A cloud of uncertainty hangs over Uganda’s $4bn refinery tender awarded to a consortium led by Mauritius-based private equity fund, Intra-continental Asset Holdings (IA), after Wednesday’s sacking of energy ministry permanent secretary, Stephen Isabalija.
Highly placed sources say Dr Isabalija’s sacking – after only ten months on the job – is linked to the manner in which the lucrative tender was handled and awarded. The consortium also comprises of Yaatra Ventures LLC and General Electric (GE) Africa, both from the USA, and Saipem SpA from Italy.
Uganda Business News understands that the IA venture placed second in the bid evaluation, scoring 66% behind the DongSong consortium, from China, which had a score of 83%. The due diligence exercise in which the bidders were evaluated took officials around the globe, from Kampala to Guangzhou, Beijing, London, and Washington DC.
It then remains unclear why Mr Isabalija announced that the venture of American and Italian firms had won the tender. The now former permanent secretary said Intra-continental Asset Holdings, Yaatra Ventures LLC, General Electric (GE) Africa, and Saipem had formed a special purpose vehicle, the Albertine Graben Refinery Consortium (AGRC), in which each would undertake a specific duty during the engineering, procurement and construction (EPC) phase of the refinery project.
Mr Isabalija also said that discussions with AGCR on the project framework agreement – which details the proposed solutions, validation of the solutions, risk mitigation measures, and additional due diligence necessary for accelerating investments and financing for the project -would be finalised by November.
One major undoing of the IA venture was the potential risk of high interest rates, ranging from 8%-12%, on their debt financing; the government believes this would make the refinery project very expensive for the country.
The venture had also not readily mobilized the mandatory $100m for pre-Final Investment Decision (FID) activities that would lead to EPC, and was yet to go to the market to raise additional equity and debt funds for the project.
On the other hand, the DongSong venture, comprising of Guangzhou DongSong Energy Group, China Petroleum Engineering and Construction Corporation (CPECC), China Africa Fund for Industrial Corporation, Guangdong Silk Road, and East China Petroleum and Natural Gas Exploration and Design Institute, had passed most tests, according to the due diligence.
The Chinese venture committed to raising $100m for the pre-FID activities, including presenting a letter from the Industrial and Commercial Bank of China Limited (ICBC), one of China’s largest banks by assets with multinational interests, guaranteeing funding.
DongSong also proposed relatively cheaper capital with interest rates of 4%-7% on debt from commercial banks.
With Mr Isabalija out, sources close to the project say the entire process could be reviewed.
Construction of the first phase of the 30,000 bpd refinery is expected to be completed by 2020, according to government estimates. Another 30,000 bpd phase will subsequently be added by 2022.
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