Chinese quit Museveni’s refinery deal

Look at Plan B

The government might, once again, have to look at Dongsong’s nearest challenger, an American consortium led by Yaatra/ Intra-continental Asset Holdings.

This group; The Independent has learnt, lost marks when it said it did not have confirmed financing but would procure it as soon as it was awarded the contract.

It appears the Yaatra camp had been riding on the GE name for extra clout. With assets worth over $300 billion, GE is one of the biggest companies in the world. In 2016 alone it made revenues worth $ 123 billion or five times more than Uganda’s Gross Domestic Product (GDP).  With the refinery deal requiring on US$4 billion, Yaatra’s lobbyists hoped it would ride on GE’s reputation to bag the deal.

However, when government’s technical team held meetings with the lead investor and equity financier (Intra continental Asset holdings), they indicated that they will still need to go to the market to raise additional equity and debt finance for the project.

A brief to Museveni on their meetings with the Yaatra team, the Ministry of Energy officials noted several major weaknesses about Yaatra.

They told Museveni that the American consortium had indicated commitment to provide only between US$ 80-100million of Pre-FID funds and will need to go to the market to engage with potential financiers to raise additional equity and debt funds for the project once the Final Investment Decision (FID) is taken.  They demanded a non-disclosure agreement with the Government of Uganda.

“However, this is likely to cause a delay in implementation in case there are any contentious issues during interface with the debt finance partners once FID has been undertaken,” notes a brief seen by The Independent.

The consortium also did not agree with the government proposal of building a 60,000 bpd refinery in two phases starting with the 30,000 bpd pointing to the market and viability analysis.

Instead, they proposed to construct a refinery with capacity of 50,000 bpd.

But this, the technical team noted, may have an implication on the volumes of crude oil for export available to upstream companies during the initial stage of production.

The Yaatra team, therefore, did not present any of its intended financiers for the debt portion, did not provide adequate assurance of the availability of a company that will be responsible for operations and maintenance of the refinery, and did not provide an agreement or letter of intent from a potential operations and management partner.   The Ministry officials said the Yaatra proposal lacked clarity and details on its intended debt financiers.

The Ministry officials, however, rated the consortium’s refinery EPC contractor, Saipem, as highly reputable.

“The EPC contractor has adequate experience in the industry and capable of attracting private equity financing to the project,” officials noted.

On the cost of financing, the American team also appeared more costly than the Chinese. Their indicative cost of borrowing for debt finance was mentioned to be in the range of 8%- 12%, unless backstopped by Export Credit Agencies.

The team expressed concerns that the cost of capital (interest rate) will have a bearing on the project’s rate of return and implies that the Refinery Company (consortium of the lead investor and the Uganda Refinery Holding Company) will assume the risks associated with high interest rates.

The Intra-continental Asset Holdings consortium also hinted on the need for sovereign support during their presentations and noted that they were not ruling out the requirement for a sovereign guarantee. As indicated earlier, this position is not desirable to GOU as it can expose the Government to risks associated with debt repayment, especially if the consortium is inefficient.

Finally, when the due diligence team scored the two consortia (Dongsong and Intra-continental Asset Holdings), and the Dongsong Group led consortium was ranked as the best with a total score of 83.38% and the Intra-continental consortium was ranked second with a total score of 66.78%.     But with Dongsong out, it remains unclear if the Americans will return.

Two years wasted

The government might also want to look again at some of the less attractive investors it had thrown out. Among these are Profundo Technologies Limited of United Kingdom, which had China Overseas Construction, Petrofac and Chimera Corporation.

The Profundo Technologies-led consortium was kicked out over incomplete membership after Chimera Corporation, which was the consortium’s main financier, failed to appear for technical consultations.

Another contender, a Ugandan company, owned by a Canadian company, both owned by a one Eric Byenkya, are also interested in the deal. They petitioned Museveni claiming it had unfairly been locked out of the deal yet it had secured financing and all the right partners but was largely ignored and all the focus remained on the Chinese and Americans.

Government appears to be exactly back to where it was two years ago. At the time, it had picked Russia’s RT Global Resources as the preferred bidder and South Korea as the alternate bidder.

Museveni favoured the Russians because, apart from considering access to weapons, the Ugandan leadership was also counting on Russia’s world superiority as a counterweight to both the western powers; mainly America, and China.

The Russians pulled out and negotiations with the South Koreans also never took off.

With the Russians and the South Koreans out, Uganda appeared somewhat desperate. The Independent revealed last year that government was in negotiations with a shadowy international company registered in the British Virgin Islands (BVI), a major international tax haven, whose directors were not clear.