Uganda toughens stance as oil bullies close in

As Uganda prepares to start 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 the Nation Address at Parliament this week, 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, who he did not name, 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 to produce a wide range of petroleum products for transportation, power supply and domestic use,” he added. What is known is that 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, the state owned New Vision daily said on Wednesday. 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 is about 600 million 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.

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 its 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.