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History Of Oil Discovery In Uganda Politics Essay

Info: 5477 words (22 pages) Essay
Published: 1st Jan 2015 in Politics

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Introduction:

This theoretical research aims at looking into the underlying issues of the “oil gate affair” in Uganda as it has come to be called. Transparency, corruption, merging conflicts and conflicts that already exist due to unresolved partnerships, at this point in time when Ugandans should be rejoicing due to the news of oil exploration and commercial oil reserves rather the news has been met with mixed feeling. Some circles of people believe that we are headed for doom, others are optimistic that the oil will give the Ugandan national budget the much needed boost it has been waiting for.

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Uganda is a land locked country within the east African region and it covers a total area of about 241,038 sq Kms. Land coverage is 197,100 sq Kms while water covers 43,938 sq Kms. with an estimated population of about 33.4 million Ugandans as of 2010) [2] . In addition, “Uganda has one of the youngest and fastest growing populations on the African continent and, thus, faces the associated challenge of providing quality employment for the majority of the young people. In 2009/10, it was estimated that 19.3% of the population were between the ages of 15 and 24. Youth unemployment was estimated at 4.3%, higher than for the labour force as a whole, at 3.8%.The lack of employable skills, limited access to financial and technical resources, the insufficient emphasis on vocational training and a mismatch between skills and requirements in the job market are some of the factors affecting employment in Uganda. To address the challenges posed by youth unemployment in Uganda, the government is pursuing a number of interventions aimed at improving the employability. For instance establishment of a Youth Venture Capital Fund to support entrepreneurial bankable ideas and initiatives, and the national Business, Technical and Vocational Education and Training (BTVET) programme” [3] .

On the other hand, Democratic republic of Congo with whom Uganda shares a border and the oil resources in the Albertine region has been described by some as Africa’s First World War formerly known as Zaire, it has had conflicts since its independence. In the month of august 1998 another rebellion broke out and since then about 5.4 million people have died from either diseases or wars and to make it worse there are reportedly around 1.5 million internally displaced refugees [4] .

Furthermore, the country faces a major challenge in youth employment. More than 70% of those aged 15 to 24 have no jobs, with urban areas particularly affected. The DRC (Democratic Republic of Congo) does not yet have a real policy to get young people into work. The shortage of jobs helps increase the size of the informal sector and the weakness of supportive structures which leads many young people into a life of crime. “Gross Domestic Product (GDP) growth slowed in 2011 in the DRC to 6.5%, as a result of global inflationary trends and a highly charged political atmosphere inside the country, and is expected to fall to 5.1% in 2012 before picking up again to about 6% in 2013” [5] . Also areas of the country especially the eastern part of the country which borders Rwanda and Uganda still remain beset by violence.

History of oil discovery in Uganda:

An important question posed so far is who should really be attributed with the discovery of oil in Uganda, is it the colonialists, President Yoweri Kaguta Museveni or the historical natives of the land? Owing to research by Kizza, Bategeka and Ssewanyana (2011) “Oil in the Lake Albert basin was really discovered by the native people of Bunyoro kingdom. The Banyoro natives observed the oil seeps in the Kibiro-Butiaba areas long before the advent of British colonialism in the nineteenth century. The Banyoro discoverers faced one problem though Observation of seepages is one thing; confirmation of recoverable supplies is another. The Banyoro did the former, not the latter.” [6] 

Contrary to media reports oil exploration in Uganda first began in the 1930’s when Lake Albert was considered an attractive region for oil prospecting due to the natural oil seepage in the area, at this time Uganda was under the British colonial government with time some companies explored the area and the first deep well was drilled in the 1938 before World War two intervened and the ensuing political instability in Uganda of the 1980s. [7] 

Furthermore, Kizza, Bategeka and Ssewanyana state that “under the government of Milton Obote (1981-1985) surveys were conducted over the Albertine region and these particular surveys increased Uganda’s stock of knowledge on the existing hydrocarbons thus bringing about the enactment of the exploration and production act of 1985 to regulate upstream activities such as oil exploration and extraction. Consequently, the overthrow of Obote in 1985 did not kill interest in the oil. President Museveni confesses that soon after capturing power in 1986, he learned about the Albertine oil when Shell BP and Exxon approached him. The two oil companies wanted exploration rights over the Lake Albert basin. Their problem was the timing; the oil companies faced Commander Museveni who, in the 1980s, had a strong sense of economic patriotism. Fresh from a bruising guerrilla war (1981-86) that propelled him to power, the new leader was cautious” [8] .

The extent of the oil find is not limited to Uganda though, it stretches beyond the country’s borders along the entire East African Rift system and the rift valley extends 1000s of kilometres in Africa alone through Uganda, northern Kenya, Tanzania and Somalia. It is of course not yet known whether the oil finds across the eastern rift valley are commercially viable if they are then East Africa could be the next new frontier for oil production. [9] 

The late 1990s and 2000s saw renewed interest in Uganda’s potential natural resources and this brought about signing of production sharing agreements (PSA) between government and Hardman petroleum, Energy Africa and Heritage oil ( Lay, pg 4-5). However, the problem arising out of the contracts is that they have never been made public and this has raised a lot of suspicions from the diverse population, politicians and the media. Lay furthermore, unearthed that there are three court suits outstanding against the government by African institute for Energy Governance, Green watch and the daily monitor respectively all using the Access to Information Act. Until November 2009 the contents of the PSA’s has remained a closely guarded secret, with both the Ugandan government and the oil companies only releasing decontextualised snippets of the agreements [10] .

THE OIL AND GAS INDUSTRY OF UGANDA:

In order for oil companies to explore and prospect for oil resources in any country they must attain PSA’s, which are agreements between the oil exploration companies and the governments of the people.

In an interview with Mr. Makana an environmental geo scientist he had this to say ” the Ugandan PSA’s, government opted for as an understanding between itself and the oil companies is because it’s a hybrid agreement that incorporates some of the good elements between a concession contract and a service contract. He went further to explain ” that when a company’s application for a license is successful then the government invites that same company for negotiations of some of the components of the PSA and once the negotiations are done the agreements are signed. In the PSA’s the petroleum resource remains in the hands of the state as opposed to say a concessions contract where the resources become an asset of the company”. In total there are 64 wells currently that have been dug to date between various exploration and prospecting companies each of these wells is named after a particular majority species of animals or plants found in the area where the prospecting is being carried out. [11] 

The annual report of June [12] , (2004 pg 8) by the petroleum exploration and production department the government concluded negotiations for petroleum exploration and production rights over exploration area 1 with Heritage oil and gas ltd in a joint venture with Energy Africa ltd/Tullow oil which led to signing of a PSA on 1st July of the same year and again on the 8th of September 2004, government signed another PSA with still the same joint venture between Heritage oil, Energy Africa for exploration area 3A.

In addition, global witness report (2010) states that exploration area 4B (southern lakes Edward and George basin) was licensed to UK’s dominion petroleum where as exploration area 5 went to Neptune petroleum which is a subsidiary of the UK’s listed tower resources. The same report by global witness states “Tullow oil then bought out Heritage shares in august 2010 leaving it with 100% in exploration areas 1, 2 and 3A. Tullow oil then announced it would form a partnership with CNOOC of china and TOTAL of France. However at the time of writing the global witness report government had ordered Tullow oil to stop all its activities until a dispute between the government and heritage over unpaid capital gains tax had been resolved.” [13] 

The capital gains tax dispute: Heritage, Tullow and the Government of Uganda:

On July 26th ,2010 one of the major oil companies in Uganda’s petroleum sector Heritage oil sold its exploration licenses in the Albertine area to Tullow oil in blocks 1 and 3A for US $ 1.45 billion thus making Tullow oil the only company licensed to operate in these areas and after which Heritage stopped all its operations in Uganda. However, according to Izama and Mulangwa “Uganda revenue authority acting on behalf of the government of Uganda requested US$ 434 million or 30% of the sale in capital gains taxes” Heritage disputed the tax, saying that its lawyers believed that the sale was not taxable, given that the PSAs which the company signed with the government failed to mention such a payment. Heritage further argued that the sale of its assets to Tullow oil was not taxable in Uganda because the sale itself took place outside Uganda (in the Channel Islands off the coast of France) and because the company itself is not incorporated in Uganda (being domiciled in Mauritius). The government of Uganda, meanwhile, has argued that the assets sold were located in Uganda, and that their sale was done with the consent of the Ugandan government, making the transaction taxable under Ugandan law.” [14] 

The Payments

The Money

Total amount of sale (for Heritage’s stake in Blocks 1 and

3A)

$1.45 billion (or Ush 3.77 trillion)

Capital gains tax that government of Uganda wants Heritage to pay

$434 million (or Ush 1.13 trillion) (30% of total sale)

Money not given to Heritage from the sale of Blocks 1 and

3A

$283 million (or Ush 736 billion)

“Refundable deposit” paid by Heritage to government of Uganda

$121 million (or Ush 315 billion)

Total amount that government of Uganda has, and that Heritage wants

$405 million (or Ush 1.05 trillion) *

“Tax” payment made by Tullow to government of Uganda

$313 million (or Ush 814 billion) **

What Tullow will receive from the “farm-down”

$2.9 billion (or Ush 7.54 trillion) ***

The figures above are rounded off, which accounts for minor discrepancies

Source: ACODE infosheet, No 16.20 [15] 

Government of Uganda versus Heritage oil;

The government of Uganda is locked in a row with Heritage oil over unpaid capital gains tax since last year 2011, according to Izama and Mulangwa (ACODE infosheet, 2011.pg 1-4) in may 2011 the said case commenced in the London court of arbitration which the PSA signed between the government and heritage designated the united kingdom as the jurisdiction for resolution of disputes. Heritage is seeking the release of approximately US$ 405 million currently on deposit with the Uganda Revenue Authority (URA) or in escrow with Standard Chartered Bank following the sale of Heritage oil shares to Tullow oil Company. The government of Uganda mean while is seeking to keep the US$ 405 million and an additional US$ 30 million which it claims to be the US$ 434 million capital gains tax. [16] 

((NEXT IS THE MAP))

EXPECTATIONS FROM THE EMERGING OIL SECTOR IN UGANDA;

In Uganda land continues to be a contentious issue when it comes to land ownership, politicians, businessmen and ethnic groups have openly been involved in conflicts with the government and some individuals over who owns which piece of land and in what quantity since land is an essential pillar of the existence of the people and national development of the country. Uganda is in the age of oil discovery and exploration, land has become a “hotcake” of sorts with every one wanting a piece to own. The constitution vests its power in the state to make sure Ugandans gain a lot from the exploration of this mineral resource however this does not mean the state will do with it whatever it wants without questions being asked. Currently the oil exploration has raised a lot of expectations from the people which is a breeding ground for wrong sentiments that could encourage conflict and rebellion culminating from the emotions of the people should their expectations from this resource not be met or managed effectively to their satisfaction. These expectations are elaborated on below;

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Uganda is currently being referred to as the hottest inland exploration frontier by the oil industry with reserves estimated to be around 1.5 million barrels [17] (International alert report, 2009 pg 4) And basing on the current situation of Uganda’s economy it is most likely that if exploration and production go ahead without hitches then the country’s budget will receive a major boost from the revenue collected. Such a boost will help government alleviate poverty through creation of jobs and building of infrastructure such as roads to connect rural areas to the city so as to make it easier for people to access resources. However, the economy is not yet stable since the “Annual headline inflation accelerated rapidly from 5.0 per cent in January 2011 to 30.5 per cent in October 2011 before declining to 29.0 percent in November 2011. This high inflation is likely to continue exerting pressure on household disposable income and will remain a major challenge to the macroeconomic stability objective” [18] . and food prices soaring to their highest in a long time, in addition there is a sense in which the timing of the discovery of oil in Uganda coincides with the falling away of confidence in governments transparency due to the various corruption scandals and embezzlement cases against it top most officials.

In addition, from the look of the way oil issues are being handled if there are a number of delays this will see the country be thrown into media speculations and conflicts of self interest from different ethnic groups and politicking which will lead to fragmentation of the people of Uganda along ethnicity and politics. For example, currently there is a strong disbelief in government’s intentions for national development and the oil resource specifically. All this has been brought about by the government not being clear about the issue of distribution of resources from the oil which has given opportunity for some wrong characters claiming that the Ugandan government wants to undermine the rule democracy in Uganda [19] .

Furthermore, to the above, some evidence suggests that as much as Uganda is making great advances towards building pluralist political system and a multi-ethnic identity, current press reports and political commentary suggest that the government favours members of President Museveni own tribe- the Banyankole and other ethnic groups from the western region of Uganda. [20] 

Finally, due to the high expectations from the oil resource discovery fuelled by the political parties, policy makers and other various individuals another question has come up that is creating new conflicts and alliances. The lack of clear transparency, Lack of information has fed suspicion, mistrust and created division this clearly shows that there is an urgent need for greater public availability of information and sensitization so as to enable citizens become empowered and have more realistic expectations concerning the exploration and production of oil. The availability of information will also help Ugandan policy makers and development officers to plan for the future and not fall prey to false rumours coined by people who are after self interests that will not benefit the country. [21] 

Cross border cooperation:

This will focus more on the relationship between Uganda and the Democratic republic of Congo (DRC), who according to world maps actually shares Lake Albert. This implies that despite these two countries military history if they are to share the resources from off shore sites known to exist in the lake it will take an immerse level of technical knowledge, political manoeuvring, cooperation and transparency. Basing on the fact that they are close neighbours and the site in question is the Congolese part of Lake Albert and the lakeshore down towards Lake Edward and the Virunga national park.

According to my understanding since it is a shared resource, the oil is going to create an era of cross border security and good relationship between Uganda and the Democratic republic of Congo because they don’t want a repeat of the same mistakes of the 1990’s, where Ugandan military officials were implicated in reports linking them to trafficking of DRC mineral resources such as gold, diamonds and timber however, there is room for holdups as the saying goes ” crime doesn’t pay but it sure costs” the crimes of Uganda generals in DRC are definitely costing the Ugandan government in terms of cross country relations with its neighbour DRC.

To date, there has been little or no transparency as to the precise volume of oil production taking place in DRC, or any revenues from it and basing on such a finding it will be hard for these two countries with a volatile history to actually deal together in exploitation of a resource that will have an impact on their economies. [22] This is not a good selling factor when it comes to future oil production in the east. According to local NGOs in Bas-Congo, offshore oil production is simply loaded into awaiting tanker which leaves when it is full. There are many revenue figures which are unclear on how they came to be and even still the partnership contracts between the government and oil firms are also not clear at all or ready for public viewing.

Also Other issues raised by NGO’s in the DRC are that the community around these oil exploration areas is not happy because they are missing out on employment opportunities and even still the companies do not care if they destroy the environment and this could bring about irreparable harm which will not be reversed. If this is happening in the exploration stages and only oil producing area at the moment, which is the Coastal Basin at the mouth of the Congo River around the town of Moanda on the DRC’s small Atlantic coastal strip the cooperation between these two countries, Uganda and the DRC especially concerning offshore oil viable areas in Lake Albert will be brought into question and hardly come to realization [23] .

Furthermore, with current occurrences of civil war in DRC especially concerning the M23 rebels the eastern part of remains a high risk area to carry out any kind of business especially when it comes to mineral exploration one has to keep in mind that the fundamental factors that have been affecting this area are still persistent for example, land rights, access to natural resources, deficient or non-existent governance and justice systems, and major deficiencies in the security sector.

POLITICAL INVOLVEMENTS IN THE OIL SECTOR, MAJOR CORRUPTION INCIDENTS IN UGANDA AND IMPACTS OF OIL DISCOVERY ON THE COMMUNITY;

This section is devoted to understanding the progression of different perspectives of political involvement in the oil sector in Uganda, internationally and regionally between Uganda and any other international countries and nationally within Ugandan political scene.

Interstate politics, diplomacy and oil sector;

Natural resources (oil) have always been linked to conflicts both directly and indirectly such as in Nigeria and southern Sudan, the recent discoveries of oil in the Albertine region in western Uganda has indeed generated excitement but also with the current events taking place a lot of pessimism has been accumulated not only by the politicians but the citizens as well. The potential for the oil to create new conflicts and exacerbate existing ones is high since the relationship between Uganda and the DRC the two countries who share the oil rich Lake Albert will ultimately require their political and technical cooperation to see to it that their citizens benefit from the oil discoveries. However the relationship is not all still water under the “bridge” as people think and this is why.

The neighbourly relationship between DRC and Uganda has been troubled, throughout the period of DRC’s civil wars for example, during the 1990’s Uganda’s military was involved in the DRC but evidence shows that during this time a good majority of high ranking as well as low ranking military personnel from Uganda were involved in the trafficking of the DRC’s mineral wealth and even still they were also implicated as backers of some of the country’s most brutal militias active in the same period in which thousands of Congolese fled their homes and towns, currently some of the former military leaders are now high ranking politicians in the government of Uganda. This kind of legacy has left a lot of mistrust between the two countries, the international court of justice was working on an agreement for reparations awarded to the DRC from Uganda and the ongoing diplomatic initiatives to establish a more peaceful and neighbourly relationship remains a source of ongoing tension [24] .

In addition, both governments handling of the exploration agreements concerning oil in their territories has been the subject of heated debates DRC parliament in 2008 and the Ugandan government in 2011. In DRC Heritage together with Tullow announced in 2006 that they had signed a PSA with the government but a year later, the Congolese minister Lambert Mende forced Tullow to cede 40% of its shares to a Spain based H oil company. Tullow representatives denounced the move putting the quarrel down to DRC oil ministry wanting more money [25] . Also on the other side the government of Uganda is currently involved in a case with Heritage over unpaid capital gains taxes to the URA which is going on the courts of arbitration both within the country and at the international court of arbitration. These kinds of quarrels and comparisons with the governments make their own citizens lose faith in their governments. [26] 

Besides the both governments being involved in heated debates it has come to the attention of civil society organizations such as the cadre de concentration (CDC) in the DRC who presented their findings to parliamentarians as well as in a conference in Uganda. They observed that the population is badly informed about oil developments and rumours are causing mounting anxiety. For instance, at the borders of these countries untold or undocumented conflicts have started to be visible especially when it comes to issues to do with land and oil exploration. Some of the incidents include those of herdsmen crossing into DRC and being arrested as well as employees of oil companies who crossed over into DRC unknowingly getting shot at by the military. [27] 

Furthermore, international alert report states that” any re-escalation of conflict in Ituri as has been since the 1990’s such as the wide spread human rights violations and the inter-communal violence that steams from political up risings like the one by the Alur people ( Ugandans in the northern region) who are upset because “foreigners” that is the non-Alur people have been appointed to important posts in local administration is most likely to jeopardize the chances of a joint production agreement(JPA) between the two countries which is very necessary if the full potential of oil resource in the Lake Albert is to be realized” [28] .

According to Westerkamp and Houdret there are disputes over Rukwanzi Island in Lake Albert region. Initially the border between Uganda and DRC running through Lake Albert was established by a colonial agreement between Belgium and the United Kingdom in 1915. Indeed the situation is complicated because due to erosion of the Semiliki river mouth leading into Lake Albert the old boundary has blurred and as a direct result of new oil activity the boundary is now the subject of dispute which on several occasions has led to violence [29] . For instance, in the report by international alert (2009) in July 2007 Congolese soldiers landed on Rukwanzi Island and captured four members of the Uganda marine unit and later they attacked a Heritage oil barge which led to the killing of one of its contract seismic crew. This tentatively led to Ugandan ministers threatening to push for air strikes and an invasion of DRC in retaliation. Furthermore, to complicate matters “in the same year in august the Congolese government accused Heritage of carrying out illegal exploration with the help of the Ugandan government army leading to eight Congolese fatalities.” [30] 

In addition, the international alert report of 2009 goes ahead to link the competition for power in the region which has become apparent between the DRC and Uganda following competitiveness over the oil resource as influencing the suspicions of the DRC government concerning the intentions of the oil companies already active in Uganda to be somehow colluding with the Ugandan government to increase its political power in the east African region [31] . As much as observers in both countries blamed each other for the tension they came to the same conclusion that the DRC government does not want any oil company already involved in Uganda on its territory. However some analysts think this is just a tactic by Kabila to delay the emergence of Uganda as oil producing country while Kabila consolidates his political hold back home.

The use of Economic hit men (EHM), “Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign “aid” organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization”. [32] 

They are hired and employed by international consulting firms and they job is to justify huge loans for the developing countries where by these loans are for major engineering and construction projects which are carried out by companies such as Halliburton, stone and Webster to mention but a few. Secondly they help to bankrupt countries that receive these loans after multinational companies are paid, this countries remain indebted to their creditors and are easy targets when the more developed countries such as the US need votes or favours such as military bases as well as access to natural resources like oil [33] .

National politics and the oil in the Albert region:

The British colonial rule of divide and rule in regards to Uganda’s history did little to build a functioning nation led by Ugandans. In the years after independence Uganda experienced almost constant civil wars as different individuals and ethnic groups competed to control the post colonial state to their own advantage. The NRM on coming into power in 1986 made addressing what it termed as “sectarianism” a central element of its political agenda, critical milestones during this period include the 1995 constitution of U

 

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