Momentum in Uganda as UNOC seeks partner to develop oil hub
Momentum in Uganda as UNOC seeks partner to develop oil hub
The Uganda National Oil Company (UNOC) is seeking a joint venture partner to develop the Kabaale Industrial Park (KIP) in western Hoima. KIP will house facilities related to the country’s emerging oil sector e.g., an international airport, refinery, petrochemical plants and loading pad for the East African Crude Oil Pipeline (EACOP). Key agreements between the host governments and the leading upstream investors have kindled the sector, notwithstanding a railway concession aborted recently and security threats from nearby Democratic Republic of Congo (DRC).
Significance – Landscape
In April and May of this year, TotalEnergies and China National Offshore Oil Corporation (CNOOC) signed host government agreements with Tanzania and Uganda for the construction of their EACOP and the development of two upstream projects, namely Tilenga and Kingfisher. Deals on shareholding and transportation were also agreed among the parties See: All eyes on the bottom line as Uganda forges ahead with oil pipeline plans. As stated by EACOP Limited MD Mark Tiffen at a convention organised by the Uganda Chamber of Mines and Petroleum last week, “this early project activity forms the foundation for the next phase we’re now moving into, which is the project execution phase.”
The majors and their state-owned partners are now working toward land acquisition for the pipeline, and plan to begin construction in the second half of 2022 before loading the first oil tanker in 2025. Meanwhile, the Uganda Refining Holding Company (URHC) is concluding Front End Engineering Design (FEED) for a refinery to be situated in the Kabaale Industrial Park and aims to be ready for a final investment decision by mid-2022.
In anticipation of the above, UNOC’s subsidiary URHC wants to form a joint venture with a private investor to build and manage the KIP. UNOC presently has a 15% stake in EACOP and a 40% stake in the refinery project, which it is preparing alongside the Albertine Graben Refinery Consortium in a separate joint venture. This consortium includes Italian firm Saipem and a General Electric company in Italy named Nuovo Pignone. This degree of political engagement is a salient feature of the project, particularly in the context of incidents/risks that include:
The premature end of Rift Valley Railways’ concession in 2018 typifies political risk for a public-private partnership in Uganda. Rift Valley had won a 25-year concession to manage the country’s railway that links with Kenya’s Mombasa port in 2006, but the Ugandan government revoked the agreement with claims that the company was delinquent and had performed inadequately. The government then took back the assets and Rift Valley was put in involuntary liquidation in connection with a lawsuit brought by the company’s creditor. This led to ongoing external arbitration.
The activities of rebel groups such as Allied Democratic Forces (ADF) threatening the security of investments in Uganda’s Hoima district, which will be the site of KIP and upstream operations. ADF is active in DRC’s North Kivu and Ituri provinces close to Hoima and opposes Yoweri Museveni’s government in Uganda. A one-month state of emergency declared in the DRC provinces in May illustrates this threat.
Outlook – Steps forward
We see ongoing upstream and pipeline developments progressing without significant policy impediments in either host country. Tanzania recently completed a smooth transition following the passing of John Magufuli, and the policy environment there remains stable. Museveni also began his sixth term in May with the distribution of powers intact and himself as the central figure (See: Museveni holds the levers as Uganda’s parliament gets new speaker). Even so, that same dynamic in Uganda indicates institutional weakness that could be hazardous to a public private partnership. And while Uganda and DRC apply military action to ward off threats in the background, oil-related infrastructure in Hoima remains exposed to threats of political violence, terrorism and forced abandonment associated with the wider security situation.
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