The Observer (Kampala)

Uganda: Energy Firms Eye Uganda's Crude Oil and Gas for Power

The race to produce electricity using Uganda's crude oil and gas is on.

At least two companies have applied to the Electricity Regulatory Authority for licences to put up power plants near the oil fields in the Albertine graben, in what is likely to be the first offshoot industry from Uganda's $150bn oil asset.

Albatros Energy Uganda Limited and Lake Albert Infrastructure Services Limited, whose parent companies are located in Mauritius, submitted their requests to ERA between January and February this year, promising to cut the power deficit in Uganda, where barely 15 per cent of the population is connected to national grid.

Any member of the public opposed to these companies getting the licences can take their case to the Electricity Regulatory Authority before the end of April or forever hold their peace.

Biggest plant:

Albatros says it intends to put up a 230MW crude oil thermal power plant, which could turn out to be the biggest thermal power plant in the country. However, the company will start with an initial 52.5MW plant, planned to be ready sometime next year.

Still, this seems an ambitious target, considering the bureaucratic processes they have to overcome before production. The firm has already conducted a feasibility study on the project. Lake Albert Infrastructure Service Limited (LAIS) says it will put up a 52MW plant, using gas piped from the central processing facilities in the oil fields, a first in the country.

During interrupted supply of the gas, the company says it will turn to heavy fuel oil as a short-term backup. The entire project will cost $87m, according to LAIS. In applying for the licences, the two energy firms offer a clearer picture of how some of the spin-off industries from Uganda's oil will shape up.

If their applications for licences are granted, the two could be among the biggest buyers of Uganda's crude oil and gas, and might open way for more energy firms to tap the resources.

"Although Uganda could soon be facing power shortages again, there is no shortage of oil... some fields will have excess gas supply, which can then be used to supply wholesale power to the national grid," LAIS writes in its licence application. Uganda has so far discovered about 3.5 billion barrels of oil.

For fair measure, a number of companies seeking to generate power had already expressed interest in Uganda's oil, especially when government spoke of producing crude in an early production scheme that was supposed to start in 2011. The oil companies had already planned to tap the crude oil and gas to generate power for their operations, such as heating the pipelines, with the extra amount of energy connected to the grid, according to government plans.

Hima Cement was one of the first firms that showed interest in exploiting Uganda's crude oil to produce power at its new plant in Kasese as the firm sought to expand its production unit. Electromaxx, which produces less than 50MW in Tororo, had also previously said it would take a shot at Uganda's crude when it becomes available for sale.

Such plans have, however, been hampered by all sorts of delays, ranging from tax battles between oil companies and government, right down to disagreements over the wording in texts such as the stabilisation clause. There is hope, nonetheless. The government and the three major oil companies have agreed on a plan that spells out how Uganda's oil will be developed.

And in September last year, after Chinese firm Cnooc received a production licence for the Kingfisher field. Peter Lokeris, the minister of state for Energy, offered more information on Uganda's plans for its gas.

"Cnooc Uganda Limited will undertake studies to determine the optimum solution for the utilisation of the gas that will not be used to generate power for the operations in the field... ," he said.

On-site generation:

Some of the options Cnooc is supposed to study include: transportation of the excess gas to Kabaale refinery area for power generation; setting up of facilities to produce liquefied petroleum gas (LPG); and onsite generation and export of power from the Kingfisher field.

Attention now shifts to the numbers. How much crude should be left for power generation, and will a company like LAIS get enough gas for long-term operations?

Just like there was debate on how much oil Uganda should refine against the amount the oil firms wanted exported, a similar debate albeit at a hushed tone, could emerge with the resources needed for power generation. Albatros says it will need 690,000 barrels of oil per year - about 1,900 barrels of oil per day - to keep the power plant running for at least a decade.

Although to be fair, there appears to be more than enough crude oil with firms like Tullow Oil already storing thousands of barrels of crude at wells such as Kasamene. If LAIS' figures are anything to go by, then their prospects are a lot more positive.

"Preliminary conclusions indicate that in the Kingfisher fields, there is enough gas to power a nominal 50MW power plant for 10 years," the company says.

It adds that Uganda's associated gas could amount to about 190 million standard cubic feet. LAIS says the power plant will be ready in 2018 when Uganda achieves First Oil.

Debate could also come in the form of land acquisition and its usual time bomb of compensating the occupants, plus civil society pressure over the impact of these power plants on the environment, especially in the manner that the crude oil will be transported. The crude will be transported in heated trucks, according to initial plans.

Museveni blessings:

Away from the oil and gas, there is expected to be focus on the companies themselves, and whether they can play such a crucial role in one of the most keenly-watched industries in Uganda today. Albatros Energy could be in the spotlight for the 230MW power plant it wants to put up.

In June 2010, officials of Albatros Energy, led by city businesswoman Amina Hersi, a director in the company, met President Museveni at State House, and the president's office reported that the energy firm was in "the final stages of concluding a 230mw power plant [in Tororo] that will be operational in the next 18 months." Museveni gave the firm his blessings, although there was very little information that showed that Albatros had the capacity.

Months later, ERA, according to top sources that spoke to The Observer back then, was reluctant to offer Albatros a licence since it had no solid track record to undertake such a massive project. The Tororo project never took off. Albatros explained why its Tororo power project - exactly the same size such as the one the firm wants to put up in Hoima - stalled.

"... before we could continue with the project in Tororo, we were advised to make use of the crude oil and HFO (heavy fuel oil) to be produced in Uganda in a letter from the ministry [of Energy]... ," according to Okot Patrick Obalim, the company's secretary in Uganda.

It will be the first time that the parent company of LAIS executes an energy plant as the one they have planned for in Hoima. A subsidiary of InfraCo, a company that has attracted a number of donors, the World Bank inclusive, to finance its operations, LAIS could have a huge task at hand within Uganda's oil industry.

Its sister company, Kalangala Infrastructure Services, recently commissioned a power plant of just 1.3MW. LAIS says it is confident it can pull off the gas project in western Uganda, tapping into experts from EleQtra, its parent firm in Uganda.

"Professionals on EleQtra's team have led to successful development of other IPPs [independent power producers] in Africa while working for other developers, namely the KivuWatt project in Rwanda, a 25MW power generation project using process methane in Lake Kivu," the company points out.

For a public that continues to vent anger at the lack of enough electricity, a big section will be keen to hold the two energy firms to their words.

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