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Sanctions Hit Russian Company Wins $ Billion Uganda Refinery Deal
February 17, 2015 5:52 pm
Uganda has awarded a controversial $4bn oil refinery project to the subsidiary of a Russian state conglomerate with a heavy presence in the arms industry whose chief executive is under US and EU sanctions.
RT Global Resources, owned by Russia’s Rostec, a defence and technology corporation whose businesses include manufacturers of weapons such as the Kalashnikov rifle, beat a South Korean consortium to win a tender likely to be worth $3.3bn-$4bn, according to Uganda’s energy ministry.
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The Ugandan government and RT will now negotiate the terms of a joint venture to engineer and finance the $2.5bn refinery plus a product pipeline and associated infrastructure.
The decision to award the contract to the Russian company cements growing ties between Moscow and the east African country, which increasingly characterises the west as a neocolonial aggressor.
Sergei Chemezov, Rostec’s chief executive, is a former KGB officer and close ally of President Vladimir Putin. He has been subject to US sanctions — blocking his assets and prohibiting US companies from dealing with him — since April 2014 in response to Russia’s military involvement in the conflict in eastern Ukraine. In September, the EU followed suit.
Although Uganda is under no legal compulsion to comply with the sanctions, the decision will further threaten its international standing, already knocked last year by the introduction of anti-gay legislation that drew global censure and led some western donors to halt aid until the law was overturned.
Yoweri Museveni, Uganda’s president, has struck up a personal friendship with Mr Putin in recent years; a person close to Mr Museveni says both share an appreciation for strongman diplomacy directed against the west.
The decision to do business with a Russian military contractor whose chief executive is subject to sanctions “sounds typical Museveni” said one senior western diplomat.
“The west won’t dictate to us who we do business with, even if the chief executive [of Rostec] is under US sanctions,” Ofwono Opondo, a Ugandan government spokesman, told the FT on Tuesday. “We have very cordial, diplomatic relations with Russia — they supply us military equipment, they train our officers. We are not going to allow anybody to choose for us our friends. If the west has problems with Putin that is their problem.”
Uganda has spent more than $700m on Russian fighter jets since 2011, bought from Rosoboronexport, another Rostec subsidiary, and sent Russian-made tanks across the border to defend neighbouring South Sudan’s government in its civil war.
The refinery has long been a cause of tension holding back oil production in the first east African country to discover the hydrocarbon on its territory. Oil companies including China’s Cnooc, France’s Total and the UK’s Tullow spent years fighting Kampala’s plans for a big domestic refinery in favour of an export pipeline. Both sides eventually compromised on a smaller-scale project last year.
A spokeswoman for Uganda’s ministry for energy said the refinery was expected to commence production with 30,000 barrels a day in 2018 — a dozen years after oil was first discovered in the landlocked country. It is due to reach 60,000 barrels a day, two-thirds less than the initial 180,000 bpd Ugandan officials first had in mind.
George Boden, oil expert at UK-based campaigning group Global Witness, said the contract agreements must all be published. “The refinery deal is going to be absolutely crucial for how much revenue Uganda collects — a poor deal would leave the government subsidising an inefficient refinery and could be left counting the environmental and social cost,” he said.
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