27 January 2013

Uganda: Politics Key to Successful Oil Sector

Kampala — The confirmation that there is oil and gas fields in Nwoya district, northern Uganda, by Total S.A hit the country two weeks ago albeit without pomp as the case was when a declaration that there was oil in western Uganda.

When government finally confirmed that Bunyoro and the greater Albertine region was sitting on a supposedly the wealthiest earth resource in the world, a wave of exciting swept the country in all corners as the find was associated with ending poverty of ordinary Ugandan.

This fanfare has since changed the line of hope of the country with the citizenry hoping so much will change when the petrol dollar makes its entry into the economy. Actually economists and politicians alike are optimistic that when the oil finally starts flowing poverty will be a thing of the past, the truth in this sentiment can only be stomached as we all wait for that time to pass.

But if we are to learn from other developing countries that are already extracting oil, we should be able to know that all is not well if the highly rated resource is managed badly especially in making key political and commercial decisions.

Uganda since the catchy in the area near lake Albert was announced have had her share of tension, controversy and blood bad running within politicians, oil explorers and the wanaichi.

What has come to be known as the oil curse, has been a result of mismanaging the underground resource at all levels, this has resulted into fighting as greed fails the process of sharing a national treasure. Uganda is at that juncture were our destiny is not known but can be designed by making the right laws, hire good managers and marketing strategies that have national interests intrinsically.

Corruption And Bad Politics

Even before the first drop of oil from the ground makes its way out corruption allegations have rocked the country with President Yoweri Museveni and a number of ministers accused of taking bribes to award oil deals to oil firms.

An angry President Museveni 2011 dismissed as "absolute rubbish" allegations that he could have received personal payments from Italian oil firm, ENI, in return for Heritage Oil's exploration rights and said Tullow Oil official Andy Demetriou who reportedly made the claims is an "idiot".

In a similar way Prime Minister Amama Mbabazi, then Foreign Affairs Minister Sam Kutesa and Internal Affairs counterpart Hilary Onek, together with senior technocrats, allegedly shared at least $100 million allegedly from Tullow.

These accusations tabled by youthful legislator Gerald Karuhanga almost cost the Prime minister his job as Parliament bayed for his blood in heated debates in the august house. The President was quick to save his ministers image and jobs.

The world over the oil and gas industry is characterized by corruption, bribes, favor and bad deals arising from the huge sums of money involved in the industry.

And in Uganda corruption tendencies in oil industry is rooting deeply in the political class at a time when they have the biggest say in determining the direction the industry should take. One of the reasons the industry has not yet started production is the lack of the necessary laws to manage the resource.

In recent times parliament the arm of government tasked with making laws has been busy drafting the bills to govern the sector however it has been chaotic. The work has been slowed by disasgreements an example being the verbal fights that almost become physical during debates involving clause 9 of Petroleum (Exploration, Development and Production) Bill, 2012. The MPs lost it prompting Speaker Ms Rebecca Kadaga to suddenly abandon chairing the session. That's how heated it could get.

Therefore it is important that Uganda makes sober laws to get the best of the oil and gas industry, a product on which so much hope is hinged to deliver Uganda to a promised land of no poverty.

In an interview with East African Business Week, State Minister for energy Peter Lokeris said "This is a fragile activity, you must follow the law, you make good laws and things will be ok because, we don't want chaos in the country arising from that activity."

More Oil Finds In Northern Uganda

While Oil in Western Uganda is causing more excitement, more oil fields are being confirmed to contain oil and gas underneath the Ugandan soils. The government confirmed that what started as a speculation that northern Uganda has oil is now a reality exploration firm, Total, established the availability of resource. This was confirmed by Mr. Lokeris. "Yes we have found oil in Nwayo, the area is under exploration by Total, it has already been confirmed in some patches of the exploration area. We are still continuing towards the northern part of albertine braben." But the minister could not say how much oil is in northern Uganda because an appraisal is yet to be done.

Like in Bunyoro, the cultural leadership in northern Uganda will want to have a direct share from the oil proceeds with the main basis that oil sits on their land. Bunyoro already is demanding to know how much they will get form their oil a demand which has not yet be solved then here comes in Acholi and Langi a big problems awaits to stall the development of the resource.

Mr. Lokeris, the line Minister considers it not a problem saying that all people in Uganda and especially those where oil is located should get their share. He said "Yes they should get in fact all over the world where they have what they call decentralized government, which is decentralized administrations; they get some share in form of loyalties." "This will be applicable to Uganda because Uganda is a decentralized state. It has districts, it has got counties, sub counties it has parishes the law will into account all those levels." He adds.

Delayed extraction

What Ugandans should know is that firms that were authorized to carry out exploration and extraction of oil are ready to have the resource flowing but the lack of necessary laws have stalled the construction of a refinery as its preferred by Museveni's government and Ugandans.

Mr. Lokeris however reveals that the needed laws are being worked on. "The law is still in parliament, the moment it's confirmed there are some companies that have shown interest to come and participate in building the refinery and will be subjected to competition.

After screening, one of them will be contracted to build the refinery." Lokeris revealed. The law in question regarding the delayed construction of oil refinery is The Refinery, conversion, gas processing and transportation and storage law.

President Museveni recently met with officials of the Mini Refineries Enterprises LTD, an Israel oil refinery company interested in investing in a refinery in Uganda. The company specializes in mini refineries that improve crude oil on site before processing.

Considering the manner in which Uganda handles its businesses, at a snail speed, and the bad blood between the President Museveni led executive and Parliament the passing of such laws will take longer than expected which means oil will still lay underneath the earth as Uganda succumbs to more poverty poor service delivery and poor infrastructure.

Government moves to auction oil wells

Over the weekend, Ugandan government was also planning to auction at least 13 oil blocks in the Albertine Rift Basin this year as soon as it lifts a ban on the licensing of new acreage.

Uganda's junior Energy and Minerals Minister Peter Lokeris said the planned auction will allow international oil companies to bid for exploration acreage in the basin, where existing companies have discovered deposits of as much as 3.5 billion barrels of crude oil.

The government has demarcated a total of 17 oil blocks in the region, Mr. Lokeris said. Four of the blocks were licensed before Uganda imposed a licensing ban on new acreage in 2007. The remaining blocks will be auctioned as soon as President Yoweri Museveni enacts a new law lifting the licensing ban.

"Competitive rounds for new acreage will be guided by the new petroleum...some of the acreage previously licensed to oil companies has been returned to government through relinquishment requirements and the expiry of licenses" Mr. Lokeris said

The licensing round will be Uganda's first since it imposed the ban in 2007, which was put in place following the confirmation of commercial oil reserves. Oil exploration companies have since made a spell of discoveries in the country, increasing the size of Uganda's oil reserves from around 300 million barrels in 2006 to 3.5 billion barrels to date.

Mr. Lokeris said oil exploration companies operating in the Lake Albertine Rift Graben have had a success rate of around 87%, finding oil in 76 oil wells out of the 87 wells drilled so far.

"Preparations for development of some of these discoveries is ongoing before production can commence...This is an exciting time for the country" he said.

Companies with licenses in the country so far include U.K.-based Tullow Oil PLC, France-based Total SA and China's Cnooc Ltd. The three companies are planning to invest around $10-12 billion to develop oil fields in four blocks as Uganda continues plans to join the ranks of African oil producers.

Companies such as Italy's Eni SpA, Russia's Lukoil Holdings and India's Essar Oil Ltd. have expressed interest in acquiring oil licenses in the country.

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