The signing of the project framework agreement between government and the Albertine Graben Refinery Consortium (AGRC) for the $4 billion oil refinery was a great relief to the Energy Ministry as it races towards the country’s first oil by 2020.
Sources at the ministry of Energy and Mineral Development indicate that it took a lot of behind the scenes negotiations that would at times involve President Yoweri Museveni on side, and the United States government officials through its embassy in Kampala.
The US embassy was, according to sources, eager to see the conclusion of the deal in order to fight off Chinese firms still interested the multi-billion dollar deal in case the negotiations with AGRC failed.
Over 40 companies had expressed interest in the deal which was initially estimated to cost $3 billion but now projected to cost up to $4 billion. The negotiations between the government represented by the ministry of Energy, National Oil Company and AGRC commenced in August 2017 when the parties agreed on the core project terms.
The selection process started in January 2017. At the time, it was anticipated that Chinese firm Guangzhou DongSong Energy Group which had scored highly during the second search would take the deal. URN did not independently establish whether Guangzhou DongSong Energy Group was still in Uganda from the time the Group was dropped from the deal.
The then ministry of Energy permanent secretary, Dr Stephen Isabalija, however, announced that the Albertine Graben Refinery Consortium (AGRC) made up of General Electric (GE) Oil and Gas, YAATRA Ventures LLC, Intracontinental Asset Holdings Ltd (IA) and Saipem SpA had clinched it.
The project framework agreement with AGRC should have been signed within months after they had agreed on the core terms. A source indicated that Chinese firms have quietly tried to find their way back into the deal backed by some government officials that have preferred working with China.
Uganda’s oil and gas sector is one of the sectors promoted by the US Commercial Service of the Department of Commerce. The 2017 US commercial country guide on Uganda pointed the $10 billion infrastructure required to develop Uganda’s oil reserves as one the opportunities for the American in Uganda.
This explains why the signing of the agreement did not only excite ministry of Energy officials but the US Embassy as well.
US ambassador Deborah R. Malac called a select number of journalists to the embassy. Key on the on the topics was the Albertine Graben Refinery Consortium (AGRC) deal.
She says her embassy was quite pleased with the signing of the agreement between the government of Uganda and the Albertine Graben Consortium which she said was put together by a US-led company.
“In particular, the the Albertine Graben Refinery Consortium presents the opportunity for project financing, financed by the private sector which doesn’t contribute to Uganda’s debt burden. As many of you know, we’re all watching with some concern, the government borrowing that is going on. So this is one more, it showcases a model and an opportunity to do things differently, still address the infrastructure needs and other needs in the economy,” sais Malac.
Malac said the AGRC which includes General Electric, one of the largest global companies with over one hundred years of existence made the American firm competitive.
The almost year-long negotiations have centred on financing arrangements, risk mitigation measures among others. The consortium now has the rights and licenses to develop and manage the refinery as lead investor in a joint venture partnership with the Ugandan government.
One of the sticky issues under the back and forth related to regulations on the consortium itself and other related laws. Under the Petroleum (Exploration, Development and Production) Act, joint ventures may be licensed to participate in a range of petroleum-related business undertakings provided there is, within such a joint venture, participation by the Ugandan government or a company that is at least 48 per cent Ugandan-owned.
Ambassador Malac revealed that agreeing on the regulations was not as easy as envisaged at the time when they agreed on the core project terms.
“Some of the concepts that were brought in terms of this project financing – private sector debt and private capital equity markets is a new model in many ways for Uganda. So, there is not much expertise in the ministry of Finance, in the ministry of Energy about how you handle it. This is not the same as government debt – borrowing from China Exxim [bank] or borrowing from the World Bank, hiring a contractor who is gonna go out and do your project. It is very different concept, a very different legal framework.” she added.
She revealed that it had to take an education process to help the government team to understand how it worked. That she said could have partly delayed it.
“…the reality is, it is much faster than it has happened in some other places. Each business proposal, each project that comes forward when you’re doing a private sector negotiation is different. Some can take a long time…we say 15 months but it has been just a little bit under that. But you know, there was time when nothing was happening when both sides wanted to go and do something else and then had to come back.”
Joint ventures have become popular especially among the US refinery companies because of their competitive edge. The companies there look to joint ventures, alliances, and other combinations to try to improve performance.
It is anticipated that the joint venture arrangement will help the companies under the consortium and the government financing mobilisation for the project. Malac alluded to the fact that funding into the consortium will not be borrowed from other governments or loan money that will have to be paid back.
The private sector companies under the joint venture are expected to go to the capital markets, find investors and share the risk of building and operating the refinery.
More details about the deal between the governments with the consortium remain guarded with the Energy ministry, National Oil Company lawyers as well as the US embassy reluctant to disclose the details.
Ambassador Malac said the non-disclosure is a globally established practice.
“This [non-disclosure] is very common when private companies are negotiating because you don’t want your competitor to steal your information, to steal your intellectual property, to take what you’re trying to do and propose. It is not an effort to hide anything in the sense that you’re doing something bad, the point is, you have done all your research about the market, you have done all your research about what you want to build about, about your proposal, about what needs to be done. And you understand how it will work and that is your product that you bring to the government and say this what we can do and how we can do it together. But I can assure you that, there was nothing untold on the part of our companies that were involved in these negotiations.” Malac added.
Ugandan National Company, executive director, Josephine Wapakabulo could not be reached for more details regarding the sharing arrangements. Crude oil reserves in Uganda are estimated at about 6,500 million barrels. The refinery to be based in Hoima is expected to process between 50,000 to 60,000 barrels per day.