Russian-led Consortium Wins Contract for Ugandan Petroleum Refinery

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Uganda has reached a milestone in its quest to process its newly discovered oil resources, with the announcement that a Russian consortium has won the tender to build a refinery in the East African country.

The consortium is led by Rostec subsidiary RT Global Resources (Moscow, Russia), and includes Tatneft (Almetievsk, Tartarstan); VTB Capital, which is part of Russia's VTB Group; and GS Engineering Construction Corporation (South Korea).

The tender process for the project, which could range in value from $2.5 billion to $4 billion, at one time involved 75 bidders, with six consortia initially allowed to compete.

Only two of the six consortia eventually were invited by the Ugandan government to participate in the final stage of negotiations.

The other finalist consortium, led by SK Engineering (Seoul, South Korea), was retained as the alternative preferred bidder. Members of the SK consortium include SK KDB Global Investment partnership, a private equity fund; China State Construction Corporation Limited (Beijing, China); Haldor Topsoe (Ravnholm, Denmark); and Maestro Oil and Gas Solutions (Mogas) (Houston, Texas).

The consultancy of Taylor DeJongh (Washington, D.C.) acted as the government's transaction adviser.

George Boden of Global Witness (Washington, D.C.), an international natural resources watchdog group, said in a message to the local news media that the award could come with grave repercussions if poorly handled: "The commercial viability of the refinery is a hotly debated issue and eyebrows will inevitably be raised at the decision to select RT as the lead investor. The refinery contract is absolutely critical to how much money Uganda will make from its oil over the next 30 years or so."

He added: "A good deal could add value to Uganda's oil, generate jobs and boost development. A poor deal could leave the state subsidizing an inefficient refinery and the people in the oil region counting the environmental and social costs. Transparency is the key to the success of the refinery project."

RT Global Resources Chief Executive Officer Sergei Chemezov is a former KGB officer and a close ally of Russian president Vladimir Putin. The U.S. has blocked his assets and prohibited companies from dealing with him since April 2014, in response to Russia's involvement in the conflict in eastern Ukraine. The European Union joined the sanctions movement.

A Ugandan government spokesman said: "We have very cordial diplomatic relations with Russia. They supply us military equipment and they train our officers. We are not going to allow anybody to choose for us our friend. If the West has problems with Putin, that is their problem."

After the project has travelled such a long road to the contract stage, and because of the financial and engineering firepower in both the RT and SK consortiums, some further wheeling and dealing might be expected before the final cost, specifications and build schedule for the project are finalized.

For related information, see June 17, 2014, article - Bids in for Uganda Refinery as President Reports Bonanza of Mineral Resources and May 9, 2014, article - Uganda Looks to Refinery, Pipeline and Power Projects.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.