How American consortium won refinery deal despite resistance from energy officials

Ugandan officials seemed to have a vested interest in who should be awarded the contract to build the oil refinery, preferring Chinese companies over the eventual winner, America’s Albertine Graben Refinery Consortium.

The American consortium, put together by a former USAID official in the Obama administration, faced long odds due to the “big advantages” enjoyed by its two competitors, both Chinese energy companies. The Chinese had powerful backers in the government and energy ministry, including Irene Muloni, the energy minister, and it took the intervention of President Museveni to turn the scales.

The episode is emblematic of “the long odds the United States faces as it tries to go head-to-head against China in infrastructure development”, according to a report in the New York Times. American companies scouting for opportunities in sub-Saharan Africa have to contend with Chinese companies that “have put down roots, nurturing powerful allies through both legitimate and illegal means.”

In this instance, the American consortium not only had to put together a convincing proposal for the $4bn refinery project but also had to contend with key Ugandan officials biased towards Chinese companies for one reason or the other.

Because of the intense opposition to its bid, the Times reports that Ugandan intelligence “investigated three officials believed to favour the American consortium and questioned its ability to finance the project”.

The American consortium’s bid was one of over 60 proposals received by Uganda after the Russian consortium initially chosen as the lead investor in the refinery project pulled out in June 2016.

Other leading contenders were China’s Guangzhou DongSong Energy Group—the same company developing the Sukulu project in Tororo—and the state-owned China National Offshore Oil Corporation, whose proposal was “made outside formal channels”.

But demands made by the Chinese entities pushed the government into a tight corner, the Times reports. “Dongsong wanted a sovereign loan guarantee — making the Ugandan government responsible for the project’s debt if it failed — and insisted that 60% of labour and materials come from China. CNOOC, meanwhile, wanted greater access to the oil fields themselves.”

The American consortium, on the other hand, proposed that Uganda and other countries in the region own 40% of a new company that would be set up to operate the refinery. It also did not ask for a sovereign loan guarantee.

These were much better terms than what the Chinese were demanding. The big problem was that the consortium’s financing plan—equity financing from investors and debt—was not as assuring as the immediate financing, provided by Chinese state banks, that the Chinese promised.

And, just as important, energy ministry officials “were longtime proponents of Chinese companies.”

This website reported that the cabinet’s decision to endorse the American consortium left senior ministry of energy officials upset. The energy minister, Ms Muloni, and other officials in the ministry had thrown their weight behind Guangzhou DongSong. Meanwhile, the Americans were backed by the Uganda National Oil Company’s boss, Josephine Wapakabhulo, and the Uganda Refinery Holding Company general manager, Michael Mugerwa.

The Times says a letter from the Overseas Private Investment Corporation, America’s state development finance agency, promising a $250 loan and loan insurance to the consortium managed to convince Ugandan officials. America’s Commerce Department also asked the American Embassy in Kampala to lobby for the consortium after determining that the project was in the “national interest”.

Deborah Malac, the American ambassador to Uganda, singles out Ms Muloni for ‘resisting’ the consortium and says Sam Kutesa, the foreign minister, was also sceptical.