$ 4.5 billion refinery deal far from closure. Fate of Energy PS tied to controversy over award
Uganda’s $ 4.5 billion refinery project could be delayed by a protracted dispute if one of the competitors, choses to go to court over the way the procurement process is being handled.
Subsequently the new permanent secretary at Uganda’s Ministry of Energy Stephen Isabalijja is under pressure with rumors of his firing doing rounds. Amongst others it is said he may have prompted legal action after he personally ruled out a competitor as an alternative bidder as is the practice at the Ministry.
Previous procurement disputes over infrastructure projects have ended up in court and delayed projects for years with the most controversial dispute being the one over the $ 2 billion Karuma hydro power project—still in court years after construction commenced.
A dispute over the refinery could be worse given the monies involved and the jostling for the deal amongst commission agents, diplomats (Americans Vs Chinese) and the technocrats who all stand to benefit in one way or another.
These fears are emerging after a Chinese consortium led by Dongsong Guangzhou Energy Group raised concerns over government’s decision to on Aug.7 announce an agreement with a consortium that comprises of America’s giant General Electric (GE); YAATRA Ventures LLC; Intracontinent Asset Holdings Ltd (IA) and Saipem SpA.
Dongsong is questioning the circumstances under which government has reached an agreement with the GE consortium yet the former was picked as a preferred bidder for the deal according to a due-diligence report seen by this writer. Other companies in the Dongsong consortium included; China’s CPECC, China Africa Fund for Industrial Cooperation (CAFIC), Guangzhou Silk Road, East China Design and Engineering Institute and Industrial and Commercial Bank of China (ICBC).
It is particularly upset that it was not considered an alternative bidder after the PS Isabalijja ruled its bid out as an alternative bid in case negotiations with the preferred bidder failed.
Dongsong emerged the best, the due-diligence report shows, due to among others being able to prove it was able to source cheap financing at an interest rate of 4-8%. Its immediate competition, the GE camp’s cost of financing was 8-12 % but was also yet to prove it could raise this financing.
Availability and cost of financing are the major sticking issue in the negotiations over the refinery deal. Previous bidders—Russia’s RT Global Resources and South Korea’s SK—both jumped out of the deal last year over financing issues.
Realising the desperation over the financing problem, French major, Total E&P offered to take a 10 percent stake in the project as a sweetener to unlock a deal over another important piece of infrastructure—the 3.55 billion-pipeline deal, which was signed early this year.
Reports had indicated the Chinese had pulled out of the deal owing to disagreements within their camp—they have since denied this. Instead, they claimed their only issue was that government was carrying out parallel negotiations, which was risky as they could end up losing technical information to competition. They wanted exclusivity.
Government had also asked them to post $ 2 million worth of a bid bond in a given period of time, which expired before they did.
As a result, government had begun negotiations with the GE consortium resulting in an initial agreement under which they have been offered exclusivity over the deal to the chagrin of the Chinese.
For now, government is yet to announce how it plans to address the concerns expressed by the Chinese.
In his August 7 presser, Permanent Secretary, Stephen Isabalija noted that the agreed position with GE is only a signal of the start of more discussions and negotiations with the companies ahead of the Project Framework Agreement (PFA).
“The PFA will detail the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investments and financing for the project,” the statements notes, “That agreement is expected to be concluded and signed within the next 2 months.”
The presser added that the consortium will have the benefit of exclusivity
These negotiations could centre on the availability of financing, its cost and government’s ability to guarantee crude for the refinery and the rate of return.
But the continuation of negotiations between government and the GE camp will depend on what course of action the Chinese take and how government deals with it.