A LOT OF PRAYERS NEEDED FOR UGANDA OIL

In 2006, Uganda discovered substantial Oil reserves in the Albertine Grabben in Western Uganda, and it is true that further discoveries of Oil deposits have been made, which in essence should enhance the country’s potential for becoming an important oil producer.  The Albertine Graben (AG), the area running along the entire western border of Uganda has been confirmed to contain commercial oil and gas resources. The Graben, which is a rift basin, forms the northernmost extension of the western arm of the East African Rift Valley and stretches from south-western Uganda at Lakes Edward and George to West Nile, a distance of about 500 kilometres. The AG is shared between Uganda and the Democratic Republic of Congo, but on the Ugandan side it averages a width of 45 kilometres.  Twenty (20) oil and/or gas discoveries have been made in the country and the in-place volume of petroleum in the country is currently estimated at over 2.5 billion barrels of oil equivalent, with about 1 billion barrels recoverable. This level of resources represents a significant development for the country as it means that production of oil can now be undertaken commercially. Over US$1.5 billion has been invested in the sector since 1998; bigger investments are anticipated during the development, production and refining phases.  Government’s systematic efforts to promote the exploration of oil and gas in the country during the last 25 years have paid off with investors being attracted into the sector and the discovery of commercial petroleum reserves. Oil and Gas Exploration activities in the country have had an unprecedented 90% drilling success rate.

Uganda’s Oil discovery was symbolically announced on October 8, 2006 a day before the country’s 44^th Independence anniversary.  Though oil deposits had been found a decade or so earlier, announcement was after commercially viable oil reserves were discovered in the Albertine rift of Western Uganda.  In October 2007, President Yoweri Museveni requested the African Development bank (AfDB) President, Dr. Donald Kaberuka who was visiting Kampala to deliver the 2007 Joseph Mubiru Memorial Lecture for assistance in addressing some of the many challenges - financial, technical and socio - economic that emanate from Oil exploitation.  In response, the AfDB President promised help in organizing a Seminar on the management of oil revenue in Kampala.  According to President Yoweri Museveni an Oil and Gas policy will settle the doubts of those who believe the oil would be a curse. Such a policy he said would “create lasting value for the Ugandan people”. Much of what he outlined, in a speech on Uganda’s 44^th Independence Day, about the principles for the gas policy is based on best standards. The oil policy currently being ironed out by the relevant Ministries, he said, would ensure transparency in the management of future oil resources as well as environmental conservation.

According to David Johnston of Daniel Johnston & Co. Inc, an international Petroleum Consulting Firm, the country could earn up to $130bn in profit from the oil over 20 years.  For a country with a Gross Domestic Product of about $16bn and a huge public debt of roughly $3.5bn, the revenue from oil could be a timely boost.

On 8^th to 9^th July 2008, there was a National Seminar on Managing Oil Revenue in Uganda at Munyonyo Commonwealth Resort where Uganda Government sought to attain three important objectives:

1. Share information on the country’s oil prospects with key stakeholders;
2. Provide a forum for the discussion of the National Oil and gas Legislation; and
3. Share the macroeconomic and political economy experiences about oil’s impact on the fiscal regime, investment and savings, agriculture, the environment, and host communities.

In addition to the above three the seminar wanted to learn about how to collect accurate baseline data on oil exploration, create technical capacity, maximize local content, erect infrastructure, link research to policy, and promote accountability.

On 18^th June, 2010, over 40 Members of Parliament, Civil Society representatives, Political Party leaders, financial and Petroleum experts converged at Entebbe Botanical Beach Hotel to discuss Government’s Management of Uganda’s new Petroleum Industry.  The Workshop theme was: “Parliamentary Symposium on oil and gas Development in Uganda.” 

Tullow Oil has invested over $1billion in exploration, Seismic and drilling activities which has enabled the discovery of over 1 billion barrels of recoverable resources, with an estimated 1.5 billion barrels yet to be found.  This level of resource could place Uganda in the top 50 oil producers in the world.

Given the above background, the discovery of oil and gas deposits in Uganda present new opportunities through access to energy and increased oil revenues that can be used to chart a sustainable growth path that does not only create economic growth but also results in economic development whereby growth is fairly well distributed to facilitate poverty reduction.

However, the discoveries come in the midst of serious concerns and controversies that have characterized the empirical relationship between oil rents and development, particularly in the oil exporting African countries, and that Uganda could suffer similar fate.  The disappointing development performance of many resource – rich economies has been a topical issue among policy makers, NGOs, Civil society and academicians.  Many countries have failed to leverage their natural resource wealth into strong states.  For some of these countries, oil, gas, and mineral wealth have become associated with high poverty rates, weak state institutions, corruption, and conflict (Warner 1995; Sab –i-Martin and Subramanian 2003; Bannon and Collier 2003; Collier and O’ Connell 2004).  Thus the natural resource discoveries have been associated with the ‘resource curse syndrome.’

Uganda faces new economic management challenge following the discovery of oil and gas in Commercial quantities.  One of the challenges is finding ways of spending and absorbing the increased foreign exchange earnings while mitigating the likely adverse effect on the economy.

The concern that has triggered a substantial amount of theoretical and empirical debate is the Dutch disease effect of natural resource abundance.  This phenomenon describes the situation whereby the additional revenues from the natural resources put pressure on demand for domestic goods and services in a way that consequently raises the value of the local currency (real exchange rate appreciation) and makes tradable goods uncompetitive. 

Oil has the potential to transform Uganda’s economy from the poorest to the richest economies in the World, but it also creates new risks and challenges for the country; this against the background that no country in Sub – Saharan Africa has developed from oil.  Chad, Sudan (before and after separation) and Nigeria show that oil production has the potential to plunge Uganda into abject poverty, environmental degradation, political instability and misery.  However, these can be prevented if Uganda puts in place effective, transparent and accountable state structures and institutions to ensure that oil production translates into economic development and tangible benefits by all the citizens of the country.  In Uganda’s case however, the trend of the oil bill has already made many to lose hope.  On Friday 7 December 2012, NRM used its numerical strength in Parliament to overturn a House resolution that had clipped the Minister’s powers in the Petroleum (Exploration, Development and Production) Bill, 2012.  149 MPs voted to re-instate the Minister’s full powers to grant and revoke licences, negotiate and endorse Petroleum agreements.  39 MPs including 5 NRM MPs voted against the amendment.  The 5 NRM lawmakers who voted against the Government position accused President Museveni of blackmail and criticized their colleagues for bowing to Government intimidation to pass what they called a bad law for Uganda’s nascent Oil sector.

The emerging oil and gas sector in Uganda is providing opportunities for the country which include the Investment opportunities in Joint Ventures with companies holding licenses in the country, Emerging Infrastructure like the Refinery, pipelines and storage facilities, Service Provision in the fields of Engineering, Procurement, Construction, Environmental Consultancy, among others.

There are also employment opportunities in general and the opportunity to develop a highly skilled man power in oil and gas related disciplines.  In fact some Ugandans have already been sent abroad for specialized training, while locally, courses to cater for the oil industry have been started in Universities including Makerere. 

Ugandans expect increased national prosperity with commercial oil production as Government will invest in roads, power plants, education, health services and other socio – economic infrastructure.

The general public expects to see the “end of donor dependence and conditionality” and regaining of economic sovereignty.  Ugandans have hope that oil will improve their quality of life.

The discovery of oil has the challenge of the management of oil revenue.  What was revealed by Hon. Karuhanga is reason enough that accountability for oil monies will be a problem.  In the story: MP Karuhanga Tables Fresh Evidence on Oil Bribery, “Karuhanga says he has a print out on the account held by Kutesa. He told parliament that on different dates between June and July last year, East African development bank, in which Kutesa has shares, received money from Tullow Oil Uganda.  Earlier, Kutesa had dismissed the allegations as blatant lies and asked the house not to waste time carrying out investigations. The minister argued that while it’s ok to fight corruption, it should be done using correct methods and basing on facts or else the vice will be entrenched instead.   

But according to Karuhanga, on 8th July 2010, the bank received 3.5 million Euros, followed by another 5 million Euros on 6th July. On 4th, 10 and 21st June, the same bank got 500,000 Euros, 1.5 million Euros and 1.5 million Euros.   

MP Karuhanga overshadowed the whole debate on oil when he exposed details of bank accounts and huge amounts of money, in dollars and Euros, which were reportedly transferred to ministers Kutesa and Onek through their account numbers in foreign banks by Tullow Oil to get favors in the Oil dealings in Uganda.    

Karuhanga said Kutesa received a bribe of 17.5 million Euros, an equivalent of about 68 billion shillings while Onek was reportedly given money in five different installments totaling to 5.6 million Euros, an equivalent of about 21.8 billion shillings.  However, Hon. Kutesa pointed out that he has never seen anyone count such colossal amounts let alone own it. He questioned the kind of service he would have rendered to be awarded 17 million Euros.”

Uganda faces the challenge that there is no Universal model for managing oil revenue.  Case studies show that each country followed its own path depending on the country context, capacity and governance environment and that each country faced a challenge in identifying a workable model.

In an article: Oil Boom faces Environmental Challenges, within the Observer of Wednesday, March 9, 2011, “Albertine Graben - When two waterbucks got trapped in the fenced-off Buffalo East Five oil field in the north western part of Murchison Falls National Park on Thursday last week, it was perhaps the most fitting picture of the widening conflict between promoting Uganda’s oil industry, protecting the country’s priceless wildlife and preserving the largely pristine environment.  Outside the oil field - less than 10 metres away - a giraffe stood tall. And a few metres away, an elephant patrolled the area, flapping its ears. But the drama was inside the field, part of the assets that Tullow Oil bought from Heritage Oil for $1.4bn.  One waterbuck, in a desperate attempt to break free, rammed against the fence looking for any exit. The animal, said to be a good swimmer, rammed against the fence a couple of times, running around endlessly. It would take a couple of minutes before the animals were free.  The spectacle is a strong indication of how oil exploration activities have disrupted the wildlife areas in Uganda, with fears that while the country is set to gain from the Black Gold, the country’s tourism and environment sectors could pay a huge price.”

Oil exploration is already a challenge to the wildlife, “Home to many animals such as buffalos, baboons, antelopes, among others, the reserve has been depleted of a substantial number of animals partly due to oil exploration activities, and especially after the infamous oil flaring at the Waraga well in 2006. When the incident happened, a thick dark smoke covered the reserve for two weeks, leading to the migration of several animals.  While tourism players say the effect of oil exploration could be seen in the long term, there is already some visible impact on some wildlife reserves. Take the Kaiso Tonya Game Reserve.  Home to many animals such as buffalos, baboons, antelopes, among others, the reserve has been depleted of a substantial number of animals partly due to oil exploration activities, and especially after the infamous oil flaring at the Waraga well in 2006.”

The Fisheries sector is also keeping a close eye on the industry. Already, two huge oil wells belonging to Tullow Oil, the Kingfisher and Ngassa II, are said to hold at least 300 million barrels of oil each in Lake Albert, which straddles the border between Uganda and the Democratic Republic of Congo.  Wilson Mwanja, Commissioner of Fisheries in the Ministry of Agriculture, warned that “Soon we will have our fish rejected in those environmentally sensitive countries like the European Union where we export much of it.” Fish is Uganda’s third most valuable export.

Prof. Jenik Radom of Columbia University advised Uganda against the practice of negotiating Individual Production Sharing Agreements (PSA) the practice Uganda adopted and instead adopt a competitive auctioning process.  The Professor advised that Uganda should design a solid code of conduct that deals with conflict of interest as there are some worries that the national agenda of distributing the oil wealth could turn into a family affair!

While responding to best practices in developing oil and gas legislation, revenue management, corporate governance and environmental management during the symposium on oil and gas development in Uganda, Dr. Kent Moors said, “Oil companies have one aim: to maximize their own profits.  To achieve this goal, the companies do whatever they can to cut costs and decrease their tax burden.  The Ugandan Government has to counter this impulse with detailed regulation, PSAs and strong oversight.  He said, Companies are never willing to do things that cost them money unless you tell them to, and then you need to look over their shoulder and ask is it what we agreed to do?”

Dr. Moor noted that the industry particularly threatens Uganda’s environment, climate and natural resources.  Oil extraction is inherently invasive, and to make as much profit as possible, Oil companies could wreak havoc on local environment.  Environmental damage would permanently harm Uganda, where 80% of the people depend on agriculture.  To this end, the Ugandan Government has to be prepared to create and enforce strong, specific environmental regulations for the oil industry.

In conclusion, while there are expectations with the commercial oil exploration and refinery, there is considerable apprehension given that Ugandans have noted that amny resource – rich African countries seem to have been affected negatively by Oil wealth, with increasing corruption in public affairs, political instability, environmental degradation, and increasing inequality.  

Oil Bill passed but 198 MPs didn’t vote

Busiro East MP Medard Seggona (L) chats with Energy minister Irene Muloni after passing of the oil Bill on Friday at Parliament. At least 198 legislators did not take part in the crusial voting exercise. PHOTO BY GEOFFREY SSERUYANGE. 

By Yasiin Mugerwa

Posted  Sunday, December 9  2012 at  02:00

The ruling party on Friday used its numerical strength in Parliament to overturn a House resolution that had clipped the minister’s powers in the Petroleum (Exploration, Development and Production) Bill, 2012.

At least 149 MPs voted to reinstate the minister’s full powers to grant and revoke licences, negotiate and endorse petroleum agreements. Only 39 MPs including five NRM MPs voted against the amendment in Clause 9 of the Bill, a key section that had held the passing of the proposed Oil law.

The five NRM lawmakers who voted against the government position accused President Museveni of blackmail and criticising their colleagues for bowing to government intimidation to pass what they called a bad law for Uganda’s nascent oil sector.

“My colleagues voted to give full powers to the minister because of fear,” Ms Monica Amoding (NRM, Youth) said. “I voted against the government position because it was the right thing to do. Even if President Museveni was watching us, I did not want to betray Ugandans.”

The NRM side had mobilised members to come and vote. However, there was drama in the House when the Speaker caught the Public Service Minister Henry Kajura snoozing yet it was his turn to vote. It was the Vice President, Mr Edward Ssekandi, who awakened him amid laughter from both sides of the House.

Other NRM legislators who voted against the party position are: Theodore Ssekikubo (Lwemiyaga), Xavier Kyoma (Ibanda North), Raphael Magyezi (Igara West) and Vincent Kyamadid (Rwampara). 

The NRM MPs, who had voted against their party during their Caucus meeting on Thursday were seven.

There was no abstaining although more than 100 MPs were conspicuously absent.

Earlier, deputy Speaker Jacob Oulanyah, who was in the chair, agreed to a motion moved by Dr Francis Epetit (FDC, Ngora) that the voting be by roll call for Ugandans to know each member’s position on a matter that had polarised the House. “We are going to vote by roll call on tally to ensure transparency. This behind the scenes games must stop. Everybody must stand up and be counted,” Mr Oulanyah said.

Abdul Katuntu (FDC, Bugweri MP), who has been leading the consultations with the Executive on the Bill, accused the government of duplicity and warned that reinstating the minister’s powers in Clause 9 would bring confusion in the proposed law. “We put up a good fight and I am sure Ugandans are happy and the industry will never be the same.

Even those who won, they are not happy. The battle has just began and we are going to keep our eyes on the ball,” Mr Katuntu said. “We are not going to rest until we see transparency in the oil sector. As leaders, we are ready to ensure that oil does not become a curse for our people,” Mr Katuntu added.

Mr Ssekikubo, the chairperson of the parliamentary Forum on Oil and Gas, said no amount of intimidation would stop MPs from demanding accountability in the oil sector. “The government needs to know that oil belongs to the people of Uganda and as peoples’ representatives, we cannot allow the few individuals to benefit from this resource at the expense of our poor people,” Mr Ssekikubo said.

“The minister does not have the technical know-how to carry out the functions in the proposed law. This is why, in our wisdom, we had given the powers to the Petroleum Authority whose members are appointed by the President. I don’t know why the President wants politicians to confuse this sector.”

Clause 9 of the approved Bill gives the Energy minister exclusive authority to negotiate, grant and revoke exploration and production licences, to issue policy and regulations, and to approve field development plans.

Mr Ssekikubo told Sunday Monitor that the restoration of Clause 9 in the original Bill means that there will be undue concentration of Executive power, a greater administrative encumbrance than any politician could manage, and a potential invitation to bribery and corruption that might invite a curse in the country.

Mr Ssekikubo’s views are shared by civil society organisations. Energy Minister Irene Muloni who described the passing of the proposed oil law as “a big relief” assured Ugandans that the government is committed to ensuring that the oil is managed in a transparent and accountable manner for the benefit of the country.

On Thursday, the government disowned the consultation Mr Ktuntu had with Ms Muloni and closed the window for compromise on the Bill. It took six hours for the Speaker to adjourn the house and asked the Committee on Natural Resources to reconsider Clause 9 and report to the House. The Committee met on Friday and took a vote where 10 members supported the government position, five were against and three abstained.

There were jeers and taunts in the House as members voted to remove powers from the Petroleum Authority. The Bill is expected to be sent to the President for assent before it officially becomes a law. Two Bills were tabled in parliament in February for consideration. One Bill has been passed and the Petroleum (Refining, Gas Processing, Conversion, Transportation and Storage) Bill, 2012 is still at committee stage.

ymugerwa@ug.nationmedia.com