South Korean consortium Turndown Uganda’s Invitation to Negotiate Oil Refinery, Project face shelving

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Uganda’s Multi-billion dollar refinery project has hit another huddle after South Korean consortium, SK Engineering turned down the offer to return to the negotiation table.

SK was Uganda’s next alternative  after the preferred consortium led by Russian firm RT Global (Leader) pulled out at negotiation in July 2016.

It is not yet clear why the Russian Defense and Technology Corporation led firm decided to pullout. Energy Ministry officials said company officials selected to negotiate the principal agreements had “failed to negotiate in good faith” and had “failed to execute” a shareholders’ agreement.

During the bid process in February 2015, SK Engineering lost its bid despite being a strong competitor all through because, “They came short of key government requirements including contribution to the private share and operating plan,” said Kaliisa Kabagambe, Permanent Secretary in the Energy Ministry.

A commissioner in the Directorate of Petroleum Dozith Abeinomugisha said the only option left after SK’s decline is to go it lone.

“We had initially thought of a public-private partnership but I think you are all aware that RT Global has left. Now, we are looking at restructuring the project to make it public-led instead of private sector-led,” Abeinomugisha said.

Experts say that decision would mean taking charge of the biggest infrastructure project in the country’s history, at a time when there is limited capital to invest in such ventures. The projects seems to be in teeters.

Abeinomugisha told the Uganda Chamber of Mines and Petroleum annual general meeting that even though the option on table is to go it a lone, Uganda would “still need a lead investor with the technology to build and operate the refinery.”

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 proposed refinery output capacity at the initial development phase is planned at 60,000 bpd and 120,000 bpd midterm and 180,000bpd long term, based on more discoveries in the country.

According to the Observer newspaper, Uganda is currently undertaking a number of huge investments – the standard gauge railway, the Karuma hydro-power project, each of which cost more than $2 billion. It is therefore likely, that the refinery deal could be shelved.

“The construction of these projects has pushed up Uganda’s debt to gross domestic product ratio to more than 30 per cent, a couple of percentage points shy of the East African cap of 50 per cent” the paper reported.

Source: Uganda Oil