Oil Exploration in Africa and its effect on Uganda

This paper provides a brief overview of oil exploration in Africa and its effects on the continent, concentrating specifically on Uganda. It examines the implications for political economic and environmental developments within the country due to the recent discovery of new oil reserves. Suggestions on how Uganda may alleviate potential political, economic, social and environmental risks arising from oil exploration are provided.

Introduction
Oil exploration and Africa
Although environmental and security concerns are stimulating global debate on renewable energy, no significant move away from fossil fuels such as oil is expected in the near future with consumption expected to increase. This is despite the scenario that the world will face declining oil production in the next few decades. As if stripping one of the world’s poorest continents of its diamonds, gold and natural habitat wasn’t enough; it now looks like Africa is going to be the newest hot spot for oil exploration. The world’s major oil consuming nations, led by the US, China and Western European countries are interested in the development of African oil reserves, with companies competing fiercely with one another for access to promising reserves. With major oil companies deterred from investing in the Middle East, Africa has offered multinationals lenient terms and extensive access to its oilfields in recent years. With the US laying out a strategy in 2006 to reduce oil imports from the Middle East, this will result in greater strategic importance for Africa. With oil prices soaring, Africa has witnessed an increase in exploration of it oilfields, with its share of oil production expected to grow by thirty percent of the world total, from roughly twelve per cent in 2006. Crude oil prices jumped from less than US$40 a barrel in 2004 to nearly $70 by September 2006. With expectations of increasing global demand, especially from China, experts predict that prices will remain relatively high for the next few years having significant implications for Africa (and more recently Uganda having recently discovered new oil reserves). Trade volume between China and Africa are expected to increase to $100 billion by the end of 2010 compared to $2 billion in 1999.

With the peak in the world’s oil resources estimated between 2004 and 2037 between 22 and 42 billion barrels per year , the risks of competing fossil fuel exploitation and depletion are set to exacerbate inequalities between developed nations and Africa during the African oil rush. The world’s two biggest oil importers, the US and China are rushing to seal up the continent and secure every last drop available. Fully one-third of new oil discoveries since the year 2000 have been in Africa, with oil investment now representing over 50 per cent of all foreign direct investment (FDI) in the continent. The Wall Street Journal noted that “China has made Africa a front line in its pursuit of more global influence, tripling trade with the continent to some $37 billion over the last five years and locking up energy assets, closing trade deals and educating Africa’s future elites at Chinese universities and military schools,” all of this threatening US global domination, while at the same time providing soft loans and other incentives to bolster its competitive advantage.

Oil has normally become associated violent conflict, poverty and environmental degradation especially in Africa. The Niger Delta is a case in point, where a violent armed struggle is escalating for the control of the oil resources. The Movement for the Emancipation of the Niger Delta has attacked several oil installations and will continue to do so until the government of Nigeria appreciates that the solution to peace in the Niger Delta is justice, respect and dialogue with locals. Shell (i.e. Royal Dutch Shell Group) and the Nigerian military government are united in their continuing violent assault of indigenous peoples (e.g. the Ogoni people) and the environment. And just as oil companies exploit numerous communities in the Niger Delta, the government’s involvement in the above crimes is not limited to the Ogoni. Nigeria’s privatisation of oil refineries local and foreign investors has increased unemployment and environmental degradation. Unions have staged nationwide protests against privatisation of oil reserves that do not benefit locals. In addition the refineries have been unable to meet local demand because of poorly managed plants. Oil exploration has also led to an increase in environmental risks with explosions and loss of local lives. A July 2003 report on Nigeria by the US Energy Information Administration noted that gas flaring at oil refineries has been a major contributor to air pollution and acid rain, having serious implications for the health of citizens.

Uganda’s oil reserves
Oil exploration in Africa will no doubt have a major impact on Uganda, more so in light of the recent announcement by the Ugandan president on the discovery of oil reserves in the country as well as the Heritage Oil Corporation, an international Canadian oil and gas exploration industry that obtained explorative licences in Uganda in 1997. This find in the Lake Albert region is expected to mark an enormous expansion of the countries petroleum resources with potential for turning Uganda into one of the few countries with large-scale oil deposits. Uganda plans to construct a refinery next to the oil fields in early 2009 and is said to be at advanced stages of creating a state regulator and national oil company of its own according to its government. Oil drilling is expected to commence by 2010 with Uganda producing an estimated 14,000 barrels of oil a day. However, it is questionable what benefits the oil reserves will bring to Ugandan citizens and whether armed struggles and conflict will mimic those experienced in Nigeria, considering that recent reports indicate that the Ugandan government has asked Nigeria for assistance in developing the countries oil industry with Ugandan teams having been sent to Nigeria to learn from the experience. It is questionable if benefits of oil exploration will accrue to locals or move into the hands of elites and multinationals which will increase poverty, considering that the United Nations Millennium Project identified Uganda as amongst the hotspot countries characterised by widespread hunger, with a 2006 UNICEF report stating that 23 percent of children under five of age are underweight.

Implications for Uganda oil exploration:
Increase in militancy
The United States War on terror provided a justification for the invasion of Iraq, with oil said by many to be the reason behind the motive, with Iraq eventually handing out six contracts mainly to US companies after the invasion in an attempt to fast-track oil production. The war on terror is also said to justify for the US moving into Africa (and Uganda) too. Official US reports have emphasised links with oil in Africa, for example, “the report of Vice president Cheney’s Energy Task force stressed the importance of gaining and maintaining access to African oil reserves, which US intelligence assessments expect to increase to as much as 25% of US oil imports by the year 2020”. Light US military bases such as in Uganda, Senegal and Botswana, are designed to service the ‘rapid response’ strategy to enable a quick build up of troops when required. Because instability in Africa is an obstacle for the US oil production, and since they are desperate to procure additional suppliers of foreign oil, the US has sought to boost the internal security capacity of friendly African states. With the rapid decline of global oil supplies, the US is heading for an economic crash with the collapse of the dollar, so oil security in Africa will be a strategic future priority. The US in 2006 has already signed interest in active participation in Uganda’s petroleum industry with the US Trade and Development Agency (USTDA) having contracted a company to commence studies of the countries petroleum (and gas) sector.

Multinational competition and scramble for Ugandan oil
The new found oil reserves in Uganda will be a new and added focus for multinationals resulting in intense competition for explorative rights. The extent to which Uganda is a focus for China was indicated by a visit in June 2006 by the Chinese Foreign Minister as part of a larger African visit to secure oil deals. The relationship between China and Uganda raises questions about enhanced human development in the country since China is one of the world’s greatest human rights violators considering the severe poverty challenges being faced by the country. Other multinationals such as Malaysian’s Petronas is also in talks with the Ugandan Ministry of Energy about a possible petroleum development. The Ugandan President has also announcing progressive co-operation with Kuala Lampur. Although Malaysia invited foreign investors in its oil, it did not just turn over its oil resources to foreign companies but had them help it develop its resources while learning from the experience. Today Petronas is providing training for other developing countries including Uganda. By managing its own oil company, Malaysia cleverly ensured that more of the value of its oil resources has remained at home rather than being repatriated as profits for foreign firms. It remains to be seen what value of oil remains in Uganda. South African oil company PetroSA has also partnered with Uganda for oil explorative rights in the country. Not surprisingly, the Ugandan Peoples Congress raised concern about the oil exploration and Production Sharing Agreements (PSAs) that the government has entered into with various oil companies but has not engaged its citizens in open debates.

Ireland oil and gas company, Tullow has also focused attention on Uganda, and besides China, Indian has also shown interest in Uganda and is said to be well placed to export oil to Asia. London-based oil and gas exploration company, Tower Resources currently has a hundred percent explorative licence in Uganda and has a company Neptune Petroleum (Uganda) Ltd drilling in the country. Like many of the oil explorative problems that have been witnessed in other African countries (i.e. extraction of wealth away from the country, poor governance, explosions, gas leaks and environmental degradation, human rights abuses), the competition between multinationals to extraction oil resources from Uganda may result in increased environmental degradation and a polarization between the rich and the poor. As some have noted, since oil was recently discovered in Uganda, in the future it might be a country where the concept of naked imperialism will be applicable.

Ugandan national development: Oil reserves a welcomed or a curse
The recent discoveries of oil in Uganda have raised concern from the international community about the distribution of revenue accruing from oil exploration between the government and its citizens. The Ugandan president has emphasised the opportunity to address developmental challenges in the country arising from oil exploration with the need to share profits accruing from revenue generation with locals, as well as firm commitments that it will not repeat mistakes like those experienced by the indigenous communities in oil localities like Nigeria. However, as opposed to the president the Ugandan Energy Minister has stated that there will be no sharing of revenues with citizens. Oil costs sharing production agreements have also been vague between the government and oil exploration companies. In most oil producing countries death, instability and poverty have followed the people, and governments have formed partnerships with multinationals that have undermined them.

Political and developmental instability in Uganda
Oil exploration has the potential to derail Uganda’s recent multi-party democratic development by causing civil strife and unrest, especially in the Bunyoro-Kitara region. Such civil strife and unrest include exploitation and political power influence that normally accompany oil exploration for individual or institutional self-interests resulting in abuse and misallocation of oil revenues despite efforts to fight corruption. Ever since the discovery of oil in the country, wealthy Ugandans have also been scrambling to buy land where explorative work is to occur, with politicians stating that oil could lead to conflict in the country. Poor locals in oil wealth areas have been tempted to resort to violence in order to settle land disputes especially with persons outside their districts, and are urging for a negotiated share of the prospective oil in the face of an unresponsive government. Inequality has been a problem in Uganda with the benefits of growth not being evenly distributed. In all regions of the country, income and consumption inequalities are increasing in (oil rich) rural areas compared to their urban counterparts. Both rural and urban areas are experiencing growing inequality between the top and bottom income quintiles. Income inequality increased by 18% between 1992/93 and 2002/3, and 23% between 1997 and 2002/03. With a Gini coefficient of 0.428, Uganda’s country status is moving away from low towards high-income inequality. Oil explorations in the country will potential exacerbate these inequalities as is already being witnessed.

Neighbouring conflicts between Uganda and the Democratic Republic of Congo (DRC)
Uganda and the DRC are sitting on estimated oil reserves of up to one billion barrels in the Albertine Basin which they share. Many factors shaped conflicts in the Great Lakes region, among them the interests of neighbouring countries competing over natural and economic resources, with oil being a major conflict. The oil region of the eastern DRC was the theatre of clashes in October 2007 culminating in the killing of civilians and militaries by the Ugandan and Congolese armies. This is now leading to fears that the Lake Albert conflict may widen and make a renewed cross-border conflict. Following the discovery of oil in the Albertine Basin, the Ugandan and Congolese armies deployed heavily-armed soldiers around the shores, with casualties on both sides in 2007. Countries with high risk economic characteristics such as low income, low growth and dependence on natural resources such as oil have a higher risk of conflict. Natural resource explorations increase the risk of civil war because they are not well managed.

Ways forward in avoid Uganda’s potential problems
Improved governance and partnerships
Improved governance of income from oil and transparency in decision-making and revenue streams with Uganda (and DRC) citizens can reduce the risk of conflict and civil war in the country. Unfortunately, local communities and other interest groups in the oil regions and other parts of Uganda did not effectively participate in the drafting of Uganda’s Oil and Gas Policy, 2008, and the government has declined to reveal information contained in the PSAs signed with oil companies citing confidentiality clauses. There is an urgent need for the Ugandan government to publish the PSAs, strengthen internal legal, policy and institutional frameworks, and implement the existing international resource governance initiatives such as the Extractive Industries Transparency Initiative (EITI) for accountability and transparency. The challenge, therefore, is to transform regional and national economies into systems based on political participation, social and economic inclusion, and respect for human rights and the rule of law.

Avoiding neighbourhood conflicts
Any endeavour at transforming conflicts to ensure reconciliation and reconstruction in the region requires stimulating positive developments by fostering stability and improving relations with neighbours (i.e. DRC). This will help to alleviate turmoil to deflect Uganda towards peace, reconciliation, democracy, and economic development. Ignoring conflicts between the Uganda and the DRC will have far-reaching implications for the stability and socioeconomic development of the region because resources will be diverted from human and economic development to warfare. It is, therefore, vital for Uganda to extend positive messages of restoration and peace for partnerships that would benefit all.

Leave the oil in the soil
An important strategy to consider by government’s and its people (especially Uganda now) who live above or near fossil fuel deposits, is to ‘leaving the oil in the soil’ since its exploitation so often under develops countries and the world’s climate. To achieve that logical outcome will require a far stronger international push to limit international oil exploitation power, not to mention the US imperial agenda. It will require everyone to work overtime for reparations that the South is owned by the North. This project is currently happening within the global justice movements. For example, the president of Ecuador in 2007 announced that the country will not allow exploration and extraction of its oil fields and that the world community should create a compensation trust to leave the oil permanently in the ground and fund Ecuador’s sustainable development into the future.

Renewable resources
Finally, investment in renewable energy can avoid potential conflict and dependence arising from oil in Uganda. Research and development funds must be spent on alternative, environmentally friendly energy sources such as harnessing solar, wind, and biomass. Uganda can well learn from other African countries by investing in such alternatives. For example, in Namibia, solar and wind power currently account for just 1-2 percent of all electricity produced in the country. But the government is looking for ways to finance new projects to boost the sector, and in 2006 announced plans to increase the amount of electricity produced from solar and wind sources by at least 0.5 percent a year, with solar energy taking the lead. Algeria also started construction in July 2007 for the countries first cogeneration gas and solar power facility to supply electricity in the country as well as to Europe. Unlike other Sub-Saharan oil producing countries, Uganda has an added advantage. It can learn from other oil exploration experiences by improving governance by implementing better policies to ensure democracy, transparency, economic growth and environmental sustainability.

Leonard, L. (2008) Oil exploration in Africa and its effects on Uganda, Ugandan Parliamentary briefing, Royal African Society, United Kingdom, 20 October.

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