The Uganda National Oil Company (UNOC) has turned to Swiss-based Dutch multinational energy firm, Vitol Bahrain E.C, for a $2b (Shs7 trillion) credit line for investment in key oil infrastructure, including acquiring a 35 percent stake in the Kenya state-owned Pipeline Company (KPC).
The transaction sticks out like a sore thumb as the 10-year-old company continues to fast dive at the deep end of the swimming pool, venturing into key infrastructure projects in midstream and downstream, and currently seeking a suitable partner that will bring on board both technical know-how and financial muscle to venture into oil exploration.
This has raised queries about sequencing and some worry that the young company is fast spreading itself too thin. Junior Finance Minister Henry Musasizi tabled the loan request before Parliament yesterday afternoon, chaired by the Deputy Speaker, Mr Thomas Tayebwa. The Attorney General, Mr Kiryowa Kiwanuka, defended the request. The Shs7 trillion credit line will be extended to UNOC, of which $1.2b (Shs4.2 trillion), Mr Musasizi told the House, is for investment in the proposed Kampala Storage Terminal in Kiringete Sub-county, Mpigi District and enhancement of the Jinja Storage Terminal (JST).
The terminal was established in the 1970s by the late President Idi Amin as the country’s reserves for petroleum products but was run down under the current regime until its revival recently. The money will also allow UNOC to partake of the Initial Public Offering (IPO) by KPC, which will grant Uganda unfettered access to use Kenya’s oil infrastructure, from the Kipevu Oil Terminal (KOT), the dedicated oil terminal at Mombasa, to the terminals in Nairobi, Eldoret and Kisumu.
As part of the Shs4.2 trillion credit line, UNOC plans to support early financing of the Greenfield oil refinery, and on another front, embark on the long-awaited Eldoret-Kampala oil pipeline with a spur at Jinja Storage Terminal but planned to terminate at Kampala Storage Terminal.
The pipeline project is expected to cost $330m (Shs1.1 trillion), according to recent estimates. The balance of $800m (Shs2.8 trillion), Mr Musasizi told the House, will be channelled to construct critical national road projects without specifying which ones. UNOC is the statutory body mandated to, among others, handle the country’s commercial interests in the nascent oil sector and propose new investments in upstream and downstream, including bulk supply, locally, regionally and internationally. The company kicked off its engagement with Vitol Bahrain E.C., one of the world’s biggest independent oil traders, in early 2023 for the sole importation of Uganda’s petroleum products to weed out middlemen.
Vitol Bahrain E.C. has previously been mentioned in questionable deals in Mexico, Brazil, and Ecuador. This led to the enactment of the Petroleum Supply (Amendment) Act in November 2023, and UNOC entered into a five-year exclusive petroleum supply to KOT at Mombasa. The arrangement marked the move from Open Tender System (OTS)-based on the freight and premium quoted by sellers for refined petroleum products-to Government-Government (G2G); in this case, KPC to UNOC. About 120 Kenyan companies were locked out of the value chain.
Some of them have been accused of fuelling sabotage in the clearance of the Uganda-bound fuel cargo at Mombasa, adding more headache to the Uganda-Kenya non-tariff trade barriers. Nonetheless, one year and four months into the sole importation business, UNOC executives told Daily Monitor last evening that the company has made a fortune in the region of $150m (Shs530b). The business is thus far the company’s ‘low-hanging fruit’ pending the coming on board of the oil project in the Albertine Graben in mid-Western Uganda by 2027/2028.
UNOC carries a 15 percent stake upstream in each of the nine production licences for the oil fields operated by China’s Cnooc and French TotalEnergies EP in Nwoya, Buliisa, Hoima, and Kikuube districts. The company’s investments are currently borne by the two oil companies. The company carries another 15 percent in the crude oil export pipeline, Eacop, which will transport Uganda’s waxy crude oil from Hoima to Tanzania’s Indian Ocean port en route to the international market.
Method to madness
Currently, the company has a portfolio of 21 businesses across the upstream, midstream and downstream value chain, as cleared by Cabinet, and company executives told this newspaper last night that ‘government was going to fund all the projects sooner or later and in one way or another.’ The Shs7 trillion credit line secured at a SOFR plus one, 3.9 percent+1 percent, or 4.9 percent interest, is payable within a seven-year period. ‘SOFR plus one” typically refers to a floating interest rate calculation in a financial contract, where a margin of 1 percent (or 100 basis points) is added to the prevailing Secured Overnight Financing Rate (SOFR).
Mr Musasizi told the House that the financing agreement includes cash flows, up to an agreed minimum amount, from UNOC projects funded by the facility deposited in escrow accounts as security for the term of the loan for up to seven years, an option to increase the loan amount, and utilisation to be made within five years after the execution of the loan. According to estimations, after construction and operationalisation of the infrastructure projects for 15 years, UNOC expects to generate at least $5b (Shs17.6trillion) in revenues. UNOC executives defended that they considered several lending options before settling on financing from Vitol Bahrain E.C.
‘It’s cheaper financing with good terms, and the beauty is that the company is working with us in the sole importation business,’ senior officials argued. ‘Yes, Vitol Bahrain E.C. might have had problems elsewhere, but it’s one of the biggest in the world, and all big companies have issues here and there.’ The officials indicated that Vitol Bahrain E.C. agreed to the financing arrangement with UNOC to further ‘build self-sufficiency’ and expand the downstream business. In this case, after hauling petroleum cargo from the UAE to Mombasa, acquiring a stake in KPC to building the necessary infrastructure, in this case, the new storage terminal in Mpigi and refurbishing the one in Jinja.
Stake in KPC
Kenya has long been planning to sell a 65 percent stake in the KPC, which transaction is marked for completion by March next year. Business Daily, a sister publication to this newspaper, reported at the weekend that the investment banker Dyer and Blair and stock brokerage firm Francis Drumond had been handpicked to guide the IPO in which the Kenyan government seeks to raise Ksh100b (Shs2.7trillion). KPC officials planned to use part of the proceeds from the IPO to kick-start construction of a transport pipeline from Eldoret to Kampala. One realised, it will alleviate all transportation of fuel products by road.
The Eldoret and Kisumu terminals have capacities of 48 million and 55 million litres, respectively, and also double as the supply base for South Sudan, Northern Tanzania, Rwanda, eastern DRC Congo, Burundi, and the Central African Republic. If Uganda operationalises the Kampala Storage Terminal, it could snap up the business from Kenya. The terminal was initially planned as a joint venture but proposals from prospective financiers have been underwhelming. The terminal is also expected to serve as a storage terminal for refined petroleum products from Uganda’s proposed 60,000 barrels per day refinery, which remains a long shot.
Shs17.6t
According to estimations, after construction and operationalisation of the infrastructure projects for 15 years, UNOC expects to generate at least $5b (Shs17.6 trillion) in revenues.
ABOUT UNOC
UNOC is the statutory body mandated to, among others, handle the country’s commercial interests in the nascent oil sector and propose new investments in upstream and downstream, including bulk supply, locally, regionally and internationally.