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Ugandan Oil Industry Starts After 8 Years Of Delays

Nearly a decade has passed since Uganda discovered it had oil to offer the world, but finally it’s struck a deal with a consortium of companies led by RT Global Resources of Russia to build and run a $2.5 billion oil refinery.

In announcing the agreement on Feb. 17, the Energy Ministry in Kampala said Uganda has hydrocarbon reserves estimated at 6.5 billion barrels in a field near its border with the Democratic Republic of Congo (DRC) to the west.

The RT Global consortium outbid a group led by SK Engineering and Construction Co. of South Korea. Both made final offers to the Kampala government in January. Back in November, the Energy Ministry said building the refinery could cost as much as $4 billion.

The refinery will be built near the source of the oil in Hoima, western Uganda, just east of Lake Albert on the border with the DRC.

Related: Local Policies Set Back East Africa Oil And Gas Projects

Now that RT Global has won the bidding for construction, it will begin talks in March on building a 127-mile pipeline serving the refinery. The winning bid for this project would earn a 60 percent share in the refinery, which is expected to have a capacity of 60,000 barrels a day.

The Kampala government would hold the remaining 40 percent stake in the refinery, with the option of selling it to its neighboring states, Burundi, Kenya, Rwanda and Tanzania.

Uganda’s oil was discovered in 2006, but production was stalled by internal disputes over how to tax the product and whether building a refinery was viable in the country. As a result, commercial production isn’t expected for another three years at the earliest. Initial refining capacity will be 30,000 barrels per day.

The RT Global Resources consortium includes GS Engineering & Construction Corp., Tatneft JSC, Telconet Capital Ltd. and VTB Capital, according to the Ugandan government. Meanwhile, China’s Cnooc Ltd., Total of France and Britain’s Tullow Oil are working together to extract the oil.

Elements of the Russian consortium are questionable, however. In September, Sergei Chemezov, the CEO of Rostec Corp., which owns RT Global Resources, was named on a list of prominent Russians subject to sanctions imposed by the European Union because of Moscow’s suspected involvement in the turmoil in neighboring Ukraine.

The deal also has been criticized by opposition legislators in Uganda. They have questioned their government’s choice to deal with Rostec, a defense conglomerate closely associated with the export of Russian arms.

Related: Emerging Energy Trends In Africa

Francis Mwijukye, the deputy spokesperson for the Forum for Democratic Change, Uganda’s largest opposition party, said the country’s president, Yoweri Museveni, “is looking at Russia as the guys who will sell him all the arms he wants without any questions.”

George Boden of London-based Global Witness, an advocacy group for international business transparency, agreed, saying Museveni’s government had to show it had selected the best company for the job and had no hidden agenda.

Robert Kasande of Uganda’s Energy Ministry, who is in charge of the refinery project, said the selection process was transparent and dismissed such complaints as “an old cliché.”

By Andy Tully of Oilprice.com

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