21 March 2010

Uganda: Local Oil Deals - Where is the Truth?


Since it emerged in late 2009 that Tullow Oil was selling its interests in Uganda, statements have been made on oil to reassure, entice and even confuse ordinary Ugandans. The oil companies have vigorously defended themselves; government officials have painted pictures of hope; and President Museveni has himself given assurance that oil money will be used to build infrastructure. Yet vital questions remain unasked.

With our corruption, why did we not see our usual predators out and prowling as the oil sale saga played itself out? How were the exploration blocks delineated and given out in the first place, and what political interests influenced the process?

How come ENI, of international repute, did not know Heritage Oil's rights of first purchase when negotiating with Tullow? What are the implications of these sales to the development costs of our oil and the first flow of revenue to government? And what is in all these for ordinary Ugandans and the people of Bunyoro and Acholi where the oil fields are located?

The silence of our greedy political elites in the Tullow Oil sale saga is a matter of serious disquiet, particularly when a windfall of over US $ 1.5 billion is involved. You see, this sale is like the roasting of a huge, very fat, in-calf Nkore cow in the middle of Serengeti Game Park with all its hyenas, wild dogs and foxes, without these predators stirring at all.

Strange carnivores

Is some matriarch hyena regimenting the sharing of the meat, or may be all these animals have had their fill? Can anyone claim that there is no meat at all, or that, in spite the NSSF-Temangalo and CHOGM scandals, the looters have suddenly changed their habits?

The ground for suspicion starts right from the parceling of the oil fields and awarding of exploration rights to Tullow and Heritage. The public does not know the parameters used to delineate the various exploration Blocks. How come the two companies bid to share Blocks 1 and 3A that turned out huge oil finds? Knowing our people, one would be most surprised if, like insider stock traders, they did not dole out critical information in exchange for "something small"! Time will surely tell.

Then came this ENI-Tullow Oil rights sale thing. A simple due diligence would surely reveal to ENI Heritage's first right of purchase, and I believe ENI knew of it. Did ENI hope to bribe its way through the deal, and if so who were the bribe targets? Or did some top decision maker assure and encourage ENI to overlook what they knew?

For Ugandans used to the work methods of those in power, the certainty is that ENI was cynically encouraged to sanitize the process. Surely when government approved the joint exploration agreement that gave Tullow and Heritage first rights of purchase if the other sells, did our smart leaders not know that any such purchase would lead to a monopoly? Why is the argument now being used to justify the second sale of Blocks 1 and 3A?

Truth be told, any take-no-chances leaders, such as the ones we have, know that real oil money will only begin to flow in 5-10 years time. Even the healthiest ones of them cannot guarantee their stay in power till then. The smart thing is to superintend over repeated high-profit sale of the oil now, and to pocket whatever one can.

In the context of Production Sharing Agreements, what is going on now, regardless of the explanations, has very serious implications for the country. Firstly, the basic cost of establishing our oil potential escalates dramatically. We have been hearing exploration figures of $500 million, although a sound audit could help. When Heritage buys Tullow's interests at $1.5 billion with all the profits, this becomes the added costs of developing the fields.

Rising costs

When Total and the Chinese buy these same fields from Heritage with profits, the cost of exploring these fields will probably reach over $2.5 billion. Yet, if the fields remained in the hands of Tullow, costs up to this stage would be less than $300 million. Add to this are the costs of bringing the fields into production and export, recently estimated by the Energy Permanent Secretary at anything up to $8 billion.

Secondly, before Uganda shares oil profits with the production companies, the above costs have to be recovered. As the Production Sharing Agreements are not known, it may even be 10-20 years before we begin to meaningfully benefit from the oil. Do Ugandans not have reasons to worry? As we worry deals are being made, and we are not to raise any questions at all. For the communities where oil is located, the situation is pathetic indeed.

Social responsibility?

Look at the social responsibility record dangled by these oil companies: a $5,000 classroom, a $10,000 maternity unit, and even a $2,000 donation of school desks. Did President Museveni, under whom all these are happening, once not castigate Africa's past traditional leaders for selling Africa for mere beads and mirrors as is happening to our oil now?

At least for the Banyoro, the recognition that the oil is in their land is some source of pride; and the ring-fencing of political positions for them is additional reward. For the Acholi, whose land Block 1 with its huge oil find is located, however, they, like the Band Aid song says, do not even know that oil deal Christmas has arrived. Cynically, they are to be happy that their own son, Hillary Onek, and sons of their neighbors, Simon D'Ujanga to the west and Peter Lokeris to the east, are at least Ministers in charge of the oil! Which oil curse are we waiting for?

Prof. Ogenga-Latigo is Leader of the Opposition in Parliament and FDC Deputy President

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