In January, the government in Uganda announced that it had entered negotiations with the Alpha MBM Group, a Dubai-based private investment company, which would make it the country’s partner for the construction of Uganda’s 60,000 barrels a day oil refinery based in Hoima.

The $4.5bn refinery will be funded through a debt-to-equity ratio of about 30% to 70%. The lead investor will be responsible for raising the debt portion of the investment.

For the refinery, Uganda first engaged Russia’s RT Resources, then South Korea’s SK Engineering, and in 2018 the Albertine Graben Energy Consortium (AGEC). Uganda exited its project framework agreement with AGEC in July 2023 following the consortium’s failure to secure financing for the project.

The investment will also help re-balance Chinese and European influence in the country, says a member of the Ugandan Investment Authority, given that other major players in Uganda’s oil sector are China National Offshore Oil Corporation (CNOOC) and French giant Total Energies.

Chairman Sheikh Mohammed Bin Maktoum, a member of the Dubai royal family, has experience ranging from technology and aviation to government affairs, sports consultancy, healthcare, education, oil and gas services, real estate and fashion.

Alpha leads a consortium, which includes other two companies with experience in the oil and gas sector, including SPEC, a company headquartered in Huston that specialises in oil and gas technologies, and SKA Energy headquartered in Dubai.

Memorandum of understanding

Uganda’s minister of energy and mineral development Ruth Nankabirwa said at a media briefing that a memorandum of understanding (MoU) was signed with the company in mid-December 2023, detailing “cooperation and negotiation terms for the refinery project”.

In mid-January, the government and the company kicked off negotiations around key commercial agreements that are expected to be concluded in three months, said Nankabirwa.

If negotiations fail, the government may reach out to any of the 40 other companies that have expressed interest in the project, says a spokesperson at the Investment Authority. Other potential bids have emerged from companies in Algeria and Kazakhstan. Indeed, the government had signed an oil and gas cross-sector MoU with Sonatrach, the Algerian state-owned oil company, to help it develop the sector in 2022.

“The assumption is [the negotiations with Alpha] won’t fail,” says Peter Muliisa, director of legal and corporate affairs at Uganda National Oil Company, a state corporation that represents government interests in the oil sector.

“We believe we should be able to proceed with Alpha and have the project work. We want to create a structure that makes everyone work,” he says, underlining the need for commercial viability.

Muliisa says the new contractor will pick up from the work done by AGEC, which had completed environmental and social impact assessment as well as front-end engineering design (feed).

Considering geopolitics

Uganda has been wary of foreign companies from one continent dominating its oil sector. For example, the government partnered with AGEC in 2018 instead of China’s Guangzhou DongSong Energy Group, even though it had performed better at the due diligence stage.

“This is to make sure that political interests of their home countries do not influence corporations,” a person with an understanding of the oil sector tells The Africa Report.

Thus, global interests can be balanced through working with corporations that may represent different global opinions, our source says. In addition to having money and experience, a consortium led by a Dubai-headquartered company brings another region of the world into Uganda’s oil sector.

Costly refinery

Paul Bagabo and Thomas Scurfield of the Natural Resource Governance Institute, in a paper published last month, believe the refinery will be expensive, considering its complexity.

“The main reason for the high cost of Uganda’s refinery is its relatively small size, which prevents economies of scale,” the authors say.

Of the $4.5bn, it is expected that $3.7bn will go to the refinery while the rest will go to associated infrastructures. Some $3.7bn for a 60,000 barrels per day (bpd) refinery equates to about $62,000 per barrel, say the authors. This is higher than the typical range of $20,000-$50,000 per barrel refinery, referring to Dangote’s oil refinery in Nigeria, a 650,000bpd complex refinery, which will cost about $29,000 a barrel.

The cost was informed by negotiations the government had with the previous consortium, says Muliisa. He says the figure has “a 20%-30% marginal error,” meaning the cost could go up or down.

“The marginal errors will reduce along the way as you firm up the contracting process. During the final investment decision is when you get the final figure,” he says.

Breakneck speed

Uganda is keen to finalise a refinery deal it has chased for over a decade and still maintains that the refinery can be completed by 2027 despite massive setbacks.

CNOOC and Total Energies started drilling for oil in 2023, but critical infrastructure, including the Central Processing Facilities (CPF), used to process crude oil directly from the oil wells by removing impurities and separating oil and gas, are yet to be put in place.

At CNOOC and Total Energies sites, CPFs are still under 10% completion, workers at the sites tell The Africa Report. Construction of the East Africa Crude Oil Pipeline (EACOP) which will transport oil from the region where it is processed to Tanzania’s Tanga port for export is yet to start.

This depends on the connection between the refinery and EACOP, both critical infrastructures whose construction has not yet started, despite the government continuing to say oil production is set to begin.