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Bad oil deal

Museveni fight with oil firms threatens major project

Kampala, Uganda | HAGGAI MATSIKO | President Yoweri Museveni’s dream of Uganda getting first oil by 2020 has been hit by a double blow from two international oil companies; Total E&P Uganda and Tullow Oil Uganda.

Museveni is battling the two companies on two fronts; with Total over the fate of the US$3.35 billion oil pipeline and with Tullow over Capital Gains Tax (CGT) which Tullow does not allegedly – once again- want to pay.

The two disputes mean that the date of first oil production is once again pushed farther; this time from 2020 to 2025, according to insider estimates.

By that time Museveni will be 81 years old, with an election looming in 2026, and no clear guarantee that he will preside over the first production of Uganda’s oil.

Is that what the oil companies, and their shareholders and backers in western capitals want?

Museveni has gained few friends among the oil companies because of his insistence that Uganda builds an oil refinery in order to benefit from the by-products of the oil production. He has also insisted on a tough Capital Gains Tax regime. Equally significantly, corruption and lethargic decision-making by his government have slowed progress on oil projects.

On the other side, the oil companies want a faster clear cut produce-and-export crude approach, and might opt to wait out Museveni – and deal with his successor.

“Tullow is out and Total is hard-lining because it has the financial muscle to wait out Museveni,” one source familiar with the disputes told The Independent.

According to some observers, this could explain the endless disputes and deadline delays.

In the latest case, deals worth $ 20 billion are at stake. The issues are so critical that Museveni and his teams of oil sector technocrats have been holding frantic meetings with executives from oil companies to try and find a way out over the past few weeks.

The most pressing deal is the $ 3.35 billion East African Crude Pipeline Project (EACOP). This has an impact on the fate of the $ 4billion refinery.

But the other big issue is the $ 900 million Tullow Oil farmout to CNOOC and Total. Oil field projects or upstream projects worth over $ 10 billion are also facing some challenges.

Pipeline dispute

The dispute over the pipeline is clear. The oil companies want more oil for the pipeline. They say this is the only way it can make financial sense. But Museveni wants to retain some oil for his pet project; the oil refinery. This project is so important to him that, according to sources, Museveni is prepared to kill the pipeline to save the refinery.

The dispute revolves around the volume of oil Uganda has, which is not that much. Uganda currently has slightly over a billion barrels of recoverable oil. Of this, it is estimated to produce between 230,000 and 250,000 barrels per day of oil. Government wants to put 60,000 barrels of this to go into a planned refinery. This leaves 170,000 barrels for the pipeline for export by oil companies.

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3 comments

  1. Dr. Eng. Kant Ateenyi

    Countrymen and pan Africanists elsewhere:
    This is the tragedy of our failure to develop our engineering skills and continental integration.
    I have said this a thousand and one times – and will never tire of it: For our continent to free itself from these exploitative practices of being a mere source of ‘low value’ commodities and labour but a consumer of ‘extra-high value’ products and services, we must prioritise both engineering education/training and political integration. I can tell you with authority that this is what has made the difference in China and India. In both, huge initially poor and illiterate populations were deliberately tuned to nurture mathematical and psycho-motor development minds that combined to develop hand – and (for China), other limbs skills. Then, craftsmanship, understanding of and making good use of the physical sciences followed just as – water flows down hill (unless forced otherwise). The two countries are now harvesting that investment to the ‘bewilderment’ of others.
    For Uganda on oil, it would be best to hold our ground and work tirelessly now to develop our refining skills. This nonsense of shipping the little oil reserves all the way to outsiders has to be checked. I know we have over committed ourselves on infrastructural financing in expectation of the pseudo ‘oil boom’. But now, we need to understand that the same infrastructure can still be used on other economic activities in the meantime (as we develop our internal oil refining skills – not rocket science – which in itself, is not necessarily out of reach anyway). We can for example, patriotically work on our Agriculture and food processing and marketing to feed the hungry of the world; we can work on our relatively superior education (compared to many surrounding countries) to attract other African learners, the brightest and ablest of whom, we should deliberately integrate in our own as highly skilled labour force. I can go on and on —-. The opportunities minus crude oil donations to outsiders are limitless. It is just our collective will that limits us.

    • Brother you’re right…so right
      But don’t forget there’s none more impatient than a fast aging men.
      HE is bound to throw in the towel for the sake of setting foot in “Cannan” during his lifetime.
      Unless he opts for new partners

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