China, France, Italy and the United States – in Uganda’s nascent oil sector.

The IA venture scored 66 percent behind DongSong with 83 percent during the due-diligence exercisedthat saw the 10-member technical team circle the globe from Kampala to Beijing to London to Washington.
The venture’s core strength was being bracketed with heavyweights like Saipem and Baker Hughes while its shortcomings included, markedly, failing to show how they would mobilise finances for the project.
The second option government contemplated was highly implausible owing to its financial implication amidst a blackhole of external debt servicing.
As regards the third option, sources intimated that the government, including President Museveni have been privately crusading for new partners. 

During President Museveni’s visit to Algeria earlier in March, Uganda and Algeria inked a Memorandum of Understanding, among others, on oil and gas cooperation covering both upstream (developing oil fields) and midstream (refining and petro-chemical industries).
Following the signing ceremony, a message on the President’s Twitter handle read: “We are looking at Algeria investing in our refinery. We want to build an inland refinery.”

It is expected that Sonatrach S.p.A, the Algerian national oil company and the largest oil and gas company in Africa, is one of the readily available players “to work with.”

The greenfield refinery is one of President Museveni’s pet projects while Unoc executives have variously described its internal rate of return as “extremely attractive” given the amount of money — $1.7b (Shs6 trillion) — Uganda spends annually on petroleum imports.
Another sweetener of the project, according to industry experts, is regional market potential.

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For UNOC - the statutory body mandated to manage the country’s commercial interests in the nascent oil sector—which is at crossroads of securing project financing for its key ventures in midstream and downstream ventures from especially the Treasury, the latest episode comes as reality check.

By the end of the new expiry date last Friday,  AGEC which had been beaten to the tender by a consortium of Chinese firms, was struggling financially and behind schedule to closing multiple key commercial agreements.
Results of the due diligence were reportedly shelved for geo-strategic considerations.

As of last last week, AGEC had achieved only undertaking and submission of the technical Front End Engineering Design (FEED) studies, and refinery configuration designs, which two studies were approved by government.
The Environmental and Social Impact Assessment (ESIA) was completed and was due for submission to the environmental watchdog, the National Environment Management Authority or Nema.

The company had faltered regarding negotiating and concluding the Host Government Agreement (HGA) — the main binding agreement.
It has as well tripped on Implementation and Shareholders Agreement and the Crude Sales Supply Agreement.
Without these agreements in place, it was unlikely the consortium would reach project financing and announce Final Investment Decision (FID) for the project any time soon.

The Energy minister, Ms Ruth Nankabirwa, had earlier on maintained that they expected an FID for the refinery by the end of June, which did not materialise.