Published on 23 Apr 2025

Ugandan oil sector poised for a take-off

Kampala signs a refinery and pipeline financing agreement with the UAE

Nearly two decades after the discovery of crude oil, Uganda’s petroleum industry is beginning to take shape. The government recently signed an agreement with UAE-based Alpha MBM Investments to finance, develop and operate the country’s first oil refinery. Estimated to cost around US$4bn, the facility is expected to contribute about 9% to Uganda’s GDP once operational. It will process crude from the Lake Albert oil fields in western Uganda. With reserves estimated at 6.5bn barrels and first oil expected in 2027, the project aims to reduce Uganda’s dependence on fuel imports and serve the growing energy demand in East Africa.

Under the deal, Alpha MBM – led by Sheikh Mohammed bin Maktoum bin Juma Al Maktoum, a member of the ruling royal family of Dubai – will take a 60% stake in the 60,000-barrel-per-day facility. The remaining 40% will be held by the state-owned Uganda National Oil Company (UNOC). The project includes the construction of a storage terminal 212 km to the east, near the capital Kampala, and a pipeline linking it to the refinery site.

Progress is also under way on the East African Crude Oil Pipeline (EACOP), the 1,443 km export route that will link Uganda’s oil fields to the Tanzanian port of Tanga. The US$5bn pipeline project recently secured its first tranche of financing. The African Export Import Bank, Standard Bank from South Africa, Kenya’s KCB Bank, and the Islamic Corporation for the Development of the Private Sector – an affiliate of the Saudi-based Islamic Development Bank – are among the financiers backing the initial round. Their involvement comes after several Western lenders, including HSBC, Deutsche Bank, Standard Chartered and Morgan Stanley, declined to participate amid concerns over the project’s environmental impact. This leaves significant room for further investment from Asia.

EACOP is being developed through a 60:40 debt-to-equity structure, with US$3bn in loans and US$2bn in shareholder capital. TotalEnergies holds a 62% stake in the pipeline company, while UNOC and the Tanzania Petroleum Development Corporation each own 15%. CNOOC holds the remaining 8%. By the end of 2024, construction had passed the halfway mark. Once completed, the pipeline will have the capacity to transport 246,000 barrels of oil per day.

The influx of investment in the Ugandan oil sector may be considered as a vote of investor confidence in a nascent sector. A budding oil sector is associated with several para-oil industry services. Both upstream and downstream pose opportunities for further investments by way of seismic surveys, drilling contractors, well evaluation services, distribution infrastructure and essential equipment suppliers. A thriving oil sector will need supporting industries such as catering, waste management, environmental services, and specialized IT for smooth, sustainable operations.

Uganda has struck oil when the world is moving away from fossil fuel. At the time of publishing this article oil was trading below US$60 per barrel. With the global set for a sharp decline and OPEC+ (the cartel of oil producing countries) continuing to pump more supply into the market there is a risk that new suppliers like Uganda could be priced out.

There is also the concern about the ‘oil curse’ - the paradoxical tendency for oil-rich nations to experience lower economic growth, more corruption, and weaker development than countries with fewer natural resources. The case of Nigeria in Africa, and Indonesia in Asia present the reality of this phenomenon.

While the big giant first steps have been taken towards the development of Uganda’s oil sector, there are significant areas across the entire value chain that promise potent economic returns.

References

‘Announcement of the final investment decision brings Uganda closer to first oil’, Petroleum Authority of Uganda, 02 February 2022

'Uganda teams up with UAE’s Alpha MBM for $4B oil refinery project', Oil & Gas Middle East, 24 January 2024

'Uganda to wholly finance $4bn oil refinery through equity', The EastAfrican, 03 December 2024

'Uganda misses long-standing 2025 target to extract crude oil', Business Day, 11 February 2025

'Uganda's $5 billion EACOP pipeline gets funding boost', Reuters, 26 March 2025

'EACOP Ltd announces the closing of the first financing tranche for the East African crude oil pipeline project', EACOP, 26 March 2025

'Uganda signs deal with UAE investment firm over oil refinery', Reuters, 29 March 2025

'Uganda, UAE firm seal oil refinery deal for 60,000-barrel facility', NewVision, 30 March 2025

'Uganda refinery implementation agreement signed', Uganda National Oil Company, Accessed on 07 April 2025

'Untapped oil and gas opportunities', Monitor, 07 April 2025

‘Inside Uganda’s $4bln refinery deal with UAE investor’, The East African, 07 April 2025