KAMPALA's award of an oil production licence to China National Offshore Oil Corp (CNOOC) has set a clear timeline for Uganda to begin producing oil.
It also cements China's growing involvement in the country's energy infrastructure development.
CNOOC was awarded the production licence for the Kingfisher field in September. The field has proven oil reserves of 635m barrels - 196mbbl of it recoverable - and is expected to produce 30000bbl-40000bbl of crude a day (bpd) when production begins in four years, says Ugandan energy minister Simon D'Ujanga.
The production rate is expected to rise during the development of the field.
"We now have enough resource and investors can confirm this. We need to move ahead with the construction of the refinery," says D'Ujanga.
The oil production deal follows two other big energy deals in which China will finance and develop two hydro power projects.
In August, Ugandan president Yoweri Museveni commissioned the start of construction of the 600MW Karuma hydropower dam at a cost of US$1,4bn, 85% of which will be financed by Exim Bank of China and the rest by the Ugandan government.
Another Chinese company, Sinohydro Corp, was awarded the construction work.
This month Museveni laid the foundation stone for the construction of the 183MW Isimba hydropower project on the River Nile to be constructed by China International Water & Electric Corp.
Exim Bank of China and the Uganda government will co-finance the $556m project on an 85%/15% basis.
The new deals are in accordance with Museveni's stated policy of having China as the preferred development partner, as is the case with neighbouring Kenya. Bilateral trade between China and Uganda has grown to $538m, a 35% increase on 2011's trade figure. There are 256 Chinese firms operating businesses in Uganda, according to the China Enterprises Chamber of Commerce in Uganda.
CNOOC Uganda vice-president Jin Wiengen says the company has committed to invest $2bn over four years to develop the oil field. Kingfisher is licensed to three oil companies under a joint-venture partnership between Tullow Uganda, CNOOC Uganda and Total E&P Uganda BV. The production licence deal has increased Uganda's oil production potential as Tullow Oil expects to start pumping at least 200000bpd by the time production starts in 2016/2017. Tullow was the first to strike oil in Uganda's Lake Albert basin, in 2006.
According to the energy ministry, an estimated 3,5bn barrels of oil has been discovered so far in Uganda, of which 1,2bnbbl-1,7bnbbl is commercially recoverable. The resource also contains 350bn cubic feet of gas. The ministry says 60% of the Albertine basin is yet to be explored.
With the CNOOC deal, Uganda has now shifted focus to the construction of a refinery, estimated to cost $2,5bn.
Last week, Uganda issued a request for qualifications to solicit bids from potential investors. Construction of the refinery is expected to begin in 2014 after a lead investor is chosen in April, with commercial production expected to start in 2017 or 2018.
The minister says the acquisition of land for the refinery in Hoima in western Uganda is continuing. The plan is to develop a 60000bpd refinery in two phases, starting with 30000 bpd in phase one.
The project includes crude oil and product storage facilities and a 205km pipeline to Kampala to be developed in a public-private partnership. Talks are also being held with the licensed oil companies for the development of a pipeline to export crude not taken up by the refinery.
The lead investor will own 60% of the refinery, with the rest being owned by the Ugandan government. But this share will be reduced if other East African Community members take up the offer to buy 10% of Uganda's stake.
As many as 15 companies have expressed an interest in participating in the project.
Ugandan officials say they cannot count on the refinery in Kenya because of its constant breakdowns due to the lack of servicing and its use of 50-year-old technology. Kenya Petroleum Refineries has the capacity to process 70000bpd but is operating at less than half its capacity.
Uganda plans to use the crude oil produced from extended well testing in cement plants and thermal power plants, among others, until the refinery is operational.