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Deal Or No Deal, Will Uganda Start Commercial Oil Production By 2020?

By Brian K Katabazi

It is exactly five hundred and sixty six days (566 days) to the start of 2020.With oil revenues as a catalyst, Ugandan government had planned to turn the country’s economy into middle-income status by year 2020 but this has since walked a fading move as per the recent National planning Authority message “If we don’t shape up, we will ship out.”

I can authoritatively say that, we are getting off and we have kept getting off the track towards attaining that as a country. Since the times of exploration, Uganda’s oil and gas industry has moved through turbulent times surrounded by events including termination/withdraw of contracts, eviction of nationals, family violence, disorganizing school going children and contradicting statements from government and political heads.

This has created anxiety and mistrust among the public mostly engineered by secrecy and mismanagement of information within the industry.  With such events taking shape and happening, still we have registered progressive steps in the industry in terms of development and nearing production. But just like many Ugandans out there, the more popular question is that “Will Uganda start Oil production by 2020?”

To me, it’s less about the timeline but more about readiness. It’s not statements that will inform us on whether we will start commercial oil production by 2020 but how ready we will be at that time.

With the issuance of production licenses to Total E&P and Tullow oil companies, Uganda looked nearer to the commercial oil production stage, but this looks far away from reality than it sounds.

For beginners, the immediate requirement to factor commercial oil production is skilled human resource that is trained and equipped with oil business basic and expertize skills in the oil production and handling value chain. In the petroleum authority of Uganda’s (PAU)/petroleum regulations, it is stipulated that for any company to get a contract, it must employ 70% Ugandans. This is good for our citizens for it will create employment.

This goes ahead and triggers a question of how many Ugandans have been/are prepared to be employed by these companies in line with the required skills to handle oil and gas related businesses at different levels.

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The answer is that a very low number of Ugandans have skills related to the industry of which a big number with related skills, have theory knowledge and the few have hands on skills (technicians).  This is a crisis since three quarters of the 161,000 oil and gas jobs will require vocational and technical skills hence, a great hindrance to have the production begin as early as 2020.

In 2016, Ministry of Energy and Mineral Development increased the upstream oil and gas contracts to local companies from 17% to 36%, which is a great deal, but how many local companies (Ugandan) meet the international supply standards in the oil and gas industry. This also raises a big concern of how we are not yet prepared to start commercial oil production as early as 2020.

Early this year, government with other development partners started the process of constructing a 1.3 trillion Kabale international airport in Maseruka, Hoima district. This major infrastructure is meant to fast track activities that lead to commercial oil production in the Albertine -graben.

As of the first week of June 2018, the construction of the airport was still in the initial stages. Most of the work was on the stage of leveling ground, studying topography and architectural blue prints. At this level of construction, it is very hard to say that the airport will be ready by mid-2019 (but certainly not) to assist in fast tracking activities that will lead to commercial oil production.  This puts the 2020 target at the lowest probability of realizing success.

Furthermore, investments and instability are enemies. Recently, Uganda has been experiencing a lot insecurity ranging from kidnaps, women killings and high-ranking citizens executions.  On February 5th and 6th this year, two European investors died in Kampala hotels under unclear circumstances.

This serves as a big blow to the stability in Uganda where most investors wanted to invest their money given the conducive and peaceful environment. If insecurity thrives over security, investors who have interest in investing in Uganda’s oil and gas industry will back off which will slow down the industry’s development.

This will automatically retard the pace at which production is being fast tracked to suit the 2020 target. Also, technical experts who are supposed to assist us in the process are not immune to the fear instilled by the prevailing insecurity in Uganda. This has a negative effect on having our first oil drop out in 2020.

The issue of unresolved and upcoming land wrangles also stands in the middle of whether production will start as anticipated or not. We have had scenarios of people being evicted from their land and displaced by the oil developments/activities. This poses as a threat to the industry. People are angry and unsatisfied with the treatment they have received from oil activities taking place in the Albertine-graben.  Some cases are in courts of law and we can’t tell of what the rulings will be. If it so happens that the rulings are in favor of the landowners, this will perhaps call for an appeal from the other contesting parties hence, delay.

This affects especially the land where the refinery and waste management are planned to be constructed and where the crude oil pipelines will be passing.  The case of Rwamutonga, where the investor who had got the contract of constructing the waste management plant decided to pull out and give time to the two parties to sort themselves is another reason to worry about the 2020 target. And for any production to start, there must a waste management plant.

This automatically means that without the plant, production will not start and this certainly will not be ready by 2019 if such misunderstandings are not sorted as early as tomorrow.

All these unfulfilled requirements are critical to boost and spur commercial oil production as early as 2020, but have not been met henceforth informing of its uncertainty to be attainable.

Written by Brian K Katabazi, Associate Director Centre for Energy Governance.

bkatabazi@gmail.com

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