The Uganda government is pushing ahead with plans for an oil refinery despite warnings that it could be counterproductive if neighbouring Kenya makes commercially viable oil finds.
Honey Malinga, the assistant commissioner Geophysics in the Petroleum Exploration and Production department at the Ministry of Energy and Mineral Development, says building a refinery is proceeding because the decision to have it in Uganda reached after discussions between the heads of state of East Africa.
The viability of building an oil refinery in Uganda, which was agreed before Tullow Oil farmed down part of its concession to Chinese oil giant, CNOOC and Total, has come into question since Kenya reported hitting oil early this year. Kenya, which already has a refinery and a sea route for evacuation of export oil products, is considered by some experts to be better positioned. It has also been argued that East Africa is a small market and can only support a few refineries.
"The issue of the refinery didn't come up yesterday; it has been around for some time. The heads of state of the EAC in 2007 agreed that in order to have security of supply, a study should be carried out. It was done by the EAC and it found out that we should have more refineries in the region," Malinga says.
"Against that background, Uganda did a feasibility study. So it doesn't matter whether we have two or more refineries in the region provided they are here to help us," he adds.
The region's total demand for oil is estimated at 164,000 barrels per day but it already has a 70,000 barrel refinery at Mombasa that is also operating at half capacity and can easily be upgraded.
Another official, Irene Batebe, the Petroleum Officer-Refining at Uganda's Ministry of Energy and Mineral development said studies for setting up of a refinery in Uganda that were done in 2010 had shown it was viable to construct a refinery in Uganda. The study concluded that the region has a low refining capacity in the region.
She said the Uganda refinery is to be developed under a Public Private Partnership and that 29 square kilometers of land had been earmarked for the refinery. "The study recommended a phased approach to setting up of the refinery and a small one capable of producing 20,000 barrels per day would be set up first at a cost of US$600 million. Later one capable of producing 60,000 barrels per day would be set up at a cost of US$2 billion," she said.
The push for an oil refinery to meet local demand for oil products it partly based on projected opportunities from oil related industries, and infrastructure projects at the refinery.
According to the feasibility study conducted in 2010 by Foster Wheeler, a UK firm, the proposed refinery will produce diesel, kerosene and oil for electric power generation among others.
A survey by the Uganda Investment Authority (UIA) in 2010 on constraints and Opportunities in Hoima, Masindi and Buliisa classified opportunities like infield services, inspections, international freight services, civil, electrical and mechanical engineering, environmental services, in field transport and specialist trades and indirect services such as construction of infrastructure like airfields, human resource, custom clearance, training, hotel/accommodation, emergency services, information and communication technology services, medical services, security, crane hire among others.
According to Rebecca Nalumu, who was the Principal Researcher of the survey, the project will attract investors to the areas of Buliisa, Hoima, Masindi and Uganda at large the opportunities were classified into specialised, direct and indirect.
"There is likely to be a boom in real estate business, hotels and Tourism among others" she told The Independent.
"We highlighted this to the locals and the country to embrace this development because it is going to be a marketing tool for their (locals) agricultural products, employment, trade, tourism and development of infrastructure."
The survey indicated that since Uganda is in exploration stage, more opportunities are yet to come and Uganda should develop a long term plan targeting support and capacity building for optimal participation in the sector.
The communities in the oil region currently survive on subsistence farming, fishing, and pastoralism.
Development of the refinery will, however, displace over 30,000 people in the nine villages of Nyahaira, Kyapoloni, Bukona, Kabaketo, Nyamasoga, Rugashare, Katooke, Kijumba, Kitegwa and part of Kaayera in Hoima district.
The Ministry of Energy and Mineral Development has earmarked Shs 5 billion for their compensation.
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(Originally published June 4, 2012, in The Independent.)