Ready for a flush of oil wealth

Jeffery Mbanga

After two years of debate over the ground rules, President Yoweri Museveni’s government has at last begun to take decisive steps to obtain substantial investment for the development of Uganda’s large oil reserves, as major Chinese and French oil firms start to get involved.

Over two weeks in February, the gov­ernment signed new production-sharing agreements (PSAs) with Tullow Oil and also tabled two new petroleum bills be­fore parliament. The signing of the PSAs pushed Tullow closer to finalising the sale of two-thirds of its Ugandan assets for $2.9 billion – to both China’s CNOOC and France’s Total – so that the major in­frastructure required can be built.

About 2.5 billion barrels of oil have so far been discovered in Uganda and the government says oil companies have explored for oil only in 40 percent of the prospective areas. Although Tullow made the first of several significant finds in 2006, even before it made equally im­portant discoveries in Ghana, Uganda has lagged behind Ghana in the race to devel­op the resource.

The dynamics in the two countries are very different. Ghana’s oil is offshore, which means it is not only easier to get equipment to the site but that its govern­ment has no land rights and compensa­tion issues to deal with. By contrast, Uganda’s oil is onshore and landlocked, some 1,500 km from the nearest coast. And ever since Uganda’s oil was discov­ered, there has been debate about wheth­er to refine it all locally or export some as crude. There has also been pressure from civil society and parliament to establish the right policies before embarking on significant developments. Ghana chose to kick off its oil industry without facing such tricky questions.

Even now, Uganda’s petroleum bills still lack details of how the oil royalties will be divided between the central gov­ernment, the Kingdom of Bunyoro (where much of the oil is located) and the local districts. Bunyoro Kingdom has been ask­ing for a 25 percent share, while early pro­posals from the Ministry of Energy only allocated 7 percent to be divided among kingdoms, districts and sub-counties. A Petroleum Department official, Honey Malinga, explained that the final decisions on this would most likely now be taken by the Ministry of Finance.

Uganda has looked to the experience of both Nigeria and Norway for guidance in handling its nascent oil sector, but as Pro­fessor Paul Collier, of the Centre for the Study of African Economies at Oxford, noted in a recent lecture in Kampala, “The actual policy record in oil economies sug­gests that taking the right decisions is po­litically difficult.”

About the author:

Jeffery Mbanga is Director at Legend Consultancy, The Wordsmith, Business Editor at The Observer, Uganda


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