Uganda wanes off foreign pressures as oil production nears

For the  last seven years, Uganda has been engaged in intensive behind-the-door negotiations with multinational companies exploring for oil in the western part of the East African country.
Fuel is a major driver for the regional economy. The New Times/File.
Fuel is a major driver for the regional economy. The New Times/File.

For the last seven years, Uganda has been engaged in intensive behind-the-door negotiations with multinational companies exploring for oil in the western part of the East African country.

Uganda’s insistence on towing its line against a push from multinational oil companies and their home countries have over the years resulted into court battles and threats to the oil companies to wind up their business. 

“We have wasted too much time. We are now with the issue of oil for seven years. We need to make our final decisions,” Ugandan President Yoweri Museveni on April 11 told a meeting of government officials and a delegation from multinational oil companies.

Museveni’s frustrations arise from the back and forth negotiations and the reluctance by the oil companies to tow the government line.

News of oil discovery in the western part of Uganda back in 2006 excited many Ugandans who saw the country becoming prosperous in a few years to come.

At several public gatherings, Museveni told his audience that unlike other oil producing African countries, Uganda was going to use the oil revenues to fast track the country’s transport and energy infrastructure development, a key factor to unlocking the country’s economic potential.

Uganda discovered commercially viable oil deposits in the Albertine Graben in 2006 after years of survey by Ugandan geologists.

Since then oil exploration has been ongoing leading to the drilling of 89 wells, out of which 77 had oil deposits. So far the total reserves that have been discovered are 3.5 billion barrels of oil, out of which 1.2 billion barrels or 1.7 billion barrels can be recovered depending on what technology or methods of extraction are used.

Statistics from the ministry of energy and mineral development indicated that the revenue that can be reaped from the recoverable oil amounts to US4150billion.

Crude oil amounting to 36,000 barrels has so far been drilled out of 16 wells during the testing.

“We do further drilling in order to understand the exact volume of oil that is contained in that field and how you will recover that oil. A number of fields are undergoing appraisal,” said Kabagambe Kaliisa, permanent secretary of Uganda’s ministry of energy and mineral development, on Tuesday when giving an update on the latest development in the country’s oil sector.

There are three multinational oil companies operating in western Uganda, including, British oil company Tullow, France’s Total and China’s CNOOC.

Previously Tullow, Heritage Oil, Dominion and Neptune were operating in the country after Hardman, an Australian oil company, sold out its stakes.

Dominion and Neptune did not find oil and therefore their licenses were returned to government leaving Heritage and Tullow oil in play.

After a long battle with the government and Tullow on who it should sell its assets to, Heritage eventually sold to Tullow as per the Production Sharing Agreements.

The sale of Heritage’s stakes resulted into capital gains tax amounting to 404 million dollars. Heritage refused to pay the tax to Uganda opting for arbitration in a London court, which the Ugandan government won.

After Tullow bought the Heritage stakes in the oil blocks, the Ugandan government insisted that it did not want a monopoly in the exploration process.

This compelled Tullow to bring on board Total and CNOOC, each of which acquired a third of Tullow’s stakes at a total cost of US42.9billion dollars.

The Ugandan government insists that an oil refinery has to be built in the country following an East African Community (EAC) study which recommended that another refinery is needed in the region to compliment the Mombasa refinery.

The Mombasa refinery, according to Uganda’s ministry of energy and mineral development, operates at 35,000 barrels of oil per day instead of the installed capacity of 70,000 barrels a day.

This is in relation to the high consumption rate of petroleum products by the East African region.

According to statistics from the Ugandan ministry of energy, the region will by 2030 consume 370,000barrels of oil per day, most of which will still be imported.

The oil companies in Uganda were insisting that an oil pipeline be constructed from western Uganda to Mombasa, noting that it is the most viable way.

However a feasibility study done by Uganda showed that it would be more profitable to build a refinery of an installed capacity of 60,000 barrels per day, instead of an oil pipeline with the same capacity. 

The argument was that since Uganda’s oil is waxy, the pipeline would need to be heated which would push up the transportation costs.

The oil companies have now succumbed to government pressures that a US$2billion refinery with an installed capacity of 60, 000 barrels of oil per day would be constructed.- and in case of further oil discoveries, the extra  would be transported through pipelines.

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