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A Russian consortium awarded a
controversial $4 billion contract to build
an oil refinery in western Uganda walks
away from the deal in unclear
circumstances.
FRIDAY JULY 1 2016
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0
0
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A Russian consortium awarded a
controversial $4 billion contract to
build an oil refinery in western Uganda
has walked away from the deal in
unclear circumstances. PHOTO | FILE
By FREDERIC MUSISI
A Russian consortium RT Global
Resources, which was announced as the
best preferred bidder for the financing
and construction of the $4 billion
greenfield oil refinery in Hoima in
western Uganda, has walked away from
the deal in unclear circumstances.
The plant, which Kenya had agreed to
acquire a 2.5 per cent stake in last year
before a pipeline deal with Uganda fell
through recently, is expected to process
60,000 barrels of oil per day as well as
most of Uganda’s projected crude
output.
Ugandan had previously invited both
Kenya and Rwanda to buy shares in the
refinery as part of a commitment
among East African Community (EAC)
bloc members to get involved in joint
infrastructure projects.
READ: Kenya taps Ethiopia in joint oil
pipeline deal after Uganda setback
Sources in Uganda's Energy Ministry
confirmed on Thursday that the Russian
consortium which had been selected to
negotiate the principal agreements had
“failed to negotiate in good faith” and
had “failed to execute” a shareholders'
agreement.
The sources also said Uganda had
cashed in a $2 million bid bond which
RT Global Resources consortium had
executed with a local bank.
The consortium was a surprising choice
when the announcement was first made
in February 2015.
Led by Rostec, a Russian defence and
technology corporation whose
businesses include manufacturing of
weapons such as the AK-47/Kalashnikov
rifles, it also included Russian oil
producer Tatneft and VTB Capital, the
investment banking unit of Russia’s
second-largest lender VTB. Others
partners included GS and Telconet
Capital Partnership from South Korea.
READ: Uganda refinery deal risks
controversy
READ: Uganda picks Russian firm RT
Global for oil refinery
ALSO READ: Kenya acquires Sh5.6bn
stake in Uganda refinery
The Energy ministry Permanent
Secretary Kabagambe Kaliisa confirmed
the development to this newspaper in a
telephone interview but defended “it
was not a walk away as such.”
“They had demonstrated all it takes, and
in fact we had finished negotiations
with them and closed all the
envelopes,” he noted.
“But they kept going back and forth
over the concessions we had given
them, negotiated and finished. We gave
them all the time.”
He added “as a procedure they were
supposed to get the necessary clearance
back home and it was what we were
waiting for. However we received
communication they were withdrawing
the bond.”
A performance bond is a surety bond
issued by an insurance company or a
bank to guarantee satisfactory
completion of a project by a contractor.
Dr Kaliisa however discounted claims
that RT Global Resources had cashed in
their performance bond.
“That is a claim that is totally cooked
up; as far as we know they have to
forfeit that.”
Rostec’s East Africa regional
representative Andrey Kozenyashev said
from Moscow that “there is nothing to
comment about.”
Negotiations between government
technocrats led by Dr Kaliisa and RT
Global started in March last year. But
one year down the road the
negotiations, according to insiders,
dragged-on over haggling on several
agreements namely; Project Framework
Agreement, Shareholders’ Agreement,
Implementation Agreement and the
Escrow Agreement.
The consortium beat three others
including Japan’s Maruben Corporation,
China’s Petroleum Pipeline Bureau
(CPPB) and South Korea’s SK
Engineering & Construction Group in
the last stage for the multibillion dollar
midstream infrastructure.
SK Engineering was as alternate bidder.
The consortium had their work cut out
when the would be financing partner,
SK-KDB Global Investment Partnership
Private Equity Fund, pulled out before
the consortium could submit the final
round bid. This sparked off concerns on
how funds would be raised to finance
the deal which left SK Group with no
financier for the project in case they got
the deal.
Dr Kaliisa said “If RT Global choses to
come back the door are still open, but
we are now going to start negotiations
with SK Group.”
South Korea's President Park Geun-Hye
was in Kampala in May and held
discussions with President Museveni
about increasing her country's
investment in Uganda.
About 75 companies and individuals
expressed interest and requested, from
government, for a document with full
details about the project, the Request for
Qualification document. However, only
eight submitted when it came to the
final submission.
Last year, the former US ambassador
Scott DeLisi described the refinery deal
as “not a done deal” and warned that it
could be problematic for Uganda
because Rostec’s chief executive Sergei
Chemezov was subject to United States
sanctions since 2014.
Mr Chemezov is a former officer in the
Russian spy agency KGB and close ally
of President Vladimir Putin. Washington
barred US companies from dealings
with him as well as freezing his since
April 2014 in response to Russia’s
annexation and military occupation of
eastern Ukraine.
It was however not immediately clear
whether the sanctions had played a part
in the RT’s decision to walk away.
Although Uganda is not under legal
obligation to comply with the sanctions,
concerns by potential funders about
flouting US sanctions could have
increased the complexity and the
difficulty of the deal.
controversial $4 billion contract to build
an oil refinery in western Uganda walks
away from the deal in unclear
circumstances.
FRIDAY JULY 1 2016
1
0
0
0
0
0
1
A Russian consortium awarded a
controversial $4 billion contract to
build an oil refinery in western Uganda
has walked away from the deal in
unclear circumstances. PHOTO | FILE
By FREDERIC MUSISI
A Russian consortium RT Global
Resources, which was announced as the
best preferred bidder for the financing
and construction of the $4 billion
greenfield oil refinery in Hoima in
western Uganda, has walked away from
the deal in unclear circumstances.
The plant, which Kenya had agreed to
acquire a 2.5 per cent stake in last year
before a pipeline deal with Uganda fell
through recently, is expected to process
60,000 barrels of oil per day as well as
most of Uganda’s projected crude
output.
Ugandan had previously invited both
Kenya and Rwanda to buy shares in the
refinery as part of a commitment
among East African Community (EAC)
bloc members to get involved in joint
infrastructure projects.
READ: Kenya taps Ethiopia in joint oil
pipeline deal after Uganda setback
Sources in Uganda's Energy Ministry
confirmed on Thursday that the Russian
consortium which had been selected to
negotiate the principal agreements had
“failed to negotiate in good faith” and
had “failed to execute” a shareholders'
agreement.
The sources also said Uganda had
cashed in a $2 million bid bond which
RT Global Resources consortium had
executed with a local bank.
The consortium was a surprising choice
when the announcement was first made
in February 2015.
Led by Rostec, a Russian defence and
technology corporation whose
businesses include manufacturing of
weapons such as the AK-47/Kalashnikov
rifles, it also included Russian oil
producer Tatneft and VTB Capital, the
investment banking unit of Russia’s
second-largest lender VTB. Others
partners included GS and Telconet
Capital Partnership from South Korea.
READ: Uganda refinery deal risks
controversy
READ: Uganda picks Russian firm RT
Global for oil refinery
ALSO READ: Kenya acquires Sh5.6bn
stake in Uganda refinery
The Energy ministry Permanent
Secretary Kabagambe Kaliisa confirmed
the development to this newspaper in a
telephone interview but defended “it
was not a walk away as such.”
“They had demonstrated all it takes, and
in fact we had finished negotiations
with them and closed all the
envelopes,” he noted.
“But they kept going back and forth
over the concessions we had given
them, negotiated and finished. We gave
them all the time.”
He added “as a procedure they were
supposed to get the necessary clearance
back home and it was what we were
waiting for. However we received
communication they were withdrawing
the bond.”
A performance bond is a surety bond
issued by an insurance company or a
bank to guarantee satisfactory
completion of a project by a contractor.
Dr Kaliisa however discounted claims
that RT Global Resources had cashed in
their performance bond.
“That is a claim that is totally cooked
up; as far as we know they have to
forfeit that.”
Rostec’s East Africa regional
representative Andrey Kozenyashev said
from Moscow that “there is nothing to
comment about.”
Negotiations between government
technocrats led by Dr Kaliisa and RT
Global started in March last year. But
one year down the road the
negotiations, according to insiders,
dragged-on over haggling on several
agreements namely; Project Framework
Agreement, Shareholders’ Agreement,
Implementation Agreement and the
Escrow Agreement.
The consortium beat three others
including Japan’s Maruben Corporation,
China’s Petroleum Pipeline Bureau
(CPPB) and South Korea’s SK
Engineering & Construction Group in
the last stage for the multibillion dollar
midstream infrastructure.
SK Engineering was as alternate bidder.
The consortium had their work cut out
when the would be financing partner,
SK-KDB Global Investment Partnership
Private Equity Fund, pulled out before
the consortium could submit the final
round bid. This sparked off concerns on
how funds would be raised to finance
the deal which left SK Group with no
financier for the project in case they got
the deal.
Dr Kaliisa said “If RT Global choses to
come back the door are still open, but
we are now going to start negotiations
with SK Group.”
South Korea's President Park Geun-Hye
was in Kampala in May and held
discussions with President Museveni
about increasing her country's
investment in Uganda.
About 75 companies and individuals
expressed interest and requested, from
government, for a document with full
details about the project, the Request for
Qualification document. However, only
eight submitted when it came to the
final submission.
Last year, the former US ambassador
Scott DeLisi described the refinery deal
as “not a done deal” and warned that it
could be problematic for Uganda
because Rostec’s chief executive Sergei
Chemezov was subject to United States
sanctions since 2014.
Mr Chemezov is a former officer in the
Russian spy agency KGB and close ally
of President Vladimir Putin. Washington
barred US companies from dealings
with him as well as freezing his since
April 2014 in response to Russia’s
annexation and military occupation of
eastern Ukraine.
It was however not immediately clear
whether the sanctions had played a part
in the RT’s decision to walk away.
Although Uganda is not under legal
obligation to comply with the sanctions,
concerns by potential funders about
flouting US sanctions could have
increased the complexity and the
difficulty of the deal.
