More problems with oil

In mid-September, shadow attorney general Abdul Katuntu, and government MP Theodore Ssekikubo, announced that they had gathered enough support for a petition on oil tax payments to force a special sitting of parliament (in the end, they gathered the names of at least 166 sitting MPs, significantly more than the 125 that are required to force an emergency debate. The signatories included a large number of members from the ruling National Resistance Movement, NRM). The MPs’ petition related to an ongoing dispute between the Ugandan government and Canadian oil firm Heritage Oil, over the latter’s sale of its exploration rights in the Lake Albert basin to UK-based Tullow Oil in July 2010 (Heritage is claiming back the US$405 million that was paid in capital gains tax on the US$1.5 billion deal). After several months of legal wrangling in Uganda itself, in late August, the government agreed that the case be shifted to an arbitration tribunal in London. However, MPs remained unhappy that important details of the dispute – including key documents (not least Heritage’s original Production Sharing Agreements, PSAs), as well as the government’s reasons for agreeing to take the case to London – remained classified. They are therefore attempting to now use parliamentary privilege to force further disclosures. 

Then, in early October, another government MP, Gerald Karuhanga (MP for Youth, Western Uganda), tabled documents which purported to show that Foreign Minister Sam Kutesa had received a £16.5 million bribe from Tullow Oil. The claim led to older allegations against Internal Affairs Minister Hilary Onek and Prime Minister Amama Mbabazi resurfacing in the press - allegations that they had received bribes from Tullow and ENI, respectively. Interestingly, the documents relating to both the Kutesa and the Onek allegations have long been proved to be fake (even before the former were tabled in parliament). As early as mid-2010, the Maltese Police had dismissed the documents relating to Onek as forgeries (they involved a Maltese bank account). And the evidence against Mbabazi is equally thin, being based only on one of the US Embassy cables that were released by Wikileaks. Nevertheless, the allegations have had a major political impact. Just two days after Karuhanga's portfolio was presented to parliament, Kutesa resigned, and in the subsequent debate over the documents, Onek announced that he too would be stepping down - although it is not clear whether or not he has actually done so. (Kutesa's resignation also coincided with the start of his court case concerning another set of bribery allegations, related to the CHOGM meeting of 2007). Following Karuhanga's disclosures, Mbabazi has also come under increasing pressure - with growing calls for him to resign as well - although he has so far managed to remain aloof. 

The current anger over the Heritage dispute, and the corruption allegations, reflects wider concerns amongst legislators over the way in which President Museveni and his inner-circle have handled oil issues, and the secrecy with which they have surrounded these dealings, from the time of Heritage and Tullow’s initial explorations in the Lake Albert basin, in 2007, onwards. In particular, recent months has also seen growing criticism of Museveni’s decision of early-2010 to place all of the western oil fields under the control of the Special Forces group, which is commanded by his son Lt. Col. Kainerugaba Muhoozi. Ostensibly done for reasons of security – following an earlier series of cross-border skirmishes between the Ugandan Army (UPDF) and their Congolese counterparts (the FARDC) – many now argue that the Special Forces’ deployment is in fact being used to control all access to the oil fields, and also to surrounding areas and populations. Thus, for example, the Special Forces group is also now policing the special permits which, issued by the executive, are required for anyone wishing to interview local authorities in the oil districts, to conduct research amongst local farmers and herders, and/or to take photographs in the region. (In addition, throughout 2011, a growing number of MPs, NGOs and journalists have found the permits themselves increasingly difficult to secure).

Opposition MPs, along with various Ugandan academics, NGOs, and the Ugandan Civil Society Coalition on Oil (CSCO), have also voiced growing concerns over the new legislative framework that the president and his senior ministers have begun to develop around the oil finds. In February 2008, the Ministry of Energy and Mineral Development (MEMD) published a National Oil and Gas Policy (NOGP), which paved the way for new legislation related to revenue management and administration, revenue management, and environmental management. However, when Museveni released advanced copies of the first of these bills – the Petroleum (Exploration, Development, Production and Value Addition) Bill – in May 2010, it came in for immediate criticism. In particular, the draft legislation was once again seen as too secretive (for example, if passed, the new law would not even require mining companies to declare quantities of oil being extracted), but also as granting the Energy Minister too much power (amongst other things, he would have full discretion over all licencing issues), yet without providing adequate provision for an independent Petroleum Authority. In response, Museveni quietly dropped the bill in the run-up to the February elections. However, cross-party legislators are now gearing-up for further battles, following Energy Minister Irene Muloni's recent claim that she plans to have all three of new laws passed by the year's end. It is in this context, then, that a British-based NGO, International Alert, has recently published an overview of existing oil and gas laws in Uganda, as a guide for MPs in their upcoming debates over future oil legislation.

Moreover, it is not only at the national level that Museveni faces growing pressure over his handling of oil issues. In addition, in recent months local bodies such as the Kingdom of Bunyoro have also become increasingly vociferous in their complaints against the president (the majority of the newly-discovered reserves lie within the Bunyoro region). Bunyoro’s current grievances trace to the 2008 NOGP, which requires that 20% of all state oil revenues be returned to the region the oil came from, yet which effectively bars the Kingdom itself from receiving any of these monies (given that the institution is a purely ‘cultural’ organization). However, during 2011, this antagonism has been further exacerbated by a series of land disputes, including one in January during which a group of pastoralists known as the Balaalo were evicted from lands adjacent to the oil fields in Buliisa District. It has also occurred in a context in which Banyoro have become increasingly emboldened in their dealings with the central government, not least as a result of a growing ‘cultural pride’ that has been generated by a project to create a new US$1.5 million cultural centre in Hoima Town (the project is itself being partly funded by Tullow Oil). As a result, recent months have seen a growing number of localized protests against the police and the oil companies, including one in late August during which villagers in Buliisa blocked a road between the Kigogole oil well and Tullow’s nearby workers’ camp (the protest resulted in 10 arrests). In early September, Kingdom officials announced that they were joining up with regional MPs (of the Bunyoro Parliamentary Caucus) to lobby for a greater share of future oil revenues. Amongst the various initiatives already announced by the partnership are a planned land committee, to  investigate disputes such as that involving the Balaalo, and a development group which will lobby for projects such as the proposed tarmacking of the Kihumba-Hoima-Kyenjojo road, and the mooted upgrades of several regional hospitals.

Nevertheless, the president himself may yet come to regard all of these developments as but minor inconveniences, given the enormous political capital that he stands to gain from forthcoming oil revenues. In April, Tullow Oil paid into the Bank of Uganda US$313 million, against the outstanding tax bill from the Heritage purchase. This payment is also now a source of legal action, again in London, with Tullow claiming that the money was actually part of Heritage's tax liability (they are now trying to recover it from the Canadian firm). Nevertheless, the payment removes the final hurdle in Uganda for Tullow’s proposed US$2.9 billion farm-out deal with France’s Total and the China National Offshore Oil Corporation (CNOOC), and as a result, that deal should now be completed soon (indeed, it was cleared by the Ugandan regulators on 12th September). As a result production may begin as early as mid-2012. Whilst it is difficult to separate out fact from rumour in the current talk over oil, it is highly likely that at least some of the president’s inner-circle will make vast personal fortunes once production starts. More importantly, though, once oil exports begin, Uganda will be much better placed to service its huge foreign debts, and to bolster its meagre foreign currency holdings (which have dwindled in recent months, not least as a result of the Museveni’s decision to purchase US$740 million-worth of Russian fighter jets). Once production starts, oil is expected to generate US$2 billion a year; the current national budget is US$3 billion pa. These factors will in turn greatly improve Uganda’s trade volumes, especially with its partners in the East African Community (EAC). Moreover, given how astute Museveni has always been at turning any economic success into political gain – and given that he has recently faced popular protests over rising food and fuel prices – it is almost inconceivable that the president will not turn all of this to his significant advantage with the electorate. 

These same developments are also likely to have positive effects upon Uganda’s foreign relations, and especially upon its relations with other EAC states. These relations will be further improved by Uganda’s recent decision to build a US$2 billion public-private oil refinery near Hoima, which when complete, will have a capacity to refine 150,000 barrels per day (bpd). Given that Uganda’s domestic market currently uses only about 12,000 bpd, it is highly likely that the refinery will soon be flooding regional markets with cheap petrol. Indeed, it is with this in mind that in April, the MEMD applied to parliament for a US$13.5 million loan to buy land for an extension of Kenya’s existing Mombasa-Eldoret pipeline into Kampala. The idea of extending the pipeline was first been mooted in the mid-2000s, as a means for more easily importing petrol into Uganda. However, in the current context the plan has gained even greater urgency, as a potential infrastructure for exporting petrol as well (the updated plan almost triples the original estimate for the project, not least because it now includes a reverse flow on the pipeline). In addition, the EAC recently secured a US$600,000 grant from the African Development Bank to conduct a feasibility study on developing the pipeline into a pan-regional facility, which when complete, could extend as far as Kigali and Bujumbura. Finally, Nairobi is also hoping to gain from additional Ugandan crude oil that may be transported across its territory. With current estimates suggesting that the Lake Albert oil fields may eventually produce up to 350,000 bpd, it is clear that even when it is fully operational, the Hoima refinery will be able to process only part of Uganda’s output. The remainder, then, will have to be transported to the coast for shipping via Kenya.

However, in the meantime, Museveni will continue to face opposition from MPs over his handling of oil, and especially from the 'young turks' within his own parliamentary party. Whilst these challenges are unlikely to become significant enough to ultimately threaten his position as president, they are likely to become a growing 'thorn in his side'. Museveni has already suffered some significant setbacks at the hands of the new (9th) parliament, and he may well have to make further concessions (including some major concessions?) before it is completed. However, his own personal standing with the electorate is unlikely to be significantly effected by these wrangles. In the meantime, local disputes in Bunyoro - especially those involving land - will rumble on, and may well intensify in the months and years ahead. Moreover, whilst these issues remain relatively localized at present, they could potentially escalate further, especially if they were to take on an ethnic-hue - for example, by becoming articulated as difficulties between the region's ethnic Banyoro, and Bakiga, populations - or more significantly, if a foreign power were to meddle in the region's affairs. 

Whatever happens, it is unlikely that Uganda's problems with oil are over yet.