Examining Uganda’s Oil Refinery Project Agreements

by Christopher Kiiza
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Uganda plans to construct an oil refinery capable of processing 60,000 barrels of oil per day in Kabaale, Buseruka Sub-County in Hoima District.

The project encompasses several components, including the refinery, a 211 km multi-products pipeline for transporting refined products to a storage terminal in Namwabula, Mpigi District, the Mbegu Water Intake, its associated water pipeline, and the storage terminal for refinery products situated in Namwabula, Mpigi District.

Alpha MBM Investments LLC, an investment company based in the United Arab Emirates (UAE) is the primary partner in Uganda’s oil refinery project.

Collaborating with the Uganda National Oil Company (UNOC) on behalf of government of Uganda, this development, set to begin this year, is anticipated to bring in a minimum of US$4 billion (approximately sh15.2 trillion) in investment for Uganda, in addition to ongoing oil-related activities.

Alpha MBM Investments LLC is the new investor on the scene, following the expiration of the Project Framework Agreement with the previous partners, Albertine Graben Consortium in June 2023.

The project framework agreement with the Albertine Graben Consortium which had been contracted by the government of Uganda to develop the refinery expired on June 13, 2023, and was not renewed.

The agreement had been renewed three times.

“We did not renew it because we really wanted to move. And His Excellency the president of Uganda directed a shift to a public sector led proposal to the project, and that is what we followed,” explains the Minister of Energy and Mineral Development, Ruth Nankabirwa.

The ministry of energy subsequently engaged stakeholders to develop a strategy for the refinery project.

Several investors expressed interest to develop the project, and after a comprehensive evaluation by the Energy Ministry, Alpha MBM emerged as the top choice among several interested entities.

A Memorandum of Understanding was signed on December 22, 2023, between the government and Alpha MBM Investments LLC, delineating cooperation and negotiation terms for the Refinery Project. 

Negotiations of the key commercial agreements between government of Uganda and Alpha MBM Investments commenced on January 16, 2024, with an expected conclusion within three months. Upon finalization, development activities for the refinery project will commence.

“Negotiations of the key commercial agreements between government and Alpha MBM Investment commenced on the 16th of January 2024, and are expected to be concluded within three months,” says Nankabirwa.

Commercial Agreements And FID

“When we say the Final Investment Decision (FID), it is largely the commitment of the investors to proceed with the project, and at that point, they usually will contract the engineering, procurement, and construction contractor (EPC),” explains Irene Batebe, the Permanent Secretary for the Ministry of Energy and Mineral Development.

She adds: “so, the design we are taking with our new partner, Alpha who is a reputable investor, and given their financial capability, we expect that at the time of signature of the agreements that we are negotiating with them, a formal Final Investment Decision will be taken. Immediately we sign the agreements, we shall see some works commence.”

At least three commercial agreements are expected to be signed under the refinery project before the Final Investment Decision (FID) is undertaken.

These include; the Host Government Agreement, Crude Supplier’s Agreement, and the Shareholders’ Agreement.

However, there will also be an Off takers Agreement which can be concluded later.

The Host Government Agreement, like that of the crude oil pipeline, will be signed between the government and the refinery company, set to be created.

The agreement lays out commitments and obligations of each part such as security and land ownership for the Government of Uganda side, and the issues related to National Content and Health Safety and Environment (HSE) by the refinery company.

On the other hand, the Crude Suppliers Agreement is intended to put the needed feedstock of 60,000 barrels of crude oil per day needed for the refinery. It will be signed between the crude oil owners and the refinery company.

The crude oil owners are the Government of Uganda and UNOC, TotalEnergies E&P Uganda and China National Offshore Oil Corporation (CNOOC) Uganda Limited.

The Shareholders’ Agreement will be signed by shareholders of the refinery company.

The shareholders’ agreement lays out the financial obligations of each part such as cash calls, defaults, and stipulates the voting rights.

The Uganda Refinery Holding Company, a subsidiary of the UNOC will hold a participating interest of up to 40% in the Refinery Company on behalf of UNOC and Government of Uganda.

“The works commence based on the equity of the two partners – the private sector investors who are investing at 60% shareholding, and the Uganda National Oil Company (UNOC) that will invest at 40% shareholding,” Batebe says.

“For the Uganda National Oil Company, we have already started programming their equity contribution. They already have some portion already, and for the next financial year 2024/25, we have equally programmed some additional financing. So, they should be able to also put on table their equity contribution, and along the way, we continue mobilizing any other financing. So, we are not going to wait. We will start immediately these agreements are signed so that we catch up with the lost time,” she adds.

Meanwhile, the Off takers Agreement or Product Sales Agreement is intended to demonstrate that there are buyers of the finished products.

The decision to have the Off takers Agreement will be determined by potential lenders and financiers. 

The refinery project is planned to have a debt-to-equity ratio of 60: 40 respectively, implying that that 60% funding to the oil refinery will be a debt whereas 40% will be equity.

UNOC says it had already set aside $480 million (.9 trillion shillings) as its equity requirements in the Uganda’s oil refinery project.

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