Speakers

Richard Nuwagaba

Richard Nuwagaba

Petroleum Engineer

Directorate of Petroleum, Ministry of Energy and Mineral Development, Uganda

Richard Nuwagaba is a Petroleum Engineer – Production at the Directorate of Petroleum, Uganda. He received his BSc. Mechanical Engineering from Makerere University, MSc. Petroleum Engineering from the Heriot Watt University and MSc (Econ) Petroleum, Energy Economics and Finance (PEEF) from the University of Aberdeen. After his seven-year mechanical engineering career in the printing and automotive industries, Richard joined the Petroleum Exploration Development and Production Department as a Petroleum Engineer in 2009. On completion of his MSc Petroleum Engineering, he was tasked with the role of heading the Technical Evaluation Section, a role he held until 2014 when he started his MSc PEEF. He is currently involved in both technical and economic evaluation of petroleum projects.


ABSTRACT

SESSION 20:  State Participation in Ugandan PSAs: The bad, the ugly and the Silver-lining

State participation dates as far back as the early 1970’s when a wave of nationalizations in countries under the umbrella of the Organization of Petroleum Exporting Countries (OPEC) shifted control of oil and gas projects from private International Oil Companies (IOCs) to state owned National Oil Companies (NOCs). Supported by ever rising high commodity prices, several NOCs proliferated to the extent of excluding the IOCs in some countries. For the purposes of this paper, state participation is rather broadly defined to comprise a range of options from 100 percent equity participation, through partial or carried equity arrangements, to equity participation without financial obligation.  Whereas Uganda under her new Model Production Sharing Agreement (MPSA) proposes to start with the obligatory carried interest from exploration through to production, most countries took this control through direct state commercial participation (Philip Daniel, 2010, p. 263).

In addition to the political risk that often characterise developing countries as a result of political instability as well as a changing regulatory environment among others, state participation presents an economic risk for the IOC by way of significantly increasing the IOC’s initial share of costs, thereby affecting the project economics. Where a decision is to be made about investment of limited capital, overly favourable economic terms for the state participant may force the IOC to defer investment in a given host nation (Energy Institute, 2015). The option to defer, or altogether withhold investment is further exacerbated by the current low oil prices. In the interest of encouraging earlier timing for the Final Investment Decision (FID), especially under the whims of low oil prices, Government of Uganda should consider a low level or no state participation since the oil price is exogenous to the system.

In summary, state partici¬pation can create obstacles to private investment, become a drain on public coffers, or create opportunities for patronage and cor¬ruption. These challenges notwithstanding, states can create financial benefits, pro¬mote capacity building (Brazil’s Petrobras and Malaysia’s Petronas), and improve monitoring of the oil, gas projects when state participation is well implemented. The Government should therefore enforce regular reporting as well as keen oversight over the activities of the Government Nominee so as to ensure maximum value from the oil and gas resources (The Natural Resource Governance Institute, 2015).

This paper therefore attempts to assess the level of state participation in Uganda, the associated merits and demerits and proposes a way forward. A benchmark against state participation in other countries is also presented.


 

ABSTRACT

SESSION 29:  Financing Mega Projects in Developing Countries – The Case of the Uganda Refinery

Uganda plans to develop a green field refinery of 60,000 barrels of oil per day (bopd) in a modular approach commencing with a 30,000 bopd in 2021. The project is being developed together with a 211km products pipeline from Hoima to Buloba storage near Kampala. The project was tendered out in 2013 as a Public-Private Partnership (PPP) basis with 40% and 60% shareholding respectively. A Private investor was identified through a competitive process but negotiations of agreements for project execution did not materialise due to a number of factors including the challenges associated with sourcing for financing.

Although attention is shifting from developed to developing countries, in terms of business opportunities in the oil and gas sector, most of the new projects being formulated do not take off because of the difficulties of securing sufficient financing. Project sponsors are being forced to design more flexible and innovative financing packages involving a range of partners from both the public and private sectors.

Just like any other developing country, Uganda faces a challenge of scarce project financing. Such scarcity is mainly attributed to commercial and political risks. This paper therefore proposes means of mitigating these risks with the view of creating a structure that can easily secure financing for the Uganda refinery project. Several alternative financing mechanisms are reviewed followed by project risk identification. Key project risk mitigation mechanisms are then developed and consequently recommendations for accelerating the refinery project are proposed. 

In the interest of not only accelerating the refinery project but also ensuring that the financing is secured, a public-led project with a majority shareholding held by the Public and a minority shareholding from interested private parties and the East African Community Partner States is proposed.