BUSINESS MAVERICK

Will Uganda’s oil be a blessing or a curse?

By Ed Stoddard 6 November 2019

Irene Muloni, Uganda’s minister of energy and minerals development. (Photo: Aaron M. Sprecher / Bloomberg via Getty Images)

Oil was discovered in Uganda in 2006, but the government said it wanted a refinery to be built before production began. Now the timeline is being driven by a pipeline that will snake across Tanzania. Uganda now expects to produce its first barrel of oil in 2023 — but this goalpost has been moving for years.

Almost exactly a year ago, Uganda’s affable Oil Minister Irene Muloni told the Africa Oil Week conference in Cape Town that the east African country expected to join the ranks of African oil producers in 2021, replacing a previous target of 2020. On Wednesday 6 November 2019 she told the conference that 2023 was now the target.

The contrast with other new oil provinces is striking. Take Ghana for instance. Its massive Jubilee oilfield was discovered in 2007, a year after the Ugandan find. Yet Ghana has been an oil producer for almost a decade now.

There are important differences of course. Ghana lies in West Africa, a long-established oil-producing region, and offshore production effectively requires a rig and away you go. Landlocked Uganda has long made the case that it needs a delivery mechanism to get its oil to market and a 1,400km pipeline is not something you throw up overnight.

You cannot produce oil until you know where it is going,” Muloni told journalists. “When we start production, we want to make sure that we are prepared.”

Uganda signed a deal last year with a consortium, including a subsidiary of General Electric, to build and operate a 60,000 barrel per day refinery that will cost $3-billion to $4 billion. The front-end engineering and design on that project still has to be done and the pipeline will probably be in operation first.

Disputes with field operators over taxes and development strategy have also hampered the start of production in Uganda, which has crude reserves of about 6.5 billion barrels, though recoverable barrels are about a third of that.

In 2012 at the Cape Town Mining Indaba, Muloni told Reuters she was hoping oil production would begin in 2013. Uganda is starting to sound like a broken record on this score, with critics noting that the delays mean the economy is smaller than it could be and the government’s revenue stream is also smaller.

Still, the delay may not be such a bad thing. Uganda is already constrained on a range of fronts that typically trap developing countries in cycles of poverty: it is landlocked and tropical, with a heavy disease burden, a history of conflict, and a president who has been at the helm for more than three decades. Throw oil into that mix, and the results could be very ugly. It might be best just to leave the stuff in the ground.

Take the shining example of Equatorial Guinea, whose hydrocarbons minister, Gabriel Obiang Lima – the son of the country’s president and Africa’s longest-serving and authoritarian leader, Teodoro Obiang Nguema Mbasogo – gave a press briefing shortly after Muloni’s. He lacks the ostentatious flashiness of his half brother Teodorin Obiang Nguema, who has had luxury cars and a yacht seized in Europe in corruption probes. Always charming and businesslike, he is responsible for the industry which critics say has enriched his family while impoverishing his country.

Obiang Lima this week announced that US oil company Kosmos Energy had made a significant offshore discovery in Equatorial Guinea waters. The economy, or the Obiang family, needs such a lifeline. Production is currently about 120,000 barrels of crude per day, about a third of its peak a few years ago. More than 90% of the country’s foreign revenues come from oil, so such a drop in production is a big deal indeed, especially because like most petro-states, Equatorial Guinea has not meaningfully diversified its economy – a textbook case of the resource curse.

Like an addict, the economy cannot do without oil investment. Obiang Lima said one of the reasons for falling production has been a failure by companies operating in the country to reinvest in the oil sector. “If you don’t invest, you can’t stay,” he said. The message was basically: don’t just lay down an initial investment and then produce. Keep investing, or get lost.

The problem is that the only investments the country is seeking to attract are in the hydrocarbon sector, which has propped up the regime for decades with scant benefit to most of the population. The country is ranked 172 out of 180 on Transparency International’s Corruption Perception Index – which means it is widely regarded as one of the most graft-ridden countries in the world. Uganda’s ranking is not much better at 149 out of 180.

Once the oil starts to flow, it might just rival Equatorial Guinea on that score. BM

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