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Tanzania ready to invest $150.4 million estimated cost stake in Uganda oil refinery

Tanzania has confirmed it is looking to owning about 8 percent stake or more in Uganda’s proposed 60,000 barrels per day refinery project.

On addition to the Crude Oil Export Pipeline, proposed to run from Uganda Oil-rich Albertine graben to Tanzanian Northeastern Port of Tanga, the deal positions Tanzania as the leading regional partner in the Oil and gas infrastructure.

Speaking on the sidelines of a close door meeting held on July 5, 2016 between officials from both countries, Tanzania Minister of Energy Professor Sospeter Muhongo said his country was eager to partake the opportunity.

“We are grateful that Uganda government has offered East African states to buy a maximum of 8 per cent shares in the refinery. We are determined to take all the 8 per cent shares. Our initial calculations indicates that the shares will cost 150.4 million dollars,” Muhongo said.

The officials had visited the proposed oil refinery site in Kabaale Parish, Buseruka Sub county, Hoima district, Mputa-5,Mputa-2 oil wells, Tullow Oil’s Kisinya camp, and Enviroserve oil waste treatment plant.

The Uganda Oil refinery project suffered a setback following the withdrawal of the lead investor, Russian Firm RT Global Resources (RTGR) from the project after 14 months of haggling. Uganda accused RT Global for shifting demands at the final stage of the negotiation.

“Final agreement was reached in principle in May this year. However, just prior to the expected signature date at the beginning of June 2016, the RT-Global Resources Consortium made additional demands from the Government, seeking to reopen and renegotiate issues that had already been agreed between the parties,”reads a statement from Uganda ministry of energy.

Defending the RTGR position, the coordinator of the consortium, Rostec, a Russian State corporation in a statement told the Russian news agency Interfax.Ru, that they had offered “to renew negotiations” on the current conditions until September, a proposal that the government of Uganda shot down.

Rostec also blamed government authorities for failing to fulfill obligations under the tender for construction, which they said put them in a difficult situation.

Other partners in the RT consortium include VTB Capital, the investment banking unit of Russia’s second-largest lender VTB as lead financiers, and South Korea’s GS and Telconet Capital Partnership for provision of engineering services.

The country thus re-invited the alternated bidder, SK Engineering of South Korea, Negotiations are yet to begin.

The SK venture included SK Engineering and Construction as the coordinator; SK KBD Global Investment Partnership, a Private Equity Fund for finance; China State Construction Engineering Corporation for the engineering work and Haldor Topsoe A/S and Maestro Oil and Gas.

The group had a solid submission but towards the last minute, their lead financier SK-KDB pulled out leaving it all naked and concerns of how funds would be raised to finance the deal abound. The other partner, Haldor Topsoe, a Danish petrochemicals company could not also give equity assurance.

According to the Daily Monitor newspaper in Uganda, it seemed as though the nation had prepared for the worst with the Russian firm during the announcement of the preferred bidder. Uganda had indicated it was ready to invite SK just incase the deal with the Russians flopped.

“At the announcement of RT on February 17, 2016 Ministry of Energy indicated expressly that “if at the end of the negotiations” RT are not satisfied that the major issues in the agreements do meet its satisfaction, it would then exercise its option to commence negotiations with the alternate bidder”

“We shall quickly discuss with the alternate bidder, SK Engineering & Construction,” Uganda Ministry of Energy permanent secretary Fred Kabagambe Kaliisa said.

The Uganda refinery project was a decision by East African heads of State in the Northern Corridor project in need to boost petroleum production as a back-up to the defunct Mombasa Refinery.

The refinery will be funded as a Public Private Partnership (PPP) of 60 percent Private and 40 percent Public (60:40 Equity).

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