Tullow Oil Plays Down Uganda’s Oil Refinery Hyperbole

The General Manager of Tullow Uganda, one of the four oil companies operating in the country, has dismissed the hype about building an oil refinery in Uganda saying the plan is not viable.

Jimmy Mugerwa says that building a refinery presents huge financial and infrastructural challenges, which he says the country could not achieve.

His stance, which appears representative of the other oil companies in the country, sharply contradicts a view that government holds. It shows that while the Ugandan government and the oil companies operating in the country may have signed binding agreements signifying unison in plans to develop and produce the resource, there are yet disagreements.

In February 2012, government issued a production license over the Kingfisher oil field to Tullow Uganda Limited. However, a farm-down transaction by Tullow to Total and China National Offshore Oil Corporation (CNOOC), means the three firms jointly run the field but with the Chinese company as the main operator.

Earlier in March 2011, government and Tullow Oil signed a Memorandum of Understanding endorsing the transaction between CNOOC and Total thereby allowing them to proceed with the development of oil and gas resources in the licence areas of the Albertine Graben.

As part of the deal, the oil companies agreed that government would pursue its policy of establishing a refinery in the country, meanwhile, consideration for export of crude would be made as more reserves are discovered in the country.

Despite this, there are indications that the oil companies are opting for an all export of crude oil while government sticks to its plan to build a refinery.

Tullow’s Jimmy Mugerwa says that while they agree that an integrated plan to export crude and build a sizeable refinery would have been ideal, the refinery project is not viable. He explained that there were challenges such as finance, infrastructure, market and qualified human resource that would hinder plans to develop a refinery in the country.

He said the infrastructure challenge is made worse by the fact that Uganda is a landlocked country. Mugerwa explained that Tullow Oil has conducted studies, which show that the country requires importing about 850 tons of materials for use in the refinery construction estimated at about 20 million dollars.

He doubted that Mombasa port has the capacity to handle such volume of cargo saying that such a development would require an alternative port. He added that the refinery location requires more road network and an airport among other infrastructure, which are all not yet in place.

Mugerwa said the project also faces shortage of competent personnel to do the job. Presently, he said it takes a lot of time for government to scrutinize and approve a single Environmental Impact Assessment due to the few qualified human resources in the sector.

And while the heavy and waxy nature of Uganda’s crude oil is suspected to prove difficult and costly to export through the pipeline, Mugerwa said there were new technologies being used in countries such as China to transport heavy crude oil, which he said could be applied in Uganda.

It however appears that government won’t rescind its decision on building a refinery. Already, it has undertaken studies to seek and support the plan for the refinery. In January 2010, government contracted Foster Wheeler, a UK firm to undertake a feasibility study on the development of an oil refinery in Uganda.

It assessed the crude production potential, size and configuration of the refinery, location, financing options, social and environmental assessment among others. The report, produced seven months later reportedly endorsed the refinery idea saying it was economically viable.

However, a 30,000 dollar fee for anyone intending to view the report means its access has remained limited. In addition, government has conducted several other studies on the development of a refinery such as Environmental Baseline and a Pre – Front End Engineering and Design Study announced in November last year.

Irene Batebe is the Petroleum Officer at the Ministry of Energy’s Petroleum Exploration and Production Development.

She says that a refinery in Uganda would ensure steady supply of petroleum to the country and the entire region, which has only a single refinery at Mombasa with a capacity of only 70,000 barrels per day.

Statistics shows that East Africa consumes about 200,000 barrels per day meaning that much of the demand is met using imports. Batebe adds that a home-built refinery would also improve the country’s Balance of Payment adding that Uganda presently spends about 1 billion dollars every year on petroleum imports.

According to government plans, the Uganda oil refinery is to be built in phases beginning with a small capacity of 20,000 barrels per day until it peaks at 180,000 barrels daily.

In 2007, the plan received an endorsement from the East African Summit of the Heads of State, which directed the East African Community Secretariat to come up with a strategy for the development of refineries in the region.

The delay to put up the refinery and the absence of any adequate infrastructure to support its construction has led to suggestions that government could allow the oil companies to undertake the work and recover the costs once the production begins.

Stephen Mukitale, the MP for Buliisa Country where some of the oil fields are located, says that they anticipated the dilemma of the logistical challenges.  Hyperbole

He suggests that government should request the oil companies to develop the required infrastructure and include it among items whose costs could be recovered from the oil proceeds.

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