Oil & GasCurrent State of Uganda’s Oil And Gas Sector

Aidah NabunjoDecember 6, 202124712 min
source: pexels.com
Industrial WordPress Theme

Uganda discovered oil within the Albertine rift basin at Hoima in 2006. The estimated barrels were 1.6million barrels of which 1.4million were found recoverable. Read more. This meant that the country would gain an estimated revenue of $50billion, a discovery that would transform the country’s economy probably to a middle income economy according to the Daily monitor.

But since the discovery, production dates have countered postponement due to decisions on the East African Crude Oil Pipeline (EACOP) taxations delaying the Final investment Decision.

According to The independent, on 23rd April 2020, Tullow a London based Oil Company reached an agreement with France’s Total, to whom it transferred its interests worth US$575m, paving way for the final Investment Decision.

As of April 2021, Final Agreements between Uganda’s President H.E Yoweri Museveni, Tanzania’s President Her Excellency Samia Suluhu Hassan and Total’s Chief Executive Officer Patrick Poyanne. Poyanne called the signing of the agreements a historic milestone that would see Uganda export its first oil in 2025 as stated by the Nilepost. The Lake Albert project which encompasses Tilenga and Kingfisher Oil projects, is to be operated by Total and China’s CNOOC respectively. With Total having the highest number of stakes at (56.67%),China’s CNOOC has (28.33%) while Uganda’s UNOC  has(15%) as stated by the Nilepost.

The two oil companies are expected to deliver a total production of 230,000 barrels per day that will run through the East African Crude Oil Pipeline with a length of 1445 kilometers, beginning from Hoima in Uganda to the Indian Ocean Seaport of Tanga in Tanzania.

But like any other sector, the oil and gas has been spared with devastating effects of the pandemic, causing uncertainty to oil producing countries and their investors.

Impact On Fuel Prices

Unlike other oil producing countries, Uganda’s oil is still underneath the surface meaning that the impact of Covid has been different. With the pandemic stirring fall of global oil prices at US$44 per barrel, Uganda is left to worry about the future of oil prices according to the Observer.

While appearing on NBS Morning Breeze, a local television show, the National Coordinator of the Civil Society on Oil and gas, James Muhindo said that the delays in oil production from the time of discovery is likely to earn the country huge losses especially in this period of the Pandemic

“There’s been a lot of postponed targets that have now come to haunt the country that is in a lockdown. If we had acted earlier, the country would have been able to cease opportunities like the windfall in 2016 that saw oil prices rise to $80 per barrel.”  In addition “The Natural Resource Governing institute made an analysis through modelling which concluded that if Uganda is to benefit from its oil and gas, the prices should be at $60 per barrel or more a target price that will be next to impossible  to achieve, given the Covid impact could  extend to a period of three, four or five years. https://youtu.be/IV1REvCpGVs

In contrast, Tom Ayebare the Petroleum Authority said that oil prices diving is no issue for it has been a usual incident from the 1970’s. He added that since the global price of oil now stands at $30 per barrel, the country can still make money even at $44 per barrel. https://youtu.be/IV1REvCpGVs

Local Operations

Having passed the local Content Bill in May 2020, local companies were allowed to take part in government projects with the hugest now being the oil sector. But there are fears that without government support, local firms are unlikely to gain from the UGX 50 trillion investment for the development phase according to the Observer .

A number of local technical firms such as Hotels, schools, hospitals, entertainment among others had become a booming business around the area with high hopes of acquiring promising returns from the development phase. However with the lockdown, many of these have been left to choke on debts and live at the mercy of lending institutions. The Observer.

The government should offer loan guarantees, direct lending, grants and subsidies to local companies in order to boast their capacities. This will enable them compete favorably in the sector while promoting country’s economic growth from the retained revenues.

 

Shattered Expectations

In 2019, government had projected a 4% increase in GDP if the oil price was to be at $60 per barrel. However, this was already half the price projected by the International Monetary Fund (IMF) in 2013.. And as part of government’s plan to build an industrial park with a refinery of 30,000 – 60,000 barrels per day capacity, an Airport and petrochemical industry which are more likely to worsen the country’s national debt. Read more .

Moving forward

The Ministry of Energy & Mineral Development joined the Extractive Industries and Transparency Initiative (EITI) in 2019. The Initiative is a global Organization managing good governance, transparency and standard for the resource. The Ministry of Energy together with the Petroleum Authority of Uganda are mandated to publicly disclose information about the sector to promote oversight. This will promote accountability and help civil society Organizations monitor concessions that the government gives to investors to ensure that Ugandans too benefit from the sector.

Finally, Government has to ensure better management of oil and gas resources constraining corruption, to ensure the country and citizens benefit.

But as argued (Ellen R. Wald, 2020) the oil and gas are still in the ground, whether companies extract it tomorrow, next month or next year, the low oil demand caused by the coronavirus pandemic cannot kill the industry, it can only delay it.

Aidah Nabunjo

My name is Aidah Nabunjo, a Ugandan Journalist and writer. Passionate about bringing African stories to life. Areas of interest are Agriculture, Energy , Policy and Governance. Email: aidahnabunjo@gmail.com

Ohlala WordPress Theme
https://i2.wp.com/www.cueafrica.net/wp-content/uploads/2021/07/Cue-Logo2.png?fit=640%2C184&ssl=1

Cue Africa is a Digital Information Company Focusing on Providing
Accurate and Well Researched Business Insights on African Economies.
Email Us : cueafrica@cueafrica.net

Cue Africa 2021 © All Rights Reserved