Will oil fuel Uganda’s development agenda?

Guest Writers

Written by Robert Nsubuga

Wednesday, 14 September 2011 18:14

A few years ago, commercially exploitable reserves of oil were found in the Albertine Basin in western Uganda. Along with a number of other oil companies, British ‘wildcats’ Heritage Oil and Tullow Oil announced details of a major find – possibly the largest onshore field in Sub-Saharan Africa – exceeding the 400 million barrels threshold needed for commercial viability. This find presents a major transformation in the development outlook of Uganda – a landlocked, low-income country highly dependent on foreign aid, and with fuel costs reaching up to one fifth of its import bill. While future revenue estimates are highly uncertain, it is likely that the known fields alone could provide revenue of up to 15% of GDP at peak and at least 10% of GDP for a period of 20 years. Uganda now faces the challenge of using the new resource to advance its development agenda, while avoiding the corrosive effects oil often has on governance. In his 2009 state of the nation address, President Museveni said, “no one in Uganda or internationally, can now doubt the country’s steady and deliberate path to a middle-income country status in the near future… With the recent discoveries of oil in western Uganda, the country’s prospects for domestic revenue and self-reliance in financing public investments and programmes are much brighter today than any other time in the past.” This statement clearly shows that government favours using the oil revenues to build the much-needed infrastructure. Full-scale production and export may take some years to start, partly because of the difficulty of getting the oil to the market. Crude oil could be exported by road or rail, but the most cost-effective solution would be to build an 806-mile pipeline to the Kenyan coast. Government has considered building a refinery near the production points and in the first instance to sell the refined products on the local market, but this leaves a question as to how to market the rest of the oil. Will Uganda incur the double cost of building a refinery and the crude oil pipeline? The tax dispute between the Uganda government and Tullow Oil on the capital gains payable with the sale of Heritage’s assets to Tullow may also delay [production]. All these factors increase the uncertainty over the size and timing of oil-related income and the projected 10% of GDP would certainly have a major macroeconomic impact on the economy. In 2008, cabinet approved the national oil and gas policy for Uganda with a general goal of “using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create a lasting value to society.” However, the policy intentions have remained ineffective until Parliament passes the required laws. While this policy sounds excellent, its implementation could run down the drain if government continues with its secretive nature on the contents of the Production Sharing Agreements signed with oil companies, which violates its own Principle III, regarding transparency and accountability as stated in the policy. Furthermore, the ministry of Energy and Mineral Development in early 2010 drafted a bill - The Petroleum (Exploration, Development, Production and Value Addition) Bill 2010 – among other things to operationalise the 2008 oil policy and repeal the Petroleum (Exploration and Production) Act 1985. The draft bill grants one minister full powers to license and create oil regulations. The President could choose to appoint a minister to oversee petroleum specifically, or rearrange the ministries so that petroleum falls under another minister’s jurisdiction. But regardless of which minister will oversee petroleum, the unchecked powers granted in the draft law are overly broad. As the 9th Parliament begins to deliberate on this bill and any other legislation relating to oil and gas, MPs should pass legislation in which government commits itself to disclosing its transactions with oil companies. Given the rumours of bribery that are already casting shadows over Uganda’s oil sector, the government might consider additional penalties on oil companies found guilty of bribing public officials. Only then can we walk our development prospects talk with heads held high. The author works with Advocates Coalition for Development and Environment (ACODE).