November 19, 2017

Americans looking good to beat Chinese for oil refinery contract

July 14—A Chinese resource group may lose out against an American consortium for the $4.2 billion contract to build Uganda’s proposed oil refinery due to slow progress on another major project involving processing of the country’s huge phosphates deposits.

In December 2014, Guangzhou Dongsong Energy Group Limited (GDE Group) signed a deal with the government to mine and process the phosphates to manufacture fertiliser. Two years later, the Industrial and Commercial Bank of China (ICBC) approved a $240 million loan confirming its financial backing of the venture expected to cost about $700 million when completed.

However, sources have told 256BN,  GDE Group has been unable to make much headway at the Sukulu, Tororo site in eastern Uganda, yet the refinery project is a far bigger undertaking.

A leading problem is that former residents are disputing the methods used to sign away their surface rights and the relevant compensation packages. This has entangled GDE Group in costly litigation and caused ICBC to put its loan on hold until everything is sorted out.

The main concern is whether GDE Group is taking on too much, at the risk of further disrupting the government’s timelines for the oil and gas sector, which are already behind schedule. The refinery is supposed to be ready by 2020.

Meanwhile, the rival bidders, Intra-continental Asset Holdings Limited/ Yaatra Africa/GE have the globally respected name of General Electric and its vast experience in similar projects to anchor their bid. Among GE’s most recent notable actions, is an offer to revamp Nigeria’s three main refineries.

Sources have told 256BN, the advantage GDE Group has, is its bid is fully supported by the Chinese government while that of the Americans is a private sector vehicle relying on raising capital from interested equity firms and international money markets. This money tends to be expensive.

Supporters of the Americans cite the need to add some competition in Uganda’s energy infrastructure market currently dominated by the Chinese. However the opposing view is that the Americans will be more demanding when negotiating the detailed financial aspects of the refinery construction, while the Chinese can be sympathetic due to the backing of state banks.

Sources told 256BN, the government is still smarting from their experience with Bujagali dam as an object lesson when negotiating with private sector companies. However the Chinese insist on government-to-government talks which offer some wriggling room that private companies will not do for contracts of this size.

During President Obama’s second term, he pushed for higher American involvement in Africa’s energy sector hence the Power Africa initiative. President Trump may not think along the same lines, but GE is already making inroads. Last week, Jay Ireland, the President and CEO of GE Africa was in Cameroon to officially inform that government the company is ready to invest in projects associated with production and transmission of power.

 

 

 

 

Related posts