Rehabilitation of Paloch oil refinery by Trinity Energy is on course￼
By Ngor Khot Garang
Endowed with mineral resources like oil, iron ore, and other valuables concentrated in the northern part of the country, South Sudan is home to the third-largest oil reserves in sub-Saharan Africa, estimated at 3.5 billion barrels. Despite rising and existing production pre-COVID-19, only 30percent of the country’s oil-rich acreage has been explored to date and represents a frontier market for upstream investors.
A landmark peace deal in October 2018, the resumption of production at several key oilfields, the launch of its first licensing round, and a soon-to-be reformed regulatory framework have significantly strengthened the investment climate in the country, with opportunities for financiers, technical partners and project developers across upstream, refining, power generation, and infrastructure sectors. Furthermore, South Sudan’s Ministry of Petroleum and Mining has specifically appealed to foreign investors for intervention in repairing damaged and outdated oilfields, as well as mitigating environmental damage associated with oil production, has launched a tender for an environmental audit in February last year.
Nevertheless, U.S. investors have remained cautious toward South Sudan, in part due to licensing requirements imposed by the U.S. Department of Commerce on certain South Sudanese oil operators in March 2018. Yet existing sanctions against South Sudan are far from blanket prohibitions: instead, they only require companies to obtain specific authorization before exporting, re-exporting or transferring items of U.S.-origin. China, for its part, has already taken advantage of the myriad opportunities within South Sudan’s oil and gas industry and currently represents the single largest foreign investor in the country.
In a globalized market in which sanctioned countries can simply turn to alternative suppliers and financiers – as South Sudan has done with China – American companies must emerge as key sources of technology, capital and expertise to help mitigate the ecological and operational inefficiencies that have impacted oil production in South Sudan to date.
One company with a strong demand for U.S. exports and technology is Trinity Energy, South Sudan’s largest independent and indigenously owned energy firm. The company is leading the construction of a $500-million crude oil refinery in Paloch, Upper Nile State that would refine up to 200,000 barrels per day for both domestic use and export to neighboring countries, including Ethiopia, Eastern DRC and the Central African Republic. Given that South Sudan is the only oil producer in East Africa, a project of this magnitude would be transformative for the region by fostering regional energy security and establishing an intra-African trade of petroleum products.
Trinity Energy has already secured the land and undertaken feasibility and environmental studies for the refinery, and is initiating the Front-End Engineering Design study to pave the way for engagement with financiers, including the African Export-Import Bank. The Juba-based firm has also enlisted Chemex Global, an American full-service EPC/EPCM firm with experience in modular and conventional refineries, as project manager, and expressed a desire for the heightened involvement of U.S. suppliers.
The facility is expected to be operational in two to three years, with plans to start distribution of refined petroleum products to Kenya, Uganda, Tanzania and DR Congo by road. Trinity’s refinery will upstage Uganda, where the commencement of the construction of the $4 billion refinery at Kabaale in Hoima district has been pushed to 2025.South Sudan has the third-largest oil reserves on the continent after Libya and Nigeria, estimated at 3.5 billion barrels, with much of it yet to be explored. The country is seeking to increase crude oil production to pre-conflict levels of 350,000bpd, which is expected to significantly contribute to economic growth and sustainability.
South Sudanese oil marketing giant Trinity Energy Ltd is set to inject $10 million worth of new investments in its Kenyan operations and also plans to build a $500 million crude oil refinery in South Sudan to serve the region with refined petroleum products.
The firm, which controls close to 40 percent of the South Sudanese oil market, is planning a 40,000 barrels per day (bpd) modular refinery at Paloch in the oil-rich Upper Nile State, with the potential of expanding capacity to 200,000bpd, as well as petroleum storage facilities at Nesitu, in the south of the country. South Sudan has the third-largest oil reserves on the continent. The refinery, to be built by American firm Chemex, is expected to be operational in two to three years, with plans to start distribution of refined petroleum products by road, owing to the absence of railway and pipeline connectivity between these countries. According to one of the leading regional media outlet The East African, the feasibility study and the designs for the proposed refinery have already been concluded with Afrexim bank together with big regional banks operating in Juba expected to provide financing.
“At the international level, the firm will do wonders. Trinity’s refinery will upstage Uganda, where the commencement of the construction of the $4 billion refinery at Kabaale in Hoima district has been pushed to 2025 following the delay in the conclusion of the Final Investment Decision on the basin-wide upstream oil development project. Initially, the FID was expected to be reached in September and the projected completed in three years. The Kabaale refinery is expected to process an estimated 60,000 barrels of oil per day with an initial output of 30,000 barrels per day at the time of the commissioning of the project”.
Uganda, Kenya, Tanzania, Rwanda and Burundi had been allocated a combined 40 percent shareholding in the refinery, translating into an eight per cent stake for each, with 60 percent of the shares reserved for private investors. However, only Tanzania took up its full share of eight percent while Kenya took up 2.5 per cent. Rwanda and Burundi had not expressed interest in the facility by the expiry of the extended period set aside. As a result, Uganda was compelled to take up an additional 11.5 per cent shareholding in the Hoima-based refinery, bringing its total shareholding to 19.5 per cent, with French oil giant Total SA taking up a 10 per cent stake.
Robert Mdeza, Trinity CEO, revealed that“South Sudan is the only oil producer in East Africa; to restrict its growth poses a serious threat to energy security and development not only for the country, but also for the wider, landlocked region,” adding that the Paloch project was currently on course although with some technical shortfall as a result of global economic norms and the COVID-19 pandemic. “While civil conflict has jeopardized business and destabilized the economy, the 2018 peace agreement and establishment of the Government of National Unity in February 2020 has ushered in a period of renewed peace and optimism. As a result, we would like to see American investors adopt a more active role in exploring service and export opportunities for sustainable energy development in South Sudan, supported by a U.S. diplomatic approach rooted in compromise and engagement.”
Stakeholders across the board have reflected a similar sentiment, in terms of normalizing foreign investment ties and establishing methods for U.S. companies to responsibly engage with South Sudanese entities. This includes seeking legal advice and counsel, where applicable, on how to operate, partner and invest in the country, while aligning with existing regulations. After all, the U.S. has a long history of supporting the growth and development of the country and the wider region. Over forty years ago, it was U.S. major Chevron that first discovered oil in the Bentiu and Heglig districts of Southern Sudan (now present-day South Sudan), along with the prolific Unity field north of Bentiu – leveraging American capital, technology and resources to give rise to the early stages of a Sudanese oil industry.
The U.S. was also one of the primary sponsors and key supporters of South Sudan’s move toward independence ten years ago, playing a critical role in the negotiation of the 2005 Comprehensive Peace Agreement that laid the foundation for the subsequent referendum on self-determination and independence in 2011. Now, as it enters its second decade of independence, South Sudan is looking to the U.S. for partnership, mutual support and diplomatic friendship in positioning its petroleum industry as a catalyst for broader economic growth. Misguided notions that US companies were completely unable to do business in the country inhibit the country from achieving long-term economic stability and erode a powerful history of American support of the world’s youngest and fastest-growing democracy.
Trinity Energy is not new to the region, and was incorporated in 2013 with majority ownership by Trinity Holdings Limited which is 90 per cent owned by a local South Sudanese businessman Akol Emmanuel Ayii, founder and chairman of THL. Currently, the firm supplies substantial volumes of refined products to South Sudan, effectively stabilizing domestic supply and demand for refined oil products.
The CEO Mdeza has this to say, “We are now embarking on our next phase of growth with major projects lined up including a 40,000bpd refinery as well as growing our footprint outside the country. This will be instrumental in our plans to enhance energy stability particularly for South Sudan and our landlocked neighbors.”
The country is seeking to increase crude oil production to pre-conflict levels of 350,000bpd, which is expected to significantly contribute to economic growth and sustainability. Last year, Africa accounted for more than 7.9 million bpd in oil production, an output level that has significantly dropped from nearly 10 million bpd in the period between 2005 and 2010 largely due to lower global oil prices.
The construction of the refinery in Paloch is expected to strengthen the firm’s bid of expanding its operations across the East and Central African region through a combination of acquisitions and greenfield investments as part of its five-year (2020-2024) growth and expansion plan.
Mdeza is on record saying“Our strategy is to have a strong presence in East and Central Africa within the next four years, before moving to Southern Africa. This is part of our Pan African growth agenda. We will immediately focus on neighbouring countries such as Uganda, Ethiopia, Eastern DR Congo and the Central African Republic, which like us are landlocked countries that require energy security to support economic growth and future development activities,”.
“If there is an opportunity for an acquisition we shall look at them. We are keeping our options open some of which could be starting from the ground and some of which will be. So our options are open, we are going for both greenfield investments and acquisitions where possible”.
According to Mr Mdeza, a chartered accountant, Bachelor’s Degree holder in Commerce from the University of Malawi. Previously the CEO of National Oil Company of Malawi with more than 18 years of experience in oil and gas, Kenya to him is also an important market for Trinity Energy Ltd due to the fact that the country is the biggest petroleum market in the region as well as the key entry point for petroleum products destined for the region. Currently, the firm plans to revive its subsidiary in Kenya, which would play a significant role in its bid to expand its operations to other East African countries.