Dubai company in final talks over $4bn deal with Uganda for new oil refinery

The site featuring a 1,400km pipeline will be first in East Africa

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Final talks are under way that will lead to major investment from Dubai into East Africa’s first oil refinery, promising transformative economic change across Uganda.

A 1,400km heated oil pipeline – the world’s biggest – is part of a $10 billion (Dh36 billion) international project with the potential to take millions of Ugandans out of poverty, by delivering cheaper fuel and an economic boost to double national gross domestic product.

Dubai-based Alpha MBM Investments has been chosen as the preferred bidder to finance the $4 billion (Dh14 billion) refinery in the oil city of Hoima, with a capacity to produce 60,000 barrels daily.

The pipeline project, a collaboration with TotalEnergies EP Uganda, the China National Offshore Oil Corporation Uganda Limited and the Uganda National Oil Company, will cut reliance on neighbouring countries for the shipping of fuel supplies, transforming the landlocked country’s energy security profile by reducing the need for imports.

This is the beginning of a long-term economic uplift, promising benefits for the next 25 years
Ruth Nankabirwa, Uganda’s Minister of Energy and Mineral Development

On Tuesday, a breakthrough in investment negotiations was announced by Ruth Nankabirwa, Uganda’s Minister of Energy and Mineral Development.

Alpha MBM Investments have been contacted for comment.

Ms Nankabirwa said the new Kabalega Airport, a logistics centre for the oil and gas project, was now 95 per cent complete while one of two production sites, Kingfisher, was also well ahead of schedule.

Alpha MBM Investments has been involved in talks with the Ugandan government since September, and was the preferred choice of four bidders to take on the project.

“Negotiation of the key commercial agreements between the government and Alpha MBM Investments LLC commenced on January 16 and is currently under way,” said Ms Nankabirwa.

“Since the landmark discovery of oil in 2006, Uganda has upheld the highest environmental, industrial, legislative, and regulatory standards.

“The sector significantly contributes to the country’s GDP, amounting to $8.6 billion, and has created over 12,000 jobs.

“This is the beginning of a long-term economic uplift, promising benefits for the next 25 years.”

Preferred investors

Kampala was forced to seek new funding to build the oil refinery in June, after a Project Framework Agreement with Italian and US companies expired.

Ugandan President Yoweri Museveni then directed the project towards new finance from the public sector.

Other interested parties included Africa Economic Aid Limited, Baker Tilly Middle East Limited, and St Ignatius Energy of South Africa.

Commercially viable hydrocarbon deposits were first discovered in the Albertine region of Uganda in 2006, with an estimated reserve of around 6.5 million barrels.

Production is due to begin from two sites at Tilenga and Kingfisher by 2025, with oil flowing from the banks of Lake Albert via Tanzania through an underground pipe system towards the Indian Ocean port of Tanga, also in Tanzania.

On completion, the Tilenga site is expected to produce 190,000 barrels of oil a day at peak capacity, with a further 40,000 extracted from Kingfisher.

As well as driving down the cost of petrol, diesel and other fuels, the refinery will become a vital cog in Uganda’s Energy Transition Plan.

Despite the financial benefits, the project has received widespread criticism for displacing communities and disrupting wildlife patterns.

However, the liquefied petroleum gas produced by a refinery is a key component of Uganda’s clean cooking initiative, diverting much of the population away from burning biomass, which is responsible for poor air quality and household respiratory problems.

Uganda is already a continental leader in sourcing electricity from renewables through its numerous hydro, solar and geothermal production plants, but the burning of charcoal and timber for domestic cooking has a high environmental impact.

The damage is dramatically reduced if LPG cookers are used, with the potential to save up to 50,000 lives lost through smoke-related respiratory illnesses, officials said.

Economic transformation

Africa’s energy transition towards cleaner, cheaper power was a major topic of discussion during the Cop28 climate talks in Dubai, as the world looked to begin the process of phasing out fossil fuels.

Collins Nzovu, chairman of the African Group of Negotiators on Climate Change, called for recognition of Africa’s right to exploit its natural resources sustainably, in line with the continent’s poverty eradication needs.

Africa’s current greenhouse gas emissions are only about 4 per cent of the world’s total.

Speaking at a press conference on Tuesday, Ms Nankabirwa said the project had huge potential to transform Uganda's fortunes.

“The Cop28 discussions emphasised a 'last in, last out' approach to reducing hydrocarbon production,” she said.

“Having benefitted for decades, established oil-producing nations are better positioned to reduce their output first.

“As a late entrant, Uganda and other developing nations are entitled to develop their resources and attain the same advantages enjoyed by longer-established oil producers.”

Updated: January 24, 2024, 8:42 AM