The embarrassing situation with Uganda’s collapsing energy sector continues to grab headlines. The crisis in Kenya added one more egg in the face of energy managers who have been consistent about one thing; failure to deliver sustainable energy solutions to Uganda’s 30 million people.

One of the hallmarks of the disappointing performance of the sector is its manipulation of facts. The sector is famously corrupt even if its managers have so far managed to fend off public outcry because less than 10 percent of Ugandans have access to electricity, a small constituency for any mass action.

The official policy of the Ministry of Energy is that supply should keep ahead of demand allowing it to pursue a nebulous path in the provision of additional energy in a financially heavy sector- the stench of corruption stalking each project.

A lot of lies are told along the way.

Uganda has a low demand for electricity despite official load forecasts to the contrary. That can partly explain why despite the halving of energy supply over the last three years has produced no significant fallout.

Government figures suggest demand is close to 480MW growing at 11% annually. From a high of 280MW at one point supply today is as low as 135MW while some sources within the Uganda Electricity Transmission Company say the real figures of available power are routinely inflated.

The demand projections themselves are fake. If demand where as high as claimed the drop to less than half of supply would have produced some discernible effect. That’s the simple logic.

With less than a quarter of the population comprising present demand ( domestic consumers whose consumption is heavily subsidized with billions of shillings every year strain the grid in the evenings leading to massive load shedding) the Ministry has gotten away with meeting demand for homes by pointing supplies of limited electricity to various neighborhoods.

Many watchers point out that export figures for 2006 grew by 18% despite the power shortage but the growth was in products that do not require heavy electricity which is not available anyway.

Daudi Migereko, the Minister in charge is now set to commit serious mistakes, one will be the many power projects that are not knitted together, or tied to realistic demand, and reeling from waste and corruption.

Uganda’s rural power initiatives have sucked hundreds of millions of dollars with limited or no impact. Procurement of fuel based generators has stretched over 2 years, cost several million dollars in litigation as corruption ground supply to a halt.

The country’s dilapidated transmission system is starved of funds for expansion and leaks up to 30% of power generated].

Events in Kenya amplified the structural problems in Uganda where 70% of the demand for fuel is for electricity generation. Insiders say thermal power is now the primary source of electricity in Uganda even if the Ministry does not admit this in public.

Not the lack of potential- Bujagali Falls in Uganda

Shortages in fuel supply could plunge the country into a shock. Uganda’s national oil reserves have been quietly been drained but the Ministry maintains it can meet its vision to produce 20,000 megawatts in 2020.

Below is a report in the government controlled New Vision newspaper that relies on information from Uganda’s Auditor General to reveal serious irregularities in the management of Uganda’s strategic fuel reserves. Following a crisis in Kenya, fuel run out surprisingly quickly in Uganda. Surprising that is to some.

As noted on this blog- this was an accident waiting to happen and has to do with the manner in which the Ministry of Energy is run as well as the overall deemphasis on the delivery of public goods in Uganda which affects other services like roads and health care. More analysis is forthcoming here but suffice it to say that the mismanagement of public resources itself is not accidental but part of the functional turn of the wheel of the political patronage system- which emphasises private goods.

The Ministry of Energy is a disaster having failed to respond to Uganda’s electricity needs, botched a dam extension project along the Nile in one of the most underreported scandals in the country’s civil service and now engaged in a controversial petroleum exploration program without any real reform in its own structure.

Uganda’s lead technocrat in the Ministry, Kabagambe Kaliisa, is a 15 year veteran of the Ministry who has been named in a corruption scandal by the government Ombudsman. Today when the Ministry is not publishing fake figures of Uganda’s electricity demand( figures privately questioned by the World Bank but never acted on) , the Ugandan Energy Minister Daudi Migereko is fighting public relations wars.

Tough Job, Daudi Migereko Uganda’s Energy Minister

Like the “vanishing” of Uganda’s strategic fuel reserves, the truth is that the Ministry is not in a condition that can serve Ugandans best and requires a complete overhaul. But first public information about its incapacity should educate that change, something we will try to do here in the coming days.

One fact, special interests have overwhelmed the Ministry are glaring example being its outright failure to prevent the faulty construction of the Owen Falls Extension project, a project which has proved according to one notable hydrologist, the greatest threat to Lake Victoria, the world’s second largest fresh water body. That failure is accompanied by allegations of corruption including one by a senior Minister that Migereko’s successor took a bribe of US$ 6 million. Also unresolved is whether the damn extension project has benefited largely downstream country, Egypt, which despite having a permanent presence in Uganda dedicated to the Nile remained silent.

This reporter was told that Egypt’s water projects have significantly been boosted by the draining of the lake courtesy of the dam project. Uganda has never conducted an investigation into the matter to determine who was complicit in the project failure. In light of the current crisis- it is worth revisiting what happened.

Over to the New Vision report.

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IT took only a couple of days to paralyse Uganda. Within 48 hours, the violence in Kenya had led to severe fuel shortages all over the country, pushing up oil prices, doubling bus fares, raising food prices and seriously affecting business and public life.

Dealers were greatly taking advantage of the crisis to hoard and ask exorbitant prices, up to four-fold in the case of petrol.

Contrary to other countries, which have oil reserves that can last months or even years, Uganda�s reserves seem to be minimal, if existent at all. The country needs 1.2m litres of diesel per day, almost half of which is used for power generation, and 543,000 litres of petrol.

ENERGY minister Daudi Migereko has declined to reveal how much fuel is in the reserves. �There is something but we have declined to release the figures. We don�t want them to become a subject of debate,� he told Saturday Vision.

Earlier, in March 2007, energy state minister Simon D�Ujanga had told Parliament the reserves were dry.
�The reserves have been used up,� he said. �It will be trickling in. At the moment we cannot talk about reserves because whatever comes in is being consumed.�

The question is whether anybody knows at any given time how much oil reserves the country has. In the mid 70s the Government started the construction of four fuel depots, in Jinja, Nakasongola, Gulu and Kasese.

However, of the four depots that were in plan, only one, in Jinja, with a total capacity of 30 million litres, was actually completed.

The Government loans out fuel from these reserves to private oil companies whenever there is a disruption in the supply chain and the oil companies reimburse the same amount in fuel stocks. The depot is also used to assist new oil companies stabilise in the liberalised competitive oil industry.

But according to a report by the Auditor General, the oil companies were not reimbursing as much and as fast as they should. By August 31, 2006, the companies owed the Government oil products amounting to sh6.8 billion.

�It was noted that some loans had taken so long to be settled. The recoverability is increasingly becoming difficult�, said the Auditor General�s report.

Also, it pointed out that the oil companies had not paid the required penalties of 22% on any outstanding balance after 30 days, which had accumulated to sh5.4 billion by August 31, 2006.

There is another reason why it is difficult to tell the level of Uganda�s reserves. �Information collected from employees at Jinja Storage Tanks revealed that the pumps and meters used were installed in 1978 and have not been replaced since then�, said the Auditor General�s report.

�It was noted from the records that, although the meters should be serviced regularly, the ones in Jinja take years to be serviced. Faulty meters can give misleading readings which can lead to fraud.�

The receipt meters are also problematic, according to the Auditor General. �It has been noted that when products are being returned or delivered, the ministry uses the dip sticks (measuring tools) of the trucks that deliver the products�, the report said.

�It is possible to be given a faulty dip stick which reads more stocks than what has been actually delivered.�
It recommended that inlet meters be introduced to help check the readings provided by drivers. In addition, the report noted that there was inadequate staffing at the Jinja reserves �resulting into late billings, late reconciliations and postings into the ledgers. This is risky, as at any given time, it is impossible to tell actual stocks held.�

As a result of lack of staff, it added, the flow of information between the Jinja Storage Tanks and the ministry headquarters was very poor. �Administration at the ministry is sometimes not up to date with what is going on at the Jinja Storage Tanks.�
Energy minister Migereko admits that there were problems with oil companies not reimbursing.
�There was a problem some time back. We have tried to recover that fuel. Only one company has not reimbursed. The matter is in court,� he said.

He explained that the Jinja storage tanks were built when the demand for fuel was not as high as today, and that the other depots were not completed due to financial constraints.
He also pointed out that the breakdown at the refinery in Mombasa and at the oil pipeline had affected Uganda�s capacity to store enough reserves.

However, with the Eldoret-Kampala pipeline project starting in May this year, Uganda�s fuel problem should be addressed, Migereko announced.

�As part of the pipeline project, we are expanding the Jinja reserves, build storage facilities in Kampala, Mbarara and Kasese. By the time we produce our own oil, in 2009, we can take advantage of those facilities to distribute fuel to various parts of the country.”

He acknowledged that the Kenya crisis had pre-empted their plans. “The pressure has come up much earlier than our own plans.”

As oil trucks are starting to arrive in the country, there might be some temporary relief from the biting fuel prices. But it will take another two years before Uganda can escape its precarious dependence on its neighbour.

Report by Carol Natukunda- New Vision

A Munyakole businessman married into one of the prominent families in Bunyoro was told by his father in-law that not far beneath, the soft dark soil that makes up his estate- bones of his forebears could be found.

The bones- like the discovery of a faded black and white picture in a dusty suitcase- reminds Banyoro of the dark days when in facing the might of British Imperial conquest- the entire population was brought to his knees, early automatic rifles and sorties filling their proud hills with human bones.

Today British companies are gearing to dig deep into the belly of Bunyoro for oil- no doubt by a twist of history- unearthing the frustration of one of Uganda’s poorest regions.

Two million people died- says Henry Ford Mirima- spokesman for the Bunyoro Kingdom, today a cultural institution with no real political powers.

By some counts the population declined to just a quarter of its strength before the “great war” between 1893 and 1899. 

In his work on the reasons as to why Bunyoro never recovered from the brutality of the conquest unlike other societies brutalized by imperialism, Shane Doyle of the University of Leeds writes that even after the war, Banyoro faced an “antagonistic colonial state”.

The colonial government, he says, was guilty of ignoring Banyoro. The result is that unlike any other area in the land Sir Winston Churchil [ former British Prime Minister] described as the “ pearl of Africa” Bunyoro was plagued by famine and disease most notably syphilis and sleeping sickness.

Cattle, once the mainstay of Bunyoro’s economy died in such numbers that only the old men around its scattered villages today – who mumble terrible curses against the British-recall a time when herds roamed the kingdom.

According to Doyle, the British, perhaps because of a hate-hate relationship with Bunyoro “mis-managed’ the emerging social crisis.

 Colonial authorities, he says, unbothered, prescribed the wrong answers to Bunyoro’s problems including an allegation that the Banyoro were promiscuous to explain the preponderance of syphilis in the region.

Long before Uganda, now famous for its “home grown” ABC response to the  deadly disease of HIV/AIDS, advocated personal sexual discipline [ Abstinence being preferred as well as being faithful and condom use, the British establishment funded a “morality campaign” in Bunyoro in response to the syphilis problem there.

Based on a view pioneered by one Dr. Albert Cook that venereal diseases needed a moral response, colonial authorities spent money on a “social purity campaign”.

Doyle faults the subsequent medical response as prejudiced by Mr. Cook’s missionary views- a dominant view then with European elites that “an immense majority of [Africans] had fallen ill through immorality”.

In any case, Doyle argues this morality stuff was a part of the half-hearted menu of solutions to disease and child-mother mortality in Bunyoro.

However disease following the conquest of Bunyoro was just one of the signs of the decay of that society. Colonial authorities recorded low birth rates and noted that the Banyoro did not respond well to the cash crops pushed on the population which continued to remain hostile.

When sleeping sickness struck in around 1906- the governor Sir Hesketh Bell approved forceful removal of Banyoro from their lands- a move some scholars say was for “political” rather than medical reasons.

“Many thousands were removed from northern Bunyoro, forcing the abandonment of fishing grounds, fertile land, cultivated gardens, and the benefits of local knowledge of a vast area” writes Doyle. 

These interruptions, he says, upset the social and ecological balance, pushing Bunyoro now fragile from the war period down the slippery slope to a grave filled social collapse.

The colonial state, Doyle concludes, was unable or unwilling to respond to the social crisis that became Bunyoro. Doyle is one of the scholars whose work forms part of the argument being made by the royal Babito household of Omukama Solomon Gafabusa Iguru that British authorities should apologise for their actions.

Despite the public statements by the Kingdom, and two planned lawsuits including a claim for reparations- the British have kept quiet and the Queen is still expected for the Commonwealth summit that Uganda will host in a few weeks time.

The silence of Britain in Uganda for its actions in the past is however undone  by the loud concern of London for the goings on in Zimbabwe where Number 10 Downing street is leading a call for sanctions.  

A social crisis is unfolding in Zimbabwe a former British colony- and Her Majesty’s government is again taking a moral high ground blaming the government of Robert Mugabe for ruining the economy.

New British Prime Minister Gordon Brown has said he will not attend a Europe Africa summit if Mugabe is allowed to be present. There is some hypocrisy and duplicity here which is true about the colonial and post colonial experience of Africa that is not found easily in the books that educate the continents young.

Britain will not apologise for its role in Bunyoro or for slavery- it will not acknowledge its behaviour is part of the continuum of a history of decline in Bunyoro and elsewhere.

 British public opinion remains convinced of the morality of the actions of the Crown and Queen Elizabeth- if she comes to Uganda will probably be received as if Bunyoro and Zimbabwe did not happen. Indeed John Sentamu- the Bishop of York said “Britain needs to escape from its colonial guilt when it comes to Zimbabwe”

If post colonial Britain ignored Bunyoro, modern Britain has shrugged off Zimbabwe. Both Britains targeted these societies with hostility.

Banyoro have not forgiven colonial Britain and demand an apology while the rest of Africa looks on at London’s prancing around Mugabe- and remember that in truth it is the white farmers and British companies on whose behalf Gordon Brown’s government acts and not the faceless masses in Zimbabwe which like Banyoro- have gone without apology for what Professor Ali Mazrui lecturing on reparations calls the “bondage of history”.

The bone filled hills of Bunyoro will not rest easy.

aizama@monitor.co.ug

Briefings

Black gold or commercially viable oil deposits have been discovered in Uganda generating quite a buzz what the future will look like when oil dollars start flowing into resource starved government programs.

So far little public discussion has gone on about that future. News on the oil has been limited to periodic statements from the oil exploring companies and politicians largely about the status of the explorations.

In mid-may, a group of civil society activists met at Riviera Hotel in Hoima, one of the Districts where potential oil fields exist and put out a statement asking for a transparent and all-inclusive dialogue between stakeholders over future oil exploitation. Indeed, a momentum can be expected to build around the future of the oil even if not a single barrel has been sold yet.

So far groups that have been vocal about their inclusion are the Kingdom government of Bunyoro, Parliament and Environmental lobbies.

The main stakeholder in the Uganda oil project however remains the Executive arm of government. Like in many areas in the developing world where oil exploitation has been associated with internal conflicts, environmental damage and deepening poverty, many who are engaged in debating Uganda’s future with oil ask whether it will be a blessing or a curse.

According to President Yoweri Museveni an Oil and Gas policy will settle the doubts of those who believe the oil would be a curse. Such a policy he said would “create lasting value for the Ugandan people”. Much of what he outlined, in a speech on Uganda’s 44^th Independence Day, about the principles for the gas policy is based on best standards. The oil policy currently being ironed out by the relevant Ministries, he said, would ensure transparency in the management of future oil resources as well as environmental conservation.

Still a restive Parliament has asked to examine the exploration and exploitation agreements signed between government of Uganda and the two principal companies involved, Heritage Oil and Gas and Tullow Oil. The request is yet to be met. In what the President described as counting the eggs before they hatch, some parties like an optimistic Bunyoro Kingdom has even gone further and appointed an “oil minister”.

These moves center mainly on the question of how future oil revenues will be invested should they come online. Uganda is not alone in following a path where optimism over oil dollars confronts the harsher reality of exploiting oil as a resource. 

In general terms what influences the unique experiences of different oil exploring and exploiting countries can be grouped broadly into factors that are internal and external to a country. External factors are often outside the reach or control of a country’s institutions. Its against this background then that these series of articles seeks to understand what Uganda’s experience will be as it goes about charting a healthy future based on improved future revenues from oil.

One of the immediate factors external to Uganda is the security around her oil fields. This is a key consideration for the sustainable extraction of the oil in the future. It also factors in on how the logistics of that exploitation ( rigs, pipelines and refineries) will be organized, a major investment for the extraction companies and the government.  

In Uganda’s case the areas where oil has been discovered account for approximately 12,000 sq Km.  They are two concessions to the Heritage Oil Corp. as we well as a block located in the adjacent areas in the Democratic Republic of Congo, operated by Tullow oil. Another company, Hardman Resources of Australia which featured in the early stages of exploration has since been bought by Tullow for approximately 1 billion dollars putting Hardman’s Uganda interests in their hands.

The immediate neighborhood of the oil discoveries, held by the two main companies is plagued with militia groups that have not yet submitted to the authority of Kinshasa. A concerned Ugandan government has deployed its elite troops in the mountainous border and is applying diplomatic pressure on the Congolese authorities to establish its authority in the region. This will forever be an uphill task for DRC. Uganda, Rwanda, and DRC have a tripartite system for monitoring armed groups in the region but so far so disarming specific groups has not happened. The vast Eastern DRC area with its mineral rich areas provides a going incentive for these groups, including rebels hostile to Uganda, Rwanda and even the Congolese governments. Lucrative but illegal gold and diamond trade could rival oil in the short term. Oil requires stability but blood diamonds thrive on instability.  An investigative report by the BBC recently uncovered a cover-up by the United Nations itself when its own DRC contingent of peace keepers was involved in good trade with one of the rebel groups, FNI. The Pakistani blue helmets even armed rebel groups and created a network for gold trade linking Indian businessmen in Kenya, the Congolese army as well as the rebels. Consider this statistic; legal gold exports from Uganda in 2006 grew by 68% from US$ 73,072,000 to US$ US$ 122,579,000. The main destination for gold was the United Arab Emirates. Much of that gold, knowledgeable sources say is from Congolese minefields.  Uganda issues gold receipts to certify the exports but how large could the illegal trade in gold let alone diamonds be?

Oil discovery in Uganda therefore faces some significant threats that pose difficult diplomatic and military challenges. Some of the freewheeling groups in Congo are Ugandan rebels wanted by the International Criminal Court.

In November 2005, the Lords Resistance Army shifted the theatre of its 20-year conflict with the government from Northern Uganda to North eastern Congo. LRA combatants have established at least one reported base in the Garamba National Forest where in January 2006 they repulsed a Guatemalan UN force killing 8 soldiers. LRA’s No two and main strategist Vincent Otti commenting on the Northern Uganda peace talks warned that if the talks did not succeed Kampala would never enjoy the fruits of recently discovered oil. It would be good to keep in mind that the LRA’s strategies have drawn from the regional power struggles. A militia client of the Khartoum regime of Omar El Bashir, the LRA as a destabilizing force in the oil producing areas cannot be taken lightly. Recent reports suggest that the group still has supply lines from Khartoum, and are training a small army in the Central African Republic, a kind of mercenary strike force. There are also other armed Ugandan groups including remnants of the Allied Democratic Forces in Congo that have traditionally operated in the immediate border of Western Uganda. One scenario which will make it virtually impossible for the Ugandan military not to intervene again in Congo is if there is a fusion of anti-government groups in its wild east. Managing these military and diplomatic challenges will form a major part of future oil exploitation. One bright light is that the oil belt runs through all three countries including Rwanda. A company called Vangold Resources recently begun negotiations with the Kigali to conduct tests in the north western part of Rwanda to establish how much if any of the oil discovered in Uganda and Congo extended to Rwanda. The longterm picture suggests therefore that the three countries may have common interests in managing the security situation as well as assets like pipelines should the exploitation mature.

There is some precedent for this.

As early as the 1990’s Uganda and then Zaire signed a bilateral agreement on their shared oil zones. Kept secret ( until now) the agreement foresees a joint concessionaire operating production in their common border. It considers too a joint investment by both countries on infrastructure, on revenue sharing, environmental protection and so forth. In effect, both countries agreed to view the national boundaries as non-existent for the purposes of oil exploitation based on goodwill and regular consultation. Article 4 of the agreement affirms the following principle “The two governments affine that the common field will be developed and exploited in a common and indivisible entity”. Strong commitments considering the ensuing history where Ugandan led forces invaded and caused a change in the leadership in Kinshasa. However the agreement still stands and the spirit with which it was penned is worth upholding.

In the meantime any instability as a result of oil is bound to lead to a loss of revenues from Congo-Uganda and Uganda-Sudan trade in the short run. Both countries have successively posted the best performance as new destinations for Uganda’s growing regional trade and continue to perform so according to the Uganda Export Promotion Board. Ugandan stakeholders would need to weigh how these short term security related challenges to regional trade measure against the long term work of generating sustainable stability for oil exploitation.

Lastly but not least, oil exploration and exploitation in troubled regions tends to cost the country more. On the one hand insecurity inspires little long term investment and tends to attract a handful of companies bold enough to venture into trouble spots. On the other hand, these companies are known to extract “dirt cheap” concessions from desperate governments eager to exploit oil, concessions that earn the quality of future earnings from the resource.

First published in the Daily Monitor,Kampala

aizama@monitor.co.ug

0712 666 999

Oil and the Changing face of business

ANGELO IZAMA

At the beginning of May 2007, a few selected friends of Heritage Oil and Gas, held a private dinner at Uganda’s swankiest hotel, the Kampala Serena. Among them were the two men of the night, Heritage C.E.O. Tony Bukingham and President Yoweri Museveni. Amidst jokes aplenty, exotic wines and an expensive meal, President Museveni was quoted confirming “Heritage Oil approved”. This scene here is a classic for those who have studied Heritage and its business dealings in Africa.

Close relationships with Africa’s top leaders and their families has been an important asset in the game of the company, one of the few firms to have braved some of Africa’s most insecure neighborhoods in search of fortunes underneath.

The winds of change are however blowing more strongly in Africa since Heritage and its sister companies including a known mercenary force made a go for treasures in war torn or collapsing states. Many more companies are looking to Africa for new oil and gas fields. Analysts have noted an increase in exploration in new areas including East Africa, a trend that mirrors expansion of exploration in previously non-producing areas around the world.

Discovery of oil in Uganda’s Albertine Graben has been described as a potential zone for world class production by industry watchers. Shared with Congo, these properties where Heritage and Tullow Oil have proprietary rights are leading the excitement of oil discoveries in the region. Rwanda has handed out a license for exploration at the base of the Albertine Graben itself.  Tanzania has also dished out 16 agreements to search for her oil, drawing a record number of companies [nine altogether] there. An expert quoted in the International Herald Tribune, one of the worlds leading newspapers, estimated that companies were spending up to half a billion dollars on exploration in the region. It has not always been like this. One of the problems with attracting long term capital investments in oil production or other natural resources has been the issue of sustainable security. Such security is for both the physical and capital assets of investing companies. The political conditions in many African countries do not inspire a lot of confidence for long term investment in capital intensive sectors like oil extraction.

As a direct result of this, not many established oil companies are doing business in Africa. Those interested enough to send scouting parties tend to adopt a wait and see approach.

Even where investments have been made say in Nigeria and Sudan, or Ethiopia attacks on facilities, kidnapping of oil workers and shaky security of title are challenges that have not been overcome.

In the Great Lakes region for example, rebels in Congo, instability in southern Sudan and rickety political processes in these countries gives goose bumps to potential investors who are bound to take their capital elsewhere. Perhaps a closer look at Heritage Oil and Gas may help explain why companies like it are able to stick the course. In the 90’s Heritage Oil and Gas and Tony Bukingham its C.E.O where in the news not for their oil and gas exploration but for their association with another company, a military or mercenary outfit called Executive Outcomes (EO).

As a military corporation, EO was a private army “with access to 2000 ex-South African Defence Force combat veterans” according to Herbert Howe, a scholar who published a paper on EO in the Journal of Modern African Studies. Specifically the core of EO was drawn from the 32 Battalion, “one of South Africa’s most highly decorated unit since the Second World War”.

According to Howe and others, the association of EO with Heritage was symbiotic. The mercenary force helped the government of Angola clobber UNITA with amazing success in the 1990’s when fighting in that country had resumed following a collapse of peace agreement in 1992. Jonas Savimbi, UNITA leader later killed in 2002, went back to the bush and launched an offensive that pressured the MPLA government. Enter Heritage Oil and Gas. Tony Bukingham introduced Executive Outcomes to the MPLA government which agreed to sign a one-year contract. The mercenary forces proved their worth and are credited for pushing Savimbi’s offensive back. This track record elevated the standing of EO which was again introduced by Buckingham to the authorities in Sierra Leone in 1995. Again EO proved to be an asset and a year later enabled the Freetown government to regain the upper hand in their fight with RUF rebels. The association of Heritage Oil and Gas and other companies in the Branch Energy group particularly Executive Outcomes (since disbanded) and Sandline, the military advisory arm of the group has drawn a lot of criticism. In relation to mineral extraction, critics have pointed out that this association enabled Heritage Oil to obtain cheap concessions from desperate governments. The Campaign Against Arms Trade (CAAT) a UK charity sees the military arms of Heritage Oil as a front for the company’s real business, mineral extraction. Other critics say the interventions in Sierra Leone and Angola by EO where short-lived and those mercenaries are no answer to the long term political problems in any single country. This argument suggests that mining or oil exploration concessions wrested from desperate governments are bound to be unfair and worse contested later on. In Sierra Leone, EO rushed to secure diamond fields in the Kono mining District even as the government there awarded a “huge mining concession” to Branch Energy. The Sierra Leone experience is now part of a blockbuster movie Blood Diamond, starring Leonardo DiCaprio and incidentally Ntare Mwine. An E.O critic, William Reno further argues that Heritage Oil and Gas and its military association is dangerous not just because the companies maintain their position by ingratiating themselves with leading families and politicians. These leading political families are brought into an “economic tent” in a sense substituting this “foreign partnership” for a lack of popular mandate at home. Without prejudice to the relationships that Heritage Oil and Gas has built in Uganda it is useful to note that there has been no public scrutiny of its agreements on the oil exploration. These agreements have been declared “secret” by the government. Secondly while according to Standard & Poor company records, Heritage Corp has a “100.0% interest in Heritage Oil & Gas (U) Ltd., Uganda, it would not be unreasonable to assume that local politicians may have a direct interest in its oil concessions here considering what is known about the companies methods.

CAAT in an paper titled “ The Privatisation of Violence; New Mercenaries and the State” claims one of EO’s first leader and partner of Bukingham, Eeben Barlow had “ set up a security company in Kenya in partnership with Raymond Moi, son of the President [Arap Moi]” . It also claims a “subsidiary called Saracen has been established in Uganda in co-operation with Major-General Salim Saleh” and that Saracen “guards the gold-mining activities of Branch Energy, in which the Major-General also has a stake”.  One of the arguments in support for a transparent process of turning Uganda into an oil producing nation is to create institutional ownership as opposed to the suspicions raised by the association of individual politicians to Heritage Oil, given its history. Which brings us to another question, while Heritage Oil and Gas has proved adept at creating opportunities for mineral extraction, one wonders if it is the best that Uganda can do and if the situation will change when the exploitation phase of the oil discovery kicks off.

In any case Heritage’s main business is not exploitation but exploration. How will public debate on this subject affect exploitation and future revenues from oil?

First published in the Daily Monitor Kampala

aizama@monitor.co.ug

0712 666 999

Oil and the Changing face of business.

Angelo Izama

Last week this series looked at the pioneering work that Heritage Oil and Gas and others have done on Uganda’s nascent oil fields.

It concluded by suggesting that to continue public confidence in the Oil and Gas sector, the government must lead a healthy public debate on its policies and provides adequate information on the oil effort. The history of Heritage Oil and its association with private military organization with a dodgy record on the African continent makes another argument for public debate and scrutiny in the quality of decisions that the government teams may make. Moreover increased local confidence is one of the most secure routes to sustainable exploitation and most importantly dealing with the bane of all oil producing countries; the question of how oil revenues are spent. Recent hesitance by the government to share their work with Parliament suggests warning signs.

This even little suggests at this stage that the agreements that have so far been signed are bad, at least in relation to similar deals elsewhere. According to informed sources, Uganda has so far signed four Production Sharing Agreements or PSA’s. A PSA is a contract which determines what share of oil or other resource a company will receive for extracting such a resource. PSA’s Uganda has signed are with Heritage, Hardman Resources (now acquired by Tullow), Tullow itself and a company called Neptune Oil. Neptune just like Tullow was acquired in May this year by Tower Resources which now takes over its PSA with the government of Uganda. According to technocrats in the Ministry of Energy, these agreements, shared in a limited circle of officers, represents a success story in themselves. Comparative analyses conducted internally by government shows the agreements were favorable when viewed in light of countries like Angola, Sudan, Chad, Gabon, and others. The Uganda PSA’s provide for the following; taxation of oil profits at 30% based on the Income Tax Act, Royalty of 12.5% when production is above a certain minimum [7500 barrels per day), State participation or equity of 15% on all projects and a rapid cost recovery of 40-60% of the value extracted when these companies begin production. Many countries including Kenya and South Africa struggle to attract investment in exploration and later exploitation and so fairly generous packages are designed by many oil exploring countries. These countries then strike a balance between incentivising exploration and ensuring that local interests are protected in the agreements they sign. The idea is that the state is able to obtain a good rate on the profits as well as benefits from taxation. The rate of profit increases as the company recovers its initial costs. President Museveni has declared these agreements one of the best with good reason his officers say. The figures in the PSA’s are provided here to encourage that debate. Indeed it begs the question as to why the government does not feel confident to brief parliament on these agreements. Interestingly its incentives aside the government has taken just US$ 500,000 dollars in signature bonuses i.e money that oil companies pay on signing an agreement. One reasonable fear here is that political authorities are not yet ready to share responsibility of the oil discoveries with other stakeholders.

If this continues it can only mean that these authorities particularly the Executive will also want to monopolise decision making on the incendiary question of how oil revenues will be spent.

The suitability of the agreements is not the only challenge indeed other problems are more serious. Uganda has to apply itself more seriously to a partner able to invest expeditiously into the infrastructure for exploitation. The current companies may not have the agility to quickly move to an exploitation phase. However

It can be revealed in these pages that in fact Ugandans have little to worry about the nature of agreements signed on their behalf by the state.

 on the conduct of the state vis a vis the oil exploration and exploitation. This argument basically assumes that less contestation by local political actors can be expected if Ugandan authorities increase the level of institutional participation as well as public information on the oil agreements. As this article was being written, a lawsuit to make the agreements public is being considered under the Freedom of Information Act.

First published in the Daily Monitor Kampala