The Observer (Kampala)

Uganda: When Will Nation Start Producing Oil?

Government's delay to clear the way for oil production is worrying oil companies.

Though government discovered commercially viable oil deposits almost seven and a half years ago, the country is yet to pump a single barrel of oil. Government plans to start oil production by 2017 at the earliest.

But before that, it needs to put in place all the legal, institutional and infrastructural requirements in place. It needs to construct a refinery, build crude oil pipelines from the oil wells to the refinery, and put all the laws in place.

Peter Lokeris, the minister of state for minerals, told an oil conference at Serena hotel last week that government is moving cautiously to ensure that all the safeguards are in place and avoid the mistakes committed by other African oil producers. The conference, dubbed 'oil and gas management for inclusive and sustainable development: an East African dimension,' was organized by the Economic Policy Research Centre (EPRC).

Already, there is a fear that the country will miss the 2017 target. Jimmy Mugerwa, the General Manager Tullow Oil Uganda, told the conference that oil companies have invested colossal sums of money and it is only fair they start recovering those costs as soon as possible.

"As people who sank in the capital, we have some expectations and cost recovery. We should move faster," he said.

Mugerwa cited the example of Ghana that discovered its oil in 2007, a year after Uganda's discovery but is already exporting crude. Mugerwa says government and oil companies under the Albertine basin development committee have been discussing how to reach a final investment decision.

"We need to reach a final investment decision as soon as possible."

Government is yet to approve the field development plans the oil companies presented. Mugerwa says such delays are not good for investors. "The longer you stay, sometimes it could be good but sometimes it could also be worse," he said.

Mugerwa noted that government's limited capacity is complicating the situation. "You put in an Environment Impact Assessment (EIA) and expect approval probably within a week, but it doesn't come on time because NEMA has no capacity," he complained.

But Robert Kasande, the Project Manager Refinery at the Petroleum Exploration and Production department, defended government's delay, arguing the need to put in place all the required infrastructure before production starts.

"Comparing Uganda and Ghana is like comparing oranges and apples. Uganda is landlocked with no history of oil and gas," Kasande said.

"Ghana's oil is offshore, making it easy to drill and export," he added.

Like the rest of the oil companies, Tullow is irked by government's decision to construct a refinery and not prioritize a crude export pipeline. Oil companies are not entirely opposed to the refinery, but they too want a pipeline to export the crude. This, the companies argue, will ensure that they recoup their investment capital and profit within a short time.

He reiterated the need to have a crude export pipeline and an appropriate-sized refinery concurrently. Kasande said at the moment, government's main priority is the refinery.

"The refinery will offset the high bill of petroleum products that currently stands at $1bn a year."

Mugerwa pressed on: "A crude export pipeline is fundamental to maximize the value chain."

Mugerwa said constructing a 1,200 kilometre crude export pipeline to the coast is not difficult.

"Technically, it is not difficult," he emphasized. Different experts say that since Uganda's crude is waxy, it will need to be heated up to keep the oil flowing, an expensive venture. This is not to mention the land compensation challenges in the two countries - Uganda and Kenya - which are usually controversial.

Mugerwa said another challenge is the infrastructure. At least 850,000 tones of equipment will be needed to build the refinery, something that the country's poor road network might not be able to handle, he said.

Oil revenues

Finance minister Maria Kiwanuka stressed that oil revenues should be used to boost the sustainability of other productive sectors. "We want the black gold underground to facilitate the green gold above the ground, through boosting agriculture, tourism and other sectors," she said.

Oil money, she said, should be used to bridge the infrastructure gap, build roads, railways, irrigation schemes, and unlock the agricultural potential of the country, among others. She revealed that government plans to invest some oil revenues out of the country since the country still has some challenges in its absorption capacity

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