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Oil find sparks new hope for Uganda's people

Vast discovery could transform the economy – but only if managed well

• Xan Rice in Lake Albert
• guardian.co.uk, Tuesday 25 August 2009 22.13 BST
• Article history

Fishermen near an oil rig on the edge of Lake Albert. There is great hope the petrodollars will boost the country's economy and create new jobs. Photograph: Xan Rice

On the remote western edge of Uganda the land suddenly drops down into the western arm of the Great Rift Valley to reveal the vast expanse of Lake Albert and the blue mountains of Congo beyond. Hippos and marabou storks wander the shoreline near the tiny fishing villages whose hauls of Nile perch, tilapia, catfish and white herring sustain the local economy. But now there are new, less natural features marking the landscape, ones that could change the course of the country.

"We never knew we were sitting on oil here," said James Ocham, a 27-year-old fisherman outside the Classic Inn Lodge and Bar as he gazed towards an oilrig erected alongside a nearby lagoon. "In time we are all going to benefit – there will be jobs, even for the unemployed."

The discovery of vast oil reserves in Uganda has caused excitement across the country, and more than a touch of anxiety too. Energycompanies have recently found more than 700m barrels of commercially viable oil in the pristine Albertine Graben region, representing the first major petroleum strike in east Africa. Tullow Oil, the FTSE 100 company leading the exploration, believes the exploitable deposits could exceed 1.5bn barrels, reserves comparable to Equatorial Guinea and the Republic of Chad .

If managed well, the petrodollars could transform the economy of the landlocked country, potentially doubling the state's revenues, creating thousands of jobs and help realise President Yoweri Museveni's dream of industrialising the country.

If not, sceptics point to Nigeria, where billions of dollars of oil income has brought great wealth to the few but failed to solve widespread poverty, and whose mere mention makes Ugandan government officials bristle.

"Why must people always look at the bad examples and say we will suffer the same curse?" said Fred Kabagambe-Kaliisa, permanent secretary in the ministry of energy and mineral development. "Why not mention the good ones, like Norway?"

Norway is in fact assisting the Ugandan government through its energy, finance and environmental ministries and is funding a feasibility study on building a large refinery near Lake Albert. While the oil companies would prefer to export the petroleum to recoup investment costs quickly, Museveni is insisting on "value addition" inside Uganda to ensure a greater share of the profit remains in the country, and an end to the reliance on Kenyan ports for imported fuel.

The first oil production is expected in 2011, though the peak flow of 150,000 barrels a day for up to 25 years may only be reached by 2015. Some of the oil will be used for power production, but the bulk will be sold domestically and in the region. According to government plans, part of the revenue will be used for infrastructure and development projects and part safeguarded for future generations.

While the windfall will reduce the government's reliance on overseas aid, which accounts for 30% of the state budget, there are concerns that the glut of petrodollars could distort the economy – and its politics. Godber Tumushabe, executive director of the thinktank Advocates Coalition for Development and Environment, in Kampala, said that oil discoveries typically "encourage political longevity".

Museveni, who has ruled since 1986 and will stand for a fourth term in 2011, would not tolerate a handover of power with oil revenues about to flow, he said. "It could happen that the government is disciplined enough to use the resource to develop the country. But given that we are not using existing revenues to deliver services effectively I don't think this is the most likely scenario."

There are also environmental challenges. Some of the biggest oil deposits so far have been discovered in the Murchison Falls National Park – Uganda's biggest and most visited reserve. Wells have been sunk in the Kabwoya Wildlife Reserve, where herds of Ugandan kob antelope roam close to the site office of Tullow, which has pledged to ensure minimal environment degradation.

Within Uganda, there have been concerns that the revenue sharing agreements between the energy companies and the government have not been made public. But Simon D'Ujanga, minister of state for energy, said the agreements were commercially confidential. "We know this is a big opportunity and we won't mess it up," he said.

The petroleum curse

The history of oil in sub-Saharan Africa does not make for happy reading. Nigeria is the most often cited example of the petroleum curse, with billions of pounds in oil revenues siphoned off by corrupt leaders while communities in the environmentally scarred, oil-producing regions still live in poverty. Oil windfalls – and the complicity of western energy companies – have helped corrupt and dictatorial leaders like the late Omar Bongo of Gabon and President Teodoro Obiang Nguema of Equatorial Guinea remain in power for decades, while their countries remained underdeveloped. In Sudan and Angola, the struggle to control oil revenues contributed to lengthy civil wars.