A nation’s fortune changes as Rift Valley oilmen strike it rich

The Times of London
Lake Albert, Uganda

Uganda oil
There may be 2.5 billion barrels of oil, worth £1.2 billion a year, under the banks of Lake Albert (Xan Rice)

Towering over the cassava fields, stumpy acacia and shady mango trees, winding dirt roads and mud hut hamlets, a 20m (65ft) red metal derrick has become a familiar sight on the shores of Lake Albert in Africa’s western Rift Valley.

The scene encapsulates where Uganda is today, teetering on the cusp between its past and future: an ancient subsistence economy colliding with a new one based on oil extraction.

The rig drills hundreds of metres below the red earth to where an Anglo-Irish company, Tullow Oil, has discovered perhaps 2.5 billion barrels of oil.

The discovery in 2006 helped to catapult Tullow into the FTSE 100 index, and the multibillion-pound oil windfall is poised to have a similarly transformative impact on Uganda over the coming years, generating, by some estimates, £1.2 billion a year for the next 20 years.

If the money is used well it should be enough to haul Ugandans out of poverty and turn their country into a regional economic powerhouse. Tullow has drilled 35 wells so far and all but one has struck oil.

“The hit rate here is phenomenal,” said John Birch, a consultant geologist, sitting within the wire-fenced perimeter around the new 750m Kigogole-6 well. “I’ve been in this industry 30 years and I’ve never seen anything like the Rift Valley.” First production is expected early next year, scaling up to a possible 150,000 barrels per day over the following three years.

The President, Yoweri Museveni, took power in Uganda in 1986, marching his rebel army into the capital, Kampala, to depose Milton Obote, a brutal dictator. Mr Obote’s rule was horrific but his predecessor, Idi Amin, had already set the tone, ordering the killings of hundreds of thousands of his own people.

Mr Museveni has maintained a broad peace and a tight grip for the past 25 years. An election victory in February means that he will preside over the pumping of the oil and the opportunity to transform his country, bringing about the kind of industrial revolution that he has long spoken of.

But Uganda is landlocked and the oilfields are 1,300km (800 miles) from the nearest port at Mombasa, in Kenya. Turning the resource into revenue will be expensive and challenging.

Adding to the difficulties is the nature of the crude, which is so waxy that any pipeline to the Kenyan coast would have to be heated. In Tullow’s Kampala office Brian Glover, the company’s country manager, illustrated the point by turning a glass of the Lake Albert crude upside down. The oil did not move.

Mr Museveni says that the solution is a £1.2 billion refinery that will allow Uganda to refine up to 150,000 barrels a day for export to neighbouring countries in the East African Community and beyond. The Government signed a deal with Tullow yesterday allowing the state-run China National Offshore Oil Corporation and France’s Total to buy one third of the company’s assets in the country.

On Lake Albert’s shimmering edge, exploration is proceeding apace, with seismic surveys under way. Blue and red ribbon flutters from bushes and trees, directing teams of workers in orange jumpsuits to the paths that they must cut through the undergrowth and around homesteads.

Receivers dotted along the cables that are laid through the clearings read the signals as explosions are detonated underground, revealing the subterranean structure and likely locations of the oil.

Some of the oil is within Murchison Falls National Park and the threat of pollution, destruction of habitats and disruption of wildlife migration patterns has worried conservationists. Tullow has so far drilled three wells there.

“They are going to drill in the parks; they are going to extract oil. It is a political reality that is pointless to oppose,” said one resigned conservationist who is working with the Government to ensure that oil extraction is carried out sensitively. “If managed properly, oil extraction can be done without destroying the environment, but do they have the will, the expertise?”Ken Opitto, the field operations supervisor at Tullow’s Bugungu camp, just outside the park, dismissed such concerns. “Most people make noise without coming to see what is actually on the ground,” he said.

Mr Opitto said that once the post-drilling clean-up was complete all that would be left would be a red pipe like a fire hydrant with a chicken wire fence around it.

Among Ugandans living close to the oil sites expectations are high, but tempered with concern. In Hoima, a regional town close to Lake Albert that is already becoming an oil boomtown, there are great hopes for the improvements and opportunities that the oil will bring.

“They have already constructed a road and some boreholes,” said Morris Odero, an 18-year-old motorcycle taxi driver, sitting on his bike at the side of the newly built all-weather murram road. “We have not benefited much from jobs but it is early days and we hope that will come.”

In the town’s busy market, Julius Byarinhanea, 40, a fishmonger, said: “We are all waiting for just one thing — to get that oil so that we can get more jobs. We are going to work very hard. And the Government must spend the money very well.”

Uganda beware: the sorry list of states betrayed by windfalls is long
Uganda’s oil offers huge potential, for good and ill.

There is no shortage of African instances where a wealth of resources has translated into conflict and poverty.

The Niger Delta’s polluted creeks, the bloody diamond pits of Sierra Leone and Zimbabwe, Sudan’s contested oilfields, eastern Congo’s conflict minerals, Angola’s ever-widening oil-fuelled wealth gap — the list goes on.

Activists are worried that Uganda, with its worsening corruption, tight-knit ruling clique, history of violence and inexperience in handling a windfall worth many billions, might join this sorry line-up.

“There is very little fiscal responsibility in Uganda, which makes it hard to believe that the oil money will be responsibly spent,” Maria Burnett, a Uganda researcher at Human Rights Watch, said.

There is widespread concern that the oil money will be squandered, stolen or siphoned into private bank accounts rather than invested in the roads, schools, hospitals and infrastructure that could so dramatically transform the country.

High-stakes squabbles over control of the oil money that flows into state coffers might also undermine Uganda’s politics, which is still stabilising after decades of civil wars and single-party rule.

“If the oil is badly managed it will affect our emerging democracy very badly,” warned John Mary Odoy, director of the Democracy Monitoring Group, a Ugandan civil society organisation in the capital, Kampala.

“Already we can see there are no clear policies about how this is going to be managed and if they do not handle it well the oil can easily cause trouble for this country.”

“There are areas of serious concern surrounding the oil,” agreed Mahmoud Mamdani, the director of the Institute of Social Research at Kampala’s Makerere University.

He said that the influx of money could worsen corruption and further entrench the well-established system of political patronage.

Pressure groups such as the London-based Platform have criticised the lack of transparency around production-sharing agreements and signature bonuses, and conservationists have been dismayed at the Government’s willingness to allow drilling — and perhaps even gas flaring — in its wildlife-rich national parks.

Equally, however, the oil revenues could drive Uganda to overtake Kenya as the region’s most powerful economy.

They could kick-start an industrial revolution and push living standards up in a country where more than a third of its 33 million people live below the poverty line.

http://www.thetimes.co.uk/tto/business/ceo-summit-africa/article2947220.ece