Delayed oil production could affect economic outlook - World Bank warns

“Subsequent delays in oil exports beyond 2023/24 could result in liquidity pressures, given the current heavy borrowing for oil sector related infrastructure that is relying on an enhanced repayment, capacity from oil exports, and especially if more non concessional borrowing occurs,” the report in its Economic outlook and risks, cautions.

Presenting the findings at an event held at Kiswa Health Centre in Bugolobi, Kampala, Mr Richard Walker, a senior economist with the World Bank, noted, “The recent termination of the Tullow deal has increased uncertainty for oil sector related investments.”

The Uganda Economic Update Report also warns that this could reduce private sector investments and broad sentiments over the mid-term.

“If you think about the price of oil at $54 a barrel is just good for real growth outcomes in Uganda but not good for necessarily encouraging a quicker Investment Decision and may be shorten the time to oil production, imagine if that price is higher, companies may be interested in trying to get this deal done,” Mr Walker, emphasized.

The China National Offshore Oil Company (CNOOC), Total E&P and Tullow are the joint venture partners pursuing commercial production of the lucrative oil and gas resource out of the Albertine Graben in South Western Uganda, where viable deposits have since been proved, oil rigs set up and the so much needed Final Investment Decision still hanging in balance.

At the fifth Annual Governor’s Public Lecture held in Kampala February18th, key note speaker Prof. Danny Leipsiger, advised that Uganda should develop other sectors of the economy; cautioning that heavy dependence and hope on oil resources could be very risky.

Lessons from Ghana
“Draw some lessons from Ghana, they moved into production of oil, undertook huge borrowing tied to revenues from oil. World crude oil prices have been shaky. Uganda, may actually find it necessary to develop its other major sectors such as agriculture and industry, because these could guarantee immediate and steady growth out comes than putting too much hope in the oil,” counseled Prof. Leipsiger.

Mr Robert Kasande, the Permanent Secretary in the Ministry of Energy, in a telephone conversation recently on the progress around the pending Final Investment Decision between government and oil firms said, “We are yet to come up with and share what the citizens of Uganda and the rest of the world may need to know once we are at that stage. This will be very soon.”

According to varying accounts, among issues that remain contentious and keeping the Final Investment Decision by the oil companies Total E&P, CNOOC and Tullow is that of revenue sharing per barrel of crude oil produced and exportable.

Speaking on February 27th during the launch of a study on Ugandan Perspectives on Oil and Gas: Extending opportunities for multi stakeholder engagement, that covered 12 districts across the Albertan region; the Norwegian Ambassador to Uganda Elin Johansen, noted that sustained goodwill from both government and oil and gas players remains the most cardinal spirit to develop the industry.

“I am a trained negotiator for nearly 30, 40 years. Negotiations take the time necessary to get results that are mutually agreeable. Government and oil companies best know what their interests are and should be given time,” advised Ms Johansen.

She added, “In the 1970s, this came as a pleasant surprise that we found the oil. We did not have much experience in negotiations, environment protection and the technical challenges of getting the oil from the sea bed to on shore,” stressed the Norwegian Ambassador.

The Albertine Graben Oil and Gas Districts Association, says with the delay on the Final Investment Decision, government should immediately start funding Annual Financing plan for 12 districts across the areas with commercial deposits and where anticipated production of oil is envisaged.

Financing plan
“We have come up with an annual financing plan with the support of the technical working group of Albertine Graben Oil and Gas Districts Association. We believe it is prioritising key areas of production, natural resources, community, commercial services and others. It costs Shs25 billion annually to stimulate these focus areas, as we wait for actual production of oil,” said Mr Godie Kwizera, the executive director of the Albertine Graben Oil and Gas Districts Association.

Maendeleo Ya Jamii, the organisation behind the study whose findings titled, “Ugandan Perspectives on Oil and Gas: Extending opportunities for multi stakeholder engagement,” that covered 12 districts across the Albertine region notes that immediate interventions on social services in the oil producing areas is key, given that they are already disrupted.

“Validated perceptions of communities and local governments impacted by the upstream oil and gas life cycle as shared in this study, is all but tied down to services. People in these areas immediately need good health care, education, water and sanitation, shelter and jobs around all these projects preceding the commercial production of oil,” said Mr Jacob Manyindo, the Coordinator of Maendeleo Ya Jamii.

Dr Ezra Suruma, the head of delivery unit in the Office of the Prime Minister, says the 148 paged report should be utilised by government Ministries Departments and Agencies in expanding the planning and implementing horizons around social services that can spur economic ventures within and beyond the Alerbtine Graben.

“We had hope that some of our projects would have been implemented by now through oil financing, such as the 20 million bags of production and export per year, but we are yet to get oil money,” Dr Suruma, says.

The Uganda Chamber of Mines and Petroleum says that as the Final Investment Decision that is expected to enable oil and gas firms inject in excess of $10 billion or approximately Shs37 trillion into the economy remains to be concluded.

“We need some agreeable funding from government to the private sector. This readiness is critical without which we may not have the local content threshold utilised by the private sector. We may also fail to reap from the benefits out of the oil and gas,” urges Mr Elly Karuhanga, the chairman of the Private Sector Foundation.