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Last Updated: Friday, 12 October 2007, 01:36 GMT 02:36 UK
Ugandan oil could be blessing or curse
By Lucy Hooker
Business reporter, BBC News, Kampala

Oil drilling in Uganda (Photo: Tullow Oil)
The oil find could change Uganda for better or worse

On a busy Saturday in downtown Kampala, sudden deafening roars of generators are commonplace.

Frequent power cuts mean that shop owners have had to find their own ways to the keep fridges cold and the lights on for shoppers.

Businesses from fish exporters to bakeries have found their costs soaring thanks to the expense of running back up capacity.

Lately, the discovery of oil in the west of the country has raised Ugandans hopes that their energy problems could soon be over.

But the lesson from other African oil producers is rather that this could be where the trouble starts.

Known as the "oil curse" the triple threat of conflict, corruption and over dependency looms for this underdeveloped east African nation.

Ugandans are determined to learn from others' experience and avoid the same fate as neighbours such as Nigeria, which have received billions of dollars in oil revenues but whose populations remain impoverished.

But there are already signs that trouble lies ahead for this energy-hungry central African state.

The biggest threat is violent conflict with neighbouring Democratic Republic of Congo. The exploration area lies on the two countries' common border.

The two countries have a history of conflict dating back to Uganda's invasion of DR Congo in 1998. Even the precise demarcation of the border is under dispute.

Several people have died in the last few weeks, including one British oil contractor, in the exploration region around Lake Albert.

On top of this, the locals in the region, used to living a simple life of subsistence farming and fishing, are waking up to the prospect of new wealth and are suggesting that up to half of all oil revenues should go to them.

The country is struggling to stem the clashes along the two countries common border. Uganda is pushing for a joint oil exploration and exploitation deal with the DR Congo on Lake Albert, and foreign minister Henry Okello Oryem says Uganda welcomes the idea of a joint oil commission with DR Congo that will monitor the exploitation of oil along the border.

Development goals

Most ordinary Ugandans, following the initial euphoria over the oil finds, have long been worried about corrupt officials siphoning off the proceeds.

"Of course it is good news. We have another natural resource we can take advantage of," says Belinda on the outskirts of Kampala.

"But the problem is: who is controlling the production and export of oil? It usually lands in the wrong hands and you realise that not everyone is going to benefit."

"We want the oil to be utilised for the benefit of the country. This oil is our gift from God," says Mohammed.

President of Uganda Yoweri Museveni on 25 November 2005
Uganda's president has worked for better relations with DR Congo

The government is well aware of the challenges they face. And they are busy tackling them.

President Yoweri Museveni has been meeting with DR Congo President Joseph Kabila to discuss reducing tension in the region.

And in his Independence Day address at Kololo ceremonial grounds this week he urged the business class to report corrupt government officials who ask for bribes, vowing to "roast them".

It is almost impossible to pin down energy minister Daudi Migereko, so occupied is he with travel back and forth to the Lake Albert region, the drawing up of a new energy policy and meetings with officials from Norway.

The Scandinavian energy producer is to be Uganda's role model, rather than any country closer to home.

"I do not think the discovery will cause Uganda any problems," says Mr Migereko. "What we've done is to involve literally everybody.

"We have been carrying out consultations in the oil-producing areas. Our view is that with this approach, you make sure you avoid the kind of mistakes other people have made."

Power shortages

Looking at the down-at-heel building that houses the minister's office, you can imagine how tempting it would be to spend the first petrodollars on a smart new energy ministry with leather chairs and marble floors.

But President Museveni has promised that the money will go into development. There will be no imported luxuries such as wine and cosmetics on the back of the oil windfall, he has vowed.

John Morley, country manager for Tullow Oil
I think we could be looking at changing the economics of the region, not only of Uganda itself
John Morley, Tullow Oil

Ordinary Ugandans are still in need of basic health, water and transportation infrastructure. Only 7% of the population has access to electricity and for many of them, the power is still more often off than on.

Thousands of businesses run expensive back-up generators just to keep the lights on or the fridges working.

So there's no place for indulgence. The revenues and the oil itself are already earmarked 10 times over.

Anti-corruption campaigners argue that total transparency is the key to avoiding corruption. They are calling for the government to publish the details of any contracts signed with oil companies.

Then, at least Ugandans will know how much money is due to the public purse and can ask questions if it doesn't materialise.

So far, the government in Kampala has been hesitant on the transparency issue. But they promise the new policy will take account of the views of all interested parties and contracts will be published.

Border problems

Relations with Congo may be more difficult to control. DR Congo still claims that Uganda owes it $10bn in compensation for invading unlawfully in 1998.

Street scene in Kampala
Ordinary Ugandans lack reliable power supplies

There's also the delicate task of pinpointing exactly where the Uganda-DR Congo border lies.

It's a decision which could cost either side billions of dollars if there really is as much oil under there as the oil companies believe.

The Anglo-Irish oil company Tullow, which, along with Canadian counterpart Heritage, has conducted a series of successful exploratory drillings, is generally upbeat about the situation.

The firm estimates that Uganda will have enough oil to satisfy current needs and potentially export some oil products.

"The significance, I think, will be immense," says country manager John Morley. "I think we could be looking at changing the economics of the region, not only of Uganda itself."

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Country profile: Uganda
16 Aug 07 |  Country profiles

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