[Dehai-WN] (IRIN): Analysis: Rocky start for Uganda's oil sector

[Dehai-WN] (IRIN): Analysis: Rocky start for Uganda's oil sector

From: Berhane Habtemariam <Berhane.Habtemariam_at_gmx.de_at_dehai.org>
Date: Sat, 15 Oct 2011 13:10:18 +0200

Analysis: Rocky start for Uganda's oil sector

KAMPALA, 15 October 2011 (IRIN) - Uganda has yet to produce a single barrel
of oil, but with three senior ministers accused of accepting bribes from oil
companies and the government seemingly ill-prepared for imminent large-scale
oil production, the phrase "resource curse" is already being bandied about.

Prime Minister Amama Mbabazi has been accused of receiving funds to lobby
for oil production rights on behalf of the Italian oil firm ENI, which
eventually lost its bid for exploration rights to British firm Tullow Oil.
Along with Mbabazi, Foreign Affairs Minister Sam Kutesa and Internal Affairs
Minister Hilary Onek are both accused of taking bribes from Tullow Oil worth
over US$23 million and $8 million respectively.

The ministers and Tullow Oil deny all the allegations, but MPs on 11 October
demanded the ministers' resignations and formed an ad hoc parliamentary
committee to investigate them; Kutesa has now stepped aside from his
ministerial position to allow investigations into separate charges of abuse
of office and causing financial loss relating to the Commonwealth Heads of
Government Meeting held in Uganda in 2007.

Oil exploration began in Uganda's northwestern Lake Albert basin nearly a
decade ago; the Energy Ministry estimates the country has over two billion
barrels of oil; Tullow operates three oil blocks in the region, and had sold
off part of its stake to Total and China's CNOOC. However, following the
allegations of bribery, parliament has halted the sale.

The revelations of possible large-scale graft have caused outrage in the
population. The discovery of oil had given hope to a country that despite
more than 25 years of relative stability, remains poor. The UN Development
Programme <http://hdrstats.undp.org/en/countries/profiles/UGA.html> reports
that 51 percent of the population lives below the poverty line.

"We were so excited when we heard about oil, we knew we would at least get
roads, better electricity supply and better hospitals but now it seems that,
as usual, all the money is going into the pockets of a few," said Asuman
Kasule, a taxi driver in the capital, Kampala.

No regulatory framework

Analysts say that while the allegations of corruption are troubling and must
be addressed, Uganda has bigger problems when it comes to its nascent oil
industry. Oil production is due to begin as early as 2013, but the country
has not put in place a regulatory framework for the oil industry; the
existing legislation on oil and gas exploration was passed in 1993, and
analysts say it is not sufficient to deal with the current dynamics.

In addition, the country has not put in place measures to ensure
transparency, inclusion of local communities, revenue management and the
mitigation of environmental damage. A 2008
<http://www.acode-u.org/documents/oildocs/oil&gas_policy.pdf> National Oil
and Gas Policy was intended as a road map for the handling and use of the
oil, but critics say many of its recommendations have not been followed. "As
of today, Uganda does not have an oil revenue management framework," Richard
Businge, senior manager at International Alert, a peace and conflict NGO,
told IRIN. "Government's argument is that the country has sufficient income
and tax laws, which is not necessarily the case because the oil industry is
a unique one, which requires a more specific revenue management law. The oil
development process has been shrouded in secrecy, breeding confusion and


Parliamentarians say oil production sharing agreements dating as far back as
2001 were only shared with them in September 2011. Attorney-General Peter
Nyombi Thembo has said the agreements contain confidentiality clauses that
prevent the government and parliament from disclosing their contents to
third parties.

During a heated debate on 11 October, parliament passed a resolution banning
confidentiality clauses in any future oil contracts with foreign companies.

"A lot has gone on in the oil industry without the knowledge of the Ugandan
public, and a lot is still going on," Tony Otoa, a researcher with Advocates
Coalition for Development and Environment (ACODE), a public policy
think-tank, told IRIN. "This sort of secrecy - which covered up patronage,
corruption - is what preceded the problems Nigeria had in the early stages
of its industry."

Otoa said it would be crucial for Uganda to join international mechanisms
for transparency in the oil and gas sector such as the <http://eiti.org>
Extractive Industries Transparency Initiative (EITI), an international
scheme that attempts to set a global standards for transparency in oil, gas
and mining. Implementation of EITI would mean regular, accessible
publication of all payments by oil companies to governments and all revenues
received by governments from oil companies. The National Oil and Gas Policy
recommends that Uganda participate in EITI.

Another such mechanism is Publish What You Pay (PWYP), an international
network of civil society organizations that call for oil, gas and mining
revenues to form the basis for development and improve the lives of ordinary
citizens in resource-rich countries.

"The oil industry is still young, but payments in the millions of dollars
have already been made to the government in signing bonuses, licensing fees
and so on, but the government has so far been unwilling to share the amounts
that have been paid nor the way the money has been spent," said Winfred
Ngabiirwe, of PWYP's Uganda chapter. "There has been some flip-flopping by
the government on whether it will join EITI, but so far there has been no
firm commitment."

Local communities

Ngabiirwe said transparency and open revenue management would be key to
ensuring that the local populations in the oil producing areas were able to
benefit from the proceeds of the production and lift themselves out of
poverty. "As it is, the local populations are not really informed of their
rights and we are often blocked by politicians from visiting these areas to
enlighten them," she said.

In the areas where PWYP has been allowed to operate, they have set up
grassroots chapters of the organization to allow communities to understand
and communicate their needs and demand that the oil revenues be used for the
development of their areas.

"It's true that fishing and farming have been interrupted; some
communities... have been asked to relocate while others... were notified to
prepare to leave," said International Alert's Businge. "The compensation
given to them is inadequate - this is determined by government - while those
who have to put up with oil activity have to regulate their activities
either on farm or on lake. Most of the corporate social responsibility work
that companies are doing to kind of buy the `social ticket' is on
infrastructure development and not necessarily responsive to key pressing
survival needs of the local communities."

According to a <http://mak.ac.ug/documents/EPRCUDICPaper.pdf> study by
Uganda's Makerere University on managing oil expectations, local communities
have "expressed hope that oil revenues will result in a better road and
railway network, high quality education and health care, a regional
technical and university infrastructure, and considerable employment
opportunities". However, the study also found that local communities were
not involved in the drafting of the National Oil and Gas Policy and were not
informed of the oil companies' activities in their region.

And according to ACODE's Otoa, while it is important for parliament to go
after corrupt individuals, it is equally important that they stand up for
the rights of local communities and urge environmental caution.

Getting prepared

"Our parliamentarians are largely uninformed about the oil sector, so we
regularly hold workshops to try and ensure that when the time comes for them
to debate an oil bill, they are aware of the key issues that need to be
taken into consideration," he said. "Bodies like the National Environment
Management Authority also need their capacity boosted, because they too are
inexperienced in the type of environmental damage caused by the oil

Another important area, according to Henry Banyenzaki, minister for economic
monitoring, would be ensuring that Ugandans are trained and employed in
various aspects of the oil industry, and that local businesses are geared
towards supplying the oil industry.

"We are not moving as fast as we should in government because of
bureaucracy, but we need to prepare the private sector as well so that they
can get the maximum benefit from the industry," he said.

Banyenzaki said the government would need to ensure that other key resources
- including agriculture and tourism - did not suffer as a result of the
focus on oil, a concept known as "Dutch disease".

"Uganda's oil wealth can be transformational for Uganda's economy but this
largely depends on how well it is managed... [but] in the absence of proper
revenue management and critical forward thinking, the exploitation of oil
does not necessarily translate into sustainable socio-economic
transformation," said Businge. "

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