KAMPALA, Uganda – Even before the first drops flow, Uganda’s oil sector is beset by bribery allegations against officials, tax-related cases abroad that cost the government millions in legal fees, and the alleged interference of a president whose firm control of the sector worries transparency campaigners.
Uganda, which has confirmed oil deposits of about 3.5 billion barrels, wants to extract at least 1.2 billion barrels over the next three decades. That figure could rise when more oil blocks are put up for exploration later this year, potentially making Uganda one of Africa’s top oil producers.
But some experts and analysts worry that the country got off to a false start and remains too politically unstable to avoid some of the mistakes made by other oil-rich but otherwise poor countries.
Ugandan President Yoweri Museveni has reserved for himself the right to have the final say before any deals are signed with oil companies, saying that policy is to ensure the country’s interests are always protected. But some critics say the president’s close involvement is unhelpful to a country that needs to focus on building credible, transparent institutions to manage its oil wealth whether or not Museveni is around.
In a session of parliament that sparked public uproar, an independent lawmaker fingered three government ministers he believed had been bribed by foreign oil companies seeking contracts with Uganda’s government. The charges, denied by the three officials, forced lawmakers across the political spectrum to order an investigation that many here hoped would be swift and decisive.
Almost two years later, that investigation is still ongoing and Gerald Karuhanga, the lawmaker who first alleged bribery, says he no longer looks forward to seeing the investigators’ report, if it ever comes out.
“It’s taking forever,” he said. “It’s really unfortunate. I don’t think they are serious about what they are doing. We are no longer enthusiastic about its release.”
Uganda has not had a single peaceful transfer of power since independence in 1962, and Museveni himself, in charge since 1986, faces growing pressure to retire. The East African country, which announced that it had commercially viable quantities of oil in 2006, hopes to become a producer of crude by 2016. That’s about the time Museveni’s current term expires, and many believe he will run again.
Museveni’s “interference” in oil matters makes Uganda less attractive in the eyes of foreign investors, according to Eurasia Group, a political risk think-tank with headquarters in New York.
“Rising internal party discord in the ruling (party) — younger members are pushing for new leadership — has triggered increased patronage payments by the president, especially over oil sector development,” the group said in a report last month.
A new law gives the energy minister, a presidential appointee, the authority to issue and revoke oil contracts. Some say that, while it may have reduced officials’ opportunities for corruption, the president’s close involvement undermines the development of institutions such as a planned national oil company.
“The primary risk we have is that the decision-making has been largely controlled by Museveni,” said Angelo Izama, a Ugandan analyst who is researching the political economy of Uganda’s oil wealth as an Open Society Foundations fellow in New York. “But he won’t be around as an effective leader in the next 15 years. The question remains, ‘How will this kind of narrow decision-making fare once you have another president?’ The risk is that the political transition in Uganda is unpredictable.”
The global intelligence think-tank Stratfor said in a recent report that “Museveni’s system of patronage going forward will have to be based on oil revenue. The increasingly fractious nature of Museveni’s support base means patronage will become even more important, making securing oil revenue even more vital.”
Museveni has said he wants oil revenue to be spent on developing infrastructure — especially roads — across the country, raising expectations here. It may be years before the government earns any royalties from oil, but these days Uganda’s parliament frequently receives petitioners presenting alternative ways to spend the cash. Tribes that live near the oil-producing areas want more.
Uganda and three foreign companies reached a deal last month that includes the construction of a pipeline to transport Ugandan crude for export through Kenya. Accordingly, France’s Total and the Chinese offshore oil company CNOOC, which last year acquired two thirds of British explorer Tullow Oil’s Ugandan assets for $2.9 billion, will build a refinery with the capacity to process 30,000 barrels each day. But a final deal has not been signed, in part because of what the president’s office called a disagreement on how to develop the pipeline and refinery.
Uganda is pressing for the “unconditional expansion of the refinery size of 30,000 to 60,000 barrels of oil per day when the demand increases in future,” according to the president’s office.
Uganda’s biggest risk is rushing to sign deals with foreign oil companies that are vastly more experienced, said Fred Muhumuza, an economist with a local think-tank called the Economic Policy Research Center. Uganda, which is locked in disputes with oil companies over outstanding taxes, must gain full knowledge of its oil wealth before production starts, he said.
“As a country, Uganda needs to build the capacity to understand what’s going on,” he said. “Are we going to be able to know how much oil has been exploited and then tax the revenues appropriately?”
Current estimates of Uganda’s oil wealth are based on about 40 per cent exploration of an ecologically sensitive area around Lake Albert on the border with Congo. In the coming weeks Ugandan authorities are expected to invite oil companies to bid for at least 13 oil blocks in a new round of licensing that campaigners hope will be more transparent than the last time.
“I am hopeful that the government will go for open bidding,” said Godber Tumushabe, who heads the Advocates Coalition for Development and Environment, a local governance think-tank . “If they go and cherry-pick which company gets which block, then that will be a fundamental mistake in terms of building the systems that will protect the country against the oil curse.”