Russia sets new terms for investing in Hoima oil refinery

Kampala. Russia has set new terms for its involvement in building Uganda’s oil refinery, a project it abandoned in June 2016.
A Russian consortium, RT Global Resources, the best bidder for the financing and construction of the $4 billion oil refinery in Hoima in western Uganda, walked away from the deal after the Uganda government declined to guarantee their investment.
In an exclusive interview on Tuesday with Daily Monitor at a dinner he hosted at his residence in Kampala for Ugandans who graduated from Russia, new Russian envoy, Mr Alexander Dmitrievich Polyakov, justified Russia’s downsized business plan saying it is expensive to build a big refinery that requires high technology.
“There was failure in designing, building and operating new oil refinery in Uganda. But if there is failure, there is no one side to blame. I do not want to go into details but the situation is now different. We have Russian potential investors in Uganda’s oil refinery. What we are suggesting is not a huge refinery with a capacity of 60,000 barrels per day but more compact, ready, visible solution,” he said.
“Let us say one with a capacity of 7,000 to 8,000 barrels per day. This can be built in a short period of seven to eight months. It can first use imported crude oil as progress of production is enlarged,” Mr Polyakov added.
He questioned the timely extraction of crude oil by production licensed firms (Cnoc, Tullow and Total) and also the oil pipeline being constructed from Hima to the Indian Ocean coastline.
“There is a danger that the refinery (60,000 barrels per day) would be constructed by the year 2020, but due to unforeseen reasons, production of crude oil in Uganda may not reach the necessary levels for normal operation of refinery. The issue of oil pipeline (from Hoima to Indian Ocean coastline) is also still bad,” Mr Polyakov noted.
“However, it is not up to us, the Uganda government has to decide; we just advise. Nevertheless, we’re ready to propose a more productive solution to the oil refinery,” he added.
Efforts to have a comment from Ministry of Energy and Mineral Development were futile as senior managers were reportedly locked up in a meeting yesterday evening.
However, ministry spokesperson, Mr Ibrahim Kasita, requested for time to make consultations with relevant officials which was not available by press time.
Asked how much it would cost for construction of a medium refinery and how many Rassian firms had been lined up, Mr Polyakov declined to comment saying it would be giving away their bid offers to competitors.
The refinery had been expected to commence production of 30,000 barrels per day in 2018, rising to 60,000 but those plans will now have to be re-examined.
The earlier consortium was a surprising choice when the announcement was first made in February 2015. Led by Rostec, a Russian defence and technology corporation whose businesses include manufacturing weapons such as the AK-47 assault rifles, it also included Russian oil producer Tatneft and VTB Capital, the investment banking unit of Russia’s second-largest lender VTB. Other partners included GS and Telconet Capital Partnership from South Korea.

Negotiations
Negotiations between Uganda government technocrats and RT Global started in March last year. But sources privy to the deal say one year down the road, the negotiations dragged-on over haggling on several agreements namely; Project Framework Agreement, Shareholders’ Agreement, Implementation Agreement and the Escrow Agreement.