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The East African : Feb 23rd 2015
8 BLACK GOLD Oil production still way off for Uganda, 2018 target now unlikely Issues holding up the upst≥eam secto≥ need to be ≥esolved fi≥st befo≥e expected benefits mate≥ialise By MICHAEL WAKABI The EastAfrican 2018 target for oil production despite the selection this week of a developer for its 60,000-barrels-a-day oil refinery. The unresolved dispute with upstream companies over taxation and an ongoing standoff between the oil companies and Kenyan authorities over the routing of the export pipeline, are likely to drag on for some time, according to people familiar with the negotiations. The government an- U nounced on February 17 that Russian firm RT Global Re- ganda still faces significant hurdles to its stated sources had been selected to build the refinery in western Uganda and a 250km-long pipeline to Kampala. While analysts say the development is a step towards independence from imported oil, they caution that the expected benefits will not materialise until issues holding up the upstream sector are resolved. “Looked at by itself, the se- lection of a developer for the refinery is a positive development, but for the refinery to pick up, the upstream project needs to be unlocked,” commented one analyst. Unenthusiastic about a crude export pipeline, Uganda commissioned studies that showed that a domestic refinery would have a better internal rate of return and net present value compared with an export pipeline. But at a national demand of only 30,000 barrels, a refinery configured around domestic consumption would consume only 10 to 15 per cent of the proposed peak production of 220,000 barrels per day. The oil companies have argued that without a crude export pipeline, the returns would be too thin to support the required investment of approximately $9 billion to bring the upstream oil to production. “It is unlikely that investors would be willing to spend $9 billion to refine only 15 per cent of the available crude,” commented one analyst who asked not to be named. With a typical industry eq- uity ratio of 80-85 per cent debt, it is also unlikely that lenders would be able to The EastAfrican NEWS FEBRUARY 21-27,2015 reach investment decisions in the absence of progress on the financial issues holding up the upstream, he adds. The Energy Ministry and upstream operators Total E&P, Tullow and China’s CNOOC entered into an MoU pipeline just over a year ago that provides for the concurrent development of a refinery and export pipeline, but there has been little progress towards allocation of production licences beyond the one given to CNOOC. None of the 14 production licences applied for by Tullow and Total have received the nod. Without these, the oil com- panies cannot complete field studies and front-end engineering design, which are essential to determining the social and environmental footprint and thus their investment plans. And without these, the companies cannot raise the estimated $13 billion- $15 billion that will be required to develop upstream infrastructure and the export pipeline. And even if production rights were granted, there are still tax hurdles to negotiate.
Feb 14th 2015
Mar 1st 2015