Uganda toughens as pressure starts for its oil

Jun 06, 2009 02:00 AM

As Uganda prepares to start the commercial drilling of its oil, pressure has started setting in causing concern that the mineral may turn out to be a curse rather than a blessing like in many oil producing African countries.
President Yoweri Museveni, while delivering the State of Nation Address at Parliament, said some foreigners were pushing the government to export the crude oil to the Kenyan seaport of Mombasa, where it would be refined and sold to regional and international markets. The foreigners argue that building a refinery in Uganda would be very expensive, opting for construction of an oil pipeline that will link the oil fields to the Mombasa refinery.

"Some people think Africa is a playing place where you go and play games. NRM (Uganda's ruling party) is not part of that league," he said. "Government is focusing on the development of a refinery in order to produce a wide range of petroleum products for transportation, power supply and domestic use," he added.
What is known isthat the government has been locked up in negotiations with Tullow, an Irish company exploring for oil in western Uganda, on whether to set up a refinery or export the crude. The heated negotiations have resulted into a disagreement with the oil firm threatening to postpone the oil project indefinitely.

Iran factor
After seeking advice from oil producing Iran, the government has stuck to its earlier position of constructing a refinery. According to Museveni, the government is upgrading its earlier plan of setting up a mini-refinery to setting up a larger one in view of the increasing discoveries.
So far, the discovered reserves in the Albertine Graben are about 600 mm barrels of oil, an amount considered viable for commercial production. After signing a cooperation agreement in mid-May, the Iranian government agreed to fund the entire value chain of Uganda's oil production. It has also promised to jointly fund the construction of an oil refinery and train Ugandans in relevant fields of petroleum.

While Uganda is still considering the Iranian position, the United States has said it is ready to support Uganda's nascent oil and gas sector with anything including the key environmental issues that are crucial to the efficient management of oil and gas.
As all these forces present their positions on how they can help Uganda, Tullow now wants to sell 50 % of its stake in the oilfields. It has three licenses on the Ugandan side of the Lake Albert Rift Basin, which, according to the company, can deliver up to one bn barrels of oil.

Aidan Heavey, the Tullow chief executive officer, was quoted as saying that the sale will bring in a partner to fund the construction of a pipeline. He said the first phase expected to start next year would produce around 20,000 barrels of oil per day, while the next phase would be more expensive and time consuming since it would require a pipeline. The company has already set up a team of experts to fast track the commercial production.
"An integrated project team has been set up to plan the development of the discovered resources with consideration being given to early phases of production," the company said on May 12.

Kenyan factor
When Uganda starts to fully exploit its oil resources, its economic situation with Kenya is likely to change since Kenya has been the main supply route for Uganda's petroleum products. Analysts say the production of cheap energy using the oil resource is likely to make Uganda a destination for manufacturers. Currently Uganda is facing an energy crisis which has forced some manufacturers to relocate to other countries in the region.
Kenya would also lose tax revenue from petroleum products destined for Uganda. Road transport companies and import and export firms would also lose business.

Tamoil, a Libyan company constructing the extension of an oil pipeline from western Kenya to the Ugandan capital Kampala, has also expressed concern whether it should go ahead with the project now that Uganda is going to produce its own oil. President Museveni, however, says Uganda will negotiate with Kenya to have a possibility of constructing the pipeline in such away that it can be used to import and export oil products.
Experts have cautioned Uganda not to make mistakes like other oil producing African countries, which are currently facing civil strife.

Alexander's Commentary

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