Kampala — IRAN has agreed to fund the entire value chain of Uganda's oil production. Iran will also jointly fund the construction of an oil refinery in Uganda.

The agreement was reached during President Yoweri Museveni's three-day visit to Iran, where he held talk with his counterpart, President Mahmoud Ahmadinejad, and addressed the Iranian Chamber of Commerce, Industries and Mines.

A communiqué issued at the end of the visit said the two countries will also expand co-operation in agriculture, especially agro-processing, investment, energy, mining, industry, vocational training, air transport, banking, ICT, public security and foreign relations.

The two presidents re-affirmed their commitment to strengthen relations between their countries.

"Regarding the field of energy in particular, the two leaders agreed to consider co-operation in building an oil refinery in Uganda.

"On its part, Iran agreed to train Ugandans in its University of Petroleum Studies and other institutions in Iran in the relevant fields of petroleum," a statement issued by State House said.

"Iran also expressed its readiness to invest in the entire value chain of Uganda's petroleum industry."

Uganda's discovered oil resource in the Lake Albertine Graben is so far estimated at 600 million barrels of oil.

Iran also expressed willingness to consider Uganda's request for the supply of fuel for Uganda's thermal power plant, while President Ahmadinejad accepted Museveni's invitation to visit Uganda.

They agreed to co-operate in production, processing and marketing of agro-products as well as in agricultural mechanisation. The two nations would also curve out a free trade zone.

On international affairs, the Presidents reviewed the situation in the Middle East and Afghanistan as well as the Great Lakes Region and the Horn of Africa.

They reiterated their commitment to disarmament and the non-proliferation of weapons of mass destruction.

"They also re-affirmed the right of developing countries to develop nuclear energy for peaceful (development) purposes."

At a news conference later, Museveni observed that relations between Uganda and Iran have been excellent over the past 30 years.

Ahmadinejad said Iran would ensure there are no obstacles in its bi-lateral trade with Uganda.

The President, who returns today, was accompanied by ministers for trade and industry, ICT, energy and minerals and international affairs.

Uganda's annual inflation eased to 14.2 percent in December from 14.6 percent last month due to slightly lower food prices, the government said on Wednesday.

"The main inflation driver remained food inflation which has a 27.2 percent weight in the basket of goods and services," the Uganda Bureau of Statistics (UBS) said in a statement.

Core inflation, which excludes food crop items, fuel, electricity and metered water slipped to 12.6 percent in December from 12.8 percent.

"However prices have remained high due to low supplies as the result of seasonal factors, in addition to increased transport costs and the continued high demand for food both locally and in the neighbouring east African region," the statement said.

The UBS said the government had revised annual and core inflation figures to include other items in the food basket like rain, and transport costs.

The November annual inflation was revised downwards from 14.9 percent.

The International Monetary Fund (IMF) said in October that it expected the country's core inflation to fall to 7 percent by June next year and to 5 percent by August 2009.

Uganda's inflation is measured by surveys taken in the first two weeks of each month. (Reporting by Susan Nabadda; Editing by Victoria Main)