Museveni says he’s “not excited” about Uganda’s oil. Is anyone anymore?
Posted on December 7, 2016 by Michael O'Hagan & Liam Taylor
The discovery of sub-Saharan Africa’s fourth largest oil reserve has
been hailed as a panacea to Uganda’s problems. But even at peak
production, it will only generate two barrels of oil per citizen per
year.
Has the oil curse befallen Uganda? Credit: Stefan Gara.
Has the oil curse befallen Uganda? Credit: Stefan Gara.
A decade after the discovery of large reserves of commercial oil in
Uganda was greeted as a game-changer for the country, some once
optimistic leaders have reached a grim conclusion.
“Oil is a burden for us now,” says Norman Lukumu, prime minister of
the Bunyoro Kingdom, where the majority of the deposits lie. “Some
schools have been built but families displaced by land grabbers can’t
use them. A road, some hotels, that’s all we have.”
Although production has not yet started, political leaders in Kampala
have typically touted oil as a panacea to problems faced by one of the
poorest countries in the world.
This August when production licence agreements were signed, for
example, Oil Minister Irene Muloni hailed the 6.5 billion barrels
found in the western region around Lake Albert as the solution to
infrastructure challenges, rampant youth unemployment and a struggling
economy.
“Service providers, jobseekers prepare yourselves. Let’s get ready to
achieve our president’s vision for this country to become a
middle-income country in the short term,” she said.
That vision, outlined by President Yoweri Museveni in his state of the
union address this year, includes using oil to fund “the roads, the
railway, electricity, irrigation, some aspects of education and
health” as well as a long list of innovations from electric cars to
banana juice.
These ambitions rest on the fact that of the 6.5 billion barrels
discovered, 1.7 billion are easily recoverable. However, while this
makes the find the fourth largest reserve of crude oil in sub-Saharan
Africa, shared out equally across Uganda’s population, each citizen
would only get about two barrels a year at peak production.
This compares to 39 per citizen in Angola, and 261 in Norway. Uganda’s
oil revenue might be enough, used wisely, to spur some productive
investments, but not to transform the country.
“Oil and gas is not about to be the saviour for Uganda,” says Gerald
Byarugaba of Advocates Coalition for Development and Environment.
Land and displacement
However, while oil might not transform the country as a whole, its
discovery has had enormous impacts on many communities. In the vast
areas around the national park under which much of the oil sits, for
instance, rife land speculation has led to widespread displacement.
“Oil is a good project but it has become a problem in the whole
Albertine region,” says Gustav Ofungi Kasangaki, chairman of Kyehoro
village, a small settlement of grass-thatched houses which relies on
fishing from wooden canoes on Lake Albert.
“Land issues have become a problem. You can own a piece of land and
then you discover it doesn’t belong to you,” he says.
Richard Orebi of Global Rights Alert agrees. His NGO advocates for the
rights of people displaced from their land by rich speculators, who
often have ties to powerful national politicians and civil servants.
In one case, 7,000 people are being displaced from 29 square
kilometres which has been earmarked to build a refinery, although the
project is mired in confusion after Russian and South Korean partners
pulled out of the deal.
To speed up such land acquisitions, the government is even talking
about amending the constitution to circumvent a requirement for “fair
and adequate” compensation to be paid before land is taken, a
possibility that deeply worries Orebi.
“Government and the oil companies are not informing people of what the
oil industry is, or the benefit with it, or what are the challenges
that come along with oil development,” he says. “They don’t want
people to know that they have rights over their land.”
In the pipeline
Issues over land and setbacks in the building of refinery are not the
only aspects of Uganda’s oil project that are struggling.
Although the August signing of long-awaited production licences in
favour of Total and Tullow Oil – two of the companies in an
international consortium to manage the fields along with the Chinese
state-owned CNOOC – and a decision in April to route an export
pipeline through Tanzania mark important milestones, managers in those
companies believe that the Ugandan government’s ambition to have oil
flowing by 2020 is overly ambitious.
Jimmy Mugerwa, General Manager of Tullow in Uganda, has said that 2021
is the earliest he expects production to start.
Part of the challenge surrounds the building of a suitable pipeline.
In order to deliver the viscous type of crude oil sitting shallowly
under the Albertine Graben, a 1,400 kilometre pipeline running from
close to the eastern Democratic Republic of Congo to the Indian Ocean
will have to be heated. This highly demanding engineering project
would be the longest of its type in the world and likely cost around
$4 billion.
“Technically it can be done, but to do it in East Africa, at the
length we’re talking, it’s going to be a challenge,” says Charles
Goedhals of Gaffney Cline and Associates, a consultancy.
“You’d need to guarantee volume through that pipeline to make it
commercially viable. With a heated pipeline you have to be far more
careful about operational parameters.”
Will oil pay?
At today’s prices of around $50 a barrel, the largest field could
generate a 10% post-tax return according to the World Bank, though
other analysts talk of $60 to make Ugandan oil viable.
However, long delays in reaching the production stage mean that the
ultimate oil price when Uganda is ready to produce is unknown.
The uncertain schedule also poses economic risks. Uganda’s public
debt, at 33% of GDP, is low for the region and it has not made the
same mistakes as Ghana, which issued dollar-denominated bonds in
anticipation of oil revenues. But Adam Mugume, the director of
research at the Bank of Uganda, has warned that the country could
default on its debt if the oil does not arrive on time.
Moody’s downgraded the country’s credit rating in mid-November,
warning that low tax revenues make it difficult to sustain rising
debt.
“I wouldn’t be surprised if because we have oil there is no pressure
to collect taxes,” says Joseph Mawejje of the Economic Policy Research
Centre, a Ugandan think tank.
The political clock is ticking. Facing elections in 2021, the Ugandan
government may look for ways to cut corners. This would be a risky
manoeuvre in the Lake Albert region, one of the most ecologically
diverse areas on earth, where 52% of Africa’s bird species and 39% of
its mammal species can be found.
At the same time, there are also signs that Museveni, who once
dismissed oil pessimists as “saboteurs and quislings”, is belatedly
trying to manage expectations. In a speech last month he claimed to be
“not excited” about oil, which he called “a small aspect of a big
story of prosperity”.
That is a message that Bunyoro Kingdom’s prime minister Lukumu is
already preaching.
“Initially our expectations were very high,” he says. “We were waiting
for the miracle to happen, but not anymore.”
Michael O’Hagan is a freelance journalist based in East Africa. Follow
him on twitter at @micoh.
Liam Taylor is a freelance journalist based in Kampala. He blogs
regularly at liamtaylor.org.
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One thought on “Museveni says he’s “not excited” about Uganda’s oil.
Is anyone anymore?”
stephen says:
December 8, 2016 at 3:30 pm
Museveni is heading the same direction Mugabe is, at the moment!
He is a man who has totally run out of ideas and jumps on anything any
one offers to him, no permanent strategies! When Chinese come with
ideas he jumps on that, Russians, Turkish, Indians, South Africans
etc, everything seems to be done on trial and error basis! He has
killed off all institutions and runs the whole country single handedly
by himself and family, nothing shocked me like the recent gunning down
of a seniour moslem army officer, when the President calls the wife of
the murdered man, she then complains about the delay by the Police to
get the dead body off the road where he was murdered! By this time the
police was still collecting evidence on the scene, remember how Ill
equipped our police is and so very slow even getting to the scene, but
the President ordered the removal of the body straight away, and you
can see her on the footage handing the President’s call to one of the
police officers at the scene, so everything that was being done was
brought to a halt!
Museveni talking about not being excited about Uganda’s oil, says
a lot about him, remember this is a man who has splashed up huge
public funds to buy private jets, jet fighters etc when schools don’t
have chalk and kids attend classes under trees!
This for me paints a picture of a man who is drowning and someone
hands him a straw and he says..Am not excited! The giant store in
Britain called TESCO have their saying, “Every little helps”, of
course… when put to good use!
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