Kampala, Uganda | THE INDEPENDENT | Uganda’s dream to be an oil-producing country may not be realized until 2025, the World Bank has said.
In its Economic Update report, the bank says “the sharp decline in world oil prices resulting from the COVID-19 crisis could delay oil sector investments in the medium term and oil production beyond 2025” even when the private sector remains optimistic about oil production in Uganda.
This will bring the wait to have the first oil to more than nineteen years after the country discovered the hydrocarbons in 2006.
“Given the significant fall in oil prices to date and the projection that they will remain well below the estimated break-even price of US$60 for Ugandan production over the next two to three years, this could postpone key investment decisions into the oil sector thus pushing back further the timing of oil production,” the World Bank says.
Mathias Katamba, the Dfcu bank chief executive officer said if the prevailing conditions of low prices in the global market are anything to go by, it does look gloomy for the country. But he is hopeful that things will look better when the world gets back to business. Banks are expected to play a key role in financing companies to participate in the oil sector.
For Uganda, the World Bank says, Total’s recent purchase of Tullow’s oil interests gives hope that the industry could move forward.
It adds though that another challenge could be that that the start of oil production may also be impacted by lending decisions of the Chinese EXIM Bank, which already has a large exposure to the financing of Uganda’s infrastructure investments.
The delay in oil production can impact how Uganda will be able to afford to pay its debts. Last October, Bank of Governor Emmanuel Mutebile said the expectation of oil revenues had pushed Uganda to go for more expensive loans to finance infrastructure projects, a precursor for the much dreaded ‘oil curse’.
And the central bank has also been on record that if Uganda doesn’t earn oil revenue by 2023, it will struggle to pay its debts. The country is raking in more debts in the name of fighting coronavirus.
Richard Walker, the economist at the World Bank Uganda country office said Uganda should not peg all its future on oil. He said the country should prioritize investment in other sectors like agriculture and education to develop human capital. These can be a springboard to develop faster than oil.
Uganda has discovered 6.5bn barrels of oil with between 1.4 Bn and 1.7 Bn barrels commercially viable.