Thanks to President Museveni’s exceptional leadership, Uganda is on course to become a major player in the oil and gas sector in Africa. This is no exaggeration, as those of you who have been following the developments in this sector, can attest. Indeed, the recent signing of the agreement allowing for the construction of the 1,445km crude oil pipeline, which will cost approximately $3.5bn has been the result of intense diplomatic efforts and compromises. Unsurprisingly, to conclude the deal, H.E the President had to travel in the middle of the COVID-19 pandemic. By his own admission, the mask that he wore on this journey, ended up affecting his voice. This willingness to put his own health and wellbeing on the line, for the sake of Uganda’s development is one attribute that distinguishes him, as a patriot and revolutionary.
Relatedly, the commencement of the project has been derailed by all kinds of disagreements between Uganda and various parties. Some of the salient disagreements have entailed the amount of tax to be paid. The President has numerously intervened to keep the negotiations focused on the big picture. For example, without Uganda agreeing to give Tanzania 60% of the profits and to forego $800 million that would have been generated over a 25-year period, this landmark agreement could not have been reached. It might also be useful to remind my readers that it took the intervention of the President to resolve earlier conflicts. First, there was the disagreement between the Government of Uganda, on one hand and Tullow Oil, as well as, Heritage oil, on the other, regarding how much capital gains tax to pay. This dispute that ended up in arbitration in the United Kingdom, was only amicably resolved with the intervention of the President. This pragmatic and hands-on approach led to Tullow Oil paying $469 million in capital gains tax to Government in 2011. No wonder, Uganda’s oil Production Sharing Agreements, have been rated by the International Monetary Fund, as some of the best in the world.
The benefits of this agreement are enormous and are critical to Uganda’s quest to attaining middle income status, by 2040. Firstly, this deal means that Uganda will become East Africa’s biggest crude oil producer, as it is expected that 6.5 million barrels of oil will be exploited, which is only 40% of the entire oil reserves in the Albertine Graben. With this income, the country will invest in critical infrastructure, social development and create jobs for its young population. Secondly, this agreement also sends the right signals to investors, who may wish to invest in both upstream and downstream activities. Ultimately, the influx of foreign capital will translate into impressive growth figures. This expectation is not unlike the World Bank’s own estimation that growth rates will average 10% during the production phase.
In order to harness the above benefits, it is important that we do not forget the aspect of local content. Indeed, in 2017, the Government passed the National content policy for the Petroleum sub-sector in Uganda which seeks to improve the competitiveness of Uganda’s labourforce and enterprises, in the oil and gas sector. The policy does recognize that if there is little participation of locals in the sector, then there will be little or no job creation and very limited value-adding benefits to the economy. That is why it is vital that there is intensification of capacity building of Ugandans to ensure that they are better able to participate in the sector. We also need to be more deliberate in unbundling oil contracts, as well as, putting in place special reservation schemes for locals, to ensure that they are not outcompeted by more established international firms.
Overall, the President has ensured that environmental and social safeguards are not ignored. Indeed, comprehensive environmental and social impact assessments have given the project “a clean bill of health”. In an unprecedented move, over 58,000 locals were consulted on the impact the project might have on their livelihoods. Although some international Non-Governmental Organizations still complain of insufficient consultations, most independent observers agree that sufficient safeguards exist to protect the environment and the livelihoods of locals. In conclusion, some may think that the low global oil prices and the unpredictable demand, may threaten the viability of the oil pipeline project. Thankfully, this seems not to be the case. Indeed, the project remains “very competitive” and has continued to keep the interest of various investors, even in the midst of a global economic slowdown. Without the foresight and leadership of the President, it is not clear, that we would have made these notable gains, that we all so proud of.
The Writer is an international investment expert