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Critics Warn of ‘Oil Curse’ for Uganda

Workers are seen at an oil exploration site in Bulisa district approximately 244km (152 miles) North-West of Kampala, January 20, 2012.
This is Part One of a five-part series on Oil Contracts in Uganda
Continue to Parts: 1 / 2 / 3 / 4 / 5

The discovery of oil offers tremendous opportunities for Uganda. It also poses several risks if the country succumbs to what some analysts call the oil curse – or the diversion of revenues for development through mismanagement and corruption.
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Many are concerned about the way the government has handled the Production Sharing Agreements (PSAs), or contracts with the oil companies.

“The details of the PSAs have not been made public,” said Joel Barkan, a professor emeritus of political science at the University of Iowa and senior associate with the Centre for Strategic and International Studies (CSIS) Africa Program. He’s also a specialist on democratization and governance across Anglophone Africa.

Critics say this could imply there’s something to hide.

“There might not be something to hide, but it is a stupid way of building confidence by behaving the way they are,” said Barkan in reference to the [Uganda] government refusal to make the agreements public.

Another problem in Uganda, continued Barkan, “is what is happening in the oil producing areas.”

He cited reports of parts of Murchison Falls National park, a pristine eco-system, being cordoned off for drilling, and land grabs in the area of Bunyoro where initial production is starting. “The beginning of the oil industry in Uganda does not inspire confidence,” he said.

Barkan said oil companies should adhere to rules against bribery.

“All these [oil] companies are subject to the laws of the countries in which they are incorporated; some of those countries have stringent rules in terms of bribes. Apparently that does not apply in terms of Tullow Oil, which is registered in Ireland where they are no strict restrictions like in the USA.”

He also faulted the timeline of exploration and drilling in Uganda saying offshore oil in particular can be brought under production much more rapidly.

“But it depends on where the oil is being produced and the nature of the oil,” he explained.

Barkan noted that Uganda needs a pipeline to transport the oil to the coast, and a small refinery to handle modest amounts of oil for local consumption and for export to immediate neighbors like Rwanda and the eastern Democratic Republic of Congo.

He pointed out that Uganda oil has very high paraffin and wax content meaning it congeals easily and is very heavy to move.

Any future pipeline, he said, would have to be above ground and be heated. “This poses a greater environmental risk and also provides a security risk.”

In contrast, Barkan said, a very sweet variety of oil was recently discovered in northern Kenya and may come on stream faster and prove to be serious competition for Uganda oil.

He warned that Uganda was vulnerable to the so-called “oil curse” given the government’s lack of transparency so far, and given the fact that the political system is fundamentally based on patronage and cash handouts from the presidency.

This, he said, would make it difficult for the World Bank to fund the construction of the pipeline that Uganda needs to export oil.

“Any prospect of Uganda securing the support from the World Bank to build a pipeline is just not there. It’s not on until they switch gears and pursue the oil in a more transparent manner.”

Uganda government officials project commercial extraction to begin in 3-5 years.