Uganda says agrees on 30,000 bpd oil refinery with Total, CNOOC

Mon Apr 15, 2013 5:32am EDT

* Taxes, refinery wrangles have held up commercial production

* Government has said wants 40 percent stake in refinery

By Elias Biryabarema

KAMPALA, April 15 (Reuters) - Uganda, France's Total and China's CNOOC have agreed to build a small oil refinery in the east African country, Uganda's government said, in a step towards resolving disagreements that have delayed commercial oil production.

They agreed on an initial processing capacity of 30,000 barrels per day - well below the 200,000 bpd the government had initially sought.

Explorers struck oil in east Africa's third largest economy in 2006 but wrangling over taxes and the viability of a local refinery have stalled production.

"The two parties however agreed to start with the refinery size of 30,000 barrels per day," said a statement published by the office of President Yoweri Museveni after he met executives from Total and CNOOC.

Museveni stressed that he wanted a final deal quickly, in the form of a memorandum of understanding that would include the construction of a pipeline to neighbouring Kenya for exports.

"We have wasted too much time. We are now with the issue of oil for seven years. We need to make our final decisions," Museveni told the oil companies and government officials.

Total and CNOOC entered Uganda's petroleum sector early last after both took up a third each of British explorer Tullow Oil's exploration assets for a total $2.9 billion.

Uganda has said it wants a 40 percent stake in the refinery though it is not clear where financing for the project will come from.

The country estimates its crude reserves at 3.5 billion barrels.

Rather than build a major refinery in Uganda, Total and CNOOC had favoured a pipeline to export most of its crude via Kenya's Indian Ocean coastline, saying there was insufficient local demand for a refinery of the size Uganda wanted.

The agreement appears to be a success for the approach advocated by the oil companies

Museveni wanted to refine crude locally to boost domestic earnings, help fund new infrastructure and provide cheaper energy.

The president still targets a refinery with an eventual capacity of 60,000 bpd, projecting that demand in the local market will keep rising, according to the statement.

In February, Uganda's parliament passed a law paving the way for the construction of a refinery. A U.S. investment firm, Taylor-DeJongh, is helping the government secure financing for the project, Ugandan officials say.

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