Challenges
The Oil Curse
The illusion that Uganda will fund its future needs by earnings from foreign oil giants as they exploit our oil resources is just that – an illusion promoted by our government too gullible or self-interested to act prudently. According to one government claim, Uganda would reap $3.2 billion in annual profits only three years after production begins. This is a dishonest projection with no basis in fact.
The facts are very different. Yes, there is oil in the Albertine Rift, primarily offshore in the waters of Lake Albert, being accessed by onshore rigs using directional drilling techniques. Tullow and other oil giants have identified promising formations of low-sulfur but high-paraffin oil.
Exaggerated Reserves Claims
How much oil they actually produce is an unanswered question. Tullow publicly states that it found 2.5 billion barrels of “commercially viable” oil (a term that could mean many things but usually just hype). It also claims that production in three oil blocks will reach around 150,000 barrels a day by 2015. Its internal data are secret and thus unverifiable.
For example, resource estimates can include oil in pockets that are so small or so deep that it may never be drilled or produced at any price. The oil may also be in areas that are off limits or impractical to drill. Because Uganda’s Albertine Rift region is remote and without road, rail or other infrastructure – and next to unstable, violent Congo – costs are higher than other African nations. If oil prices fall again, as they did in late 2008, further spending could be stopped. Even when oil begins to flow, Tullow can deduct all its costs before sharing its revenues with Uganda.
Oil companies are notorious for exaggerating reserves and production estimates to attract investors, and are deterred from misleading claims only by vigilant government regulators. In fact, Tullow plans to list its stock on the Uganda Securities Exchange (and already trades on the Ghana Stock Exchange), knowing that it can boost its stock price by inflating these estimates and sell to naïve investors, with little chance of being caught.
Tullow’s Contradictory Facts
Also, Tullow’s 2010 Annual Report, which must meet strict accounting and securities regulations, reported that it owned “proven and probable commercial reserves” of only 245.9 million barrels of oil – for all of its African properties, mostly its successful production fields in Ghana.
Another clue that this is an exaggeration is Tullow’s decision not to build a pipeline but instead a small refinery with a beginning capacity of 20,000 barrels per day – barely enough to meet Uganda’s domestic consumption needs. This shows that Tullow is hedging its bets in case production falls below its internal estimates – a prudent decision that has eluded our government so far.
Abuse of Human Rights
Also troubling is the abuse of the rights of Ugandans and pollution of Lake Albert and adjacent lands. Our government officials have already decided to coddle the oil industry, ignore protected lands, evict whole communities from their homes and farms, and ignore the already extensive pollution caused by oil activities. For example, the military in August 2011 announced it would evict some 3,000 residents in the Hoima district to establish a large army base to protect the oil fields.
Secret One-Sided Contracts
Then there is the pervasive secrecy that can only be explained as deliberate concealment of the government’s incompetent or venal management of oil transactions so far. The government has claimed that it could be sued by its oil partners if it disclosed production sharing contracts, a claim denied by Tullow Oil. Its spokesman stated that “we support any country’s transparency initiatives and would happily support the publication” of the contracts, as quoted in Bloomberg Business Week, a US magazine, on 11 February 2011.
One glimpse has been revealing. The London-based research organization, PLATFORM, analyzed leaked copies of secret contracts between the government and Tullow and other oil companies and found a shocking lack of contractual protections of the public interest.
One-sided terms in the oil giants’ favour exist in such provisions as the public’s exposure to liability when something goes wrong, lax oversight of company cheating on royalties and taxes owed, a relatively low share of earnings for the government (that declines sharply when oil prices rise) of revenues, lax or no operating standards to protect the environment, and even granting the companies the right to use as much produced gas as they want (or the right to waste it by “flaring” precious natural gas).
This is especially frustrating, given the government’s boast that it had bargained hard to achieve contracts comparable to those of Norway, which successfully maximizes the economic and social benefits of oil production. Operating in complete transparency – its citizens have access to all vital facts – Norway has amassed the world’s largest oil fund, valued at $US570 billion in mid-2011. This ensures that Norwegians will reap lasting benefits long after the oil runs out.
In contrast to Norway, Ugandan leaders maintain tight secrecy about oil earnings and refuse even to disclose where they have gone.
The Oil Curse Begins
Contrary to its pretensions, Uganda’s government has bungled, squandered or stolen every opportunity to protect our interests. The leaked contracts, exposures of illegal secrecy and other aspects show that we can expect that the oil earnings will flow into the hands of the few only. When the oil runs out, the rest of us will still be paying for the economic, environmental and human damage.
The warning signs are everywhere that Uganda will become just the latest African nation afflicted by the oil curse. International donors and Ugandans alike are skeptical of government's claim that it would spend oil dollars effectively and instead suspect that it will disappear into secret spending and corruption.
As World Bank representative to Uganda, Kundhavi Kadiresan, said in 2010, “Only effective and accountable states are able to turn oil into a blessing for a country. Uganda could easily become the next African country where oil has become a curse.”
Confirming these fears have been U.S. diplomatic cables disclosed by Wikileaks in 2011 that allege major corruption by senior ministers accepting bribes from European oil giants to gain access to Uganda’s oil resources. Officials named in the leaked cable deny these charges.
Stop the Oil Curse
The solution is simple: Renegotiate the contracts, and add strong provisions to protect our economic, environmental and social interests. Provide affected communities and individuals with adequate compensation for their losses. End the secrecy by an ironclad, enforceable right to know policy. Stop the corruption by strengthening enforcement.
“Government should appreciate that corruption is a system. It can only be countered by a system,” Principal Judge J. M. Ogoola stated in 2010. He added that civil society organizations should have a key role in curbing corruption.
To read documents about the oil curse, click here for Library.
To read more about NAPE’s action agenda, click here.
