Russian Consortium Pulls Out of Uganda Refinery Project
Russian consortium RT Global Resources, the group slated to build a $4-billion, 60,000-barrels-per-day crude-oil refinery-plant project in western Uganda, recently withdrew from the project, though the company later indicated it is still open to negotiations with the government. Uganda’s energy secretary, Kabagambe Kaliisa, confirmed the withdrawal of the consortium, which was led by Russian conglomerate Rostec, and accused the contractor of dragging its feet.
“As a procedure, they were supposed to get the necessary clearance back home, and it was what we were waiting for. However, we received communication they were withdrawing the performance bond,” said Kaliisa in an interview with The East African, a Nairobi-based weekly, on June 1. RT Global Resources consortium also includes Telconet Capital Ltd Partnership, VTB Capital, Russian oil company Tatneft and South Korea's GS Engineering & Construction Corp.
Slated to own a 60% stake, the consortium said would take five years to construct the refinery. RT Global had beaten China’s Petroleum Pipeline Bureau, South Korea’s SK Engineering & Construction Group and Japan’s Maruben Corp. to win the contract.
SK Engineering was picked as the alternate bidder. “If RT Global Resources chooses to come back, the doors are still open, but we are going to start negotiations with SK group,” said Kaliisa. However, in a July 1 statement to the Moscow-based Russian news agency Interfax, Rostec said the consortium “is still open to further cooperation with Uganda for the implementation of this critical project.”
The company said the Ugandan government had not fulfilled “fundamental conditions,” such as granting an oil production license for the exploitation of the 1.4 billion recoverable crude reserves by France’s Total SA, China’s CNOOC and the U.K.’s Tullow Oil. Only CNOOC has been granted a production license. Early last year, Scott DeLisi, the former U.S. ambassador to Uganda, had called RT Global Resources' February 2015 contract award a deal that was “not done.” He predicted that Uganda would look closely at European Union-approved sanctions following Russia's involvement in the Ukranian conflict in 2014.
Some of the restrictive measures included freezing of assets and visa bans for 149 persons, while 37 entities were subject to a freeze of their assets in the EU. In December 2015, the U.S. imposed sanctions on 34 individuals and entities, including Rostec and its CEO Sergey Chemezov, to exert pressure on Russia to withdraw from Ukraine.
Although Uganda had picked the Russian firm as the preferred bidder, “they still have to negotiate a variety of issues,” DeLisi noted. "[The problems] may be because of the sanctions imposed upon the parent company." There could be problems “in terms of financing, inability to operate, but we will see how all that plays out,” he added.
The energy ministry did not immediately respond to inquiries on whether the concerns by the U.S. about the Russian contractor may have played a role in the company’s decision to withdraw from the project. But in a March 10 interview with The Wall Street Journal, Sergey said projects that have “already been started [by Rostec] should be carried out to the end.”
In a March 9 interview with Russian media, Sergey had indicated Rostec intends to “to turn to China and India” for financing of the company’s global projects. “This concerns massive projects—such as Udokan or the construction of a gas pipeline in Pakistan or a refinery in Uganda—where foreign investments will be used,” he said.
Uganda anticipates earnings of up to $3 billion when production is in full swing from the export of up to 60,000 barrels of oil per day, according to a recent government report. Some of the crude will be used to generate electricity, while the rest will be processed at the refinery and exported via the proposed crude pipeline through the Port of Tanga, Tanzania, the report says.
The planned refinery, which will produce liquefied petroleum gas, diesel, petrol, kerosene, jet fuel and heavy fuel oil, will be developed in two phases of 30,000-barrels-per-day capacity each, with the first phase slated to come on line by 2018 and the second in 2026. Uganda had contracted U.K.’s Foster Wheeler Energy Ltd. to conduct a feasibility study on the refinery.