Uganda announces new Oil Licensing round

Uganda is drumming up interest in a new oil-licensing round of the Albertine Graben. The government announced today that it would issue a Request for Qualifications document on Thursday the 26th of February together with model Production Sharing Agreements for each of the blocks.

Additionally, it said it planned to provide interested parties with a detailed insight into the geology of the blocks, all of which have been pre-explored, at the East African Petroleum Conference in Kigali, Rwanda next month. Initially the plan was that a modern data room would precede the licensing round but this has not materialized probably owing to the pressures on the Petroleum Exploration and Production Department at Entebbe. The agency has been acting as a surrogate for both Uganda’s National Oil Company and the Petroleum Authority.

The two agencies legally exist but have not commenced operations.

The former has had members of its board nominated but formal approvals by Parliament have delayed following controversy over some of the President Yoweri Museveni’s choices. It is unlikely that either agency will be fast tracked now. It also should not matter since it is PEPD that has been incubating the two administrations of the NOC and the regulator simultaneously. The decision to proceed with a new licensing round amidst low oil prices is probably also going to be analyzed.

Our view has been that Uganda needed to conduct this licensing round in order to further de-risk the investments it has already made in the oil sector. Regardless of the level of interest, which would be reasonably less considering the present market conditions, bringing in new players and extending the promise of the Lake Albert basin can only help shore up the future potential of the region which includes the Democratic Republic of Congo.

The orchestrated announcements basically today Energy Minister Irene Muloni announced that the government would act on Thursday and continue to act in March are aligned with the gamble Uganda has taken with its proposed refinery- a project that was never popular with the International Oil Companies IOCs. The refinery has been promised to Russia’s Rostec, a deal struck in the shadow of Ugandan defense contracts with its affiliate Rosoboronexport- the weapons manufacturer.

It does not hurt Rostec’s commercial interest that key decision makers in Uganda who hold sway over strategic decisions in the oil and gas sector are separated by a Chinese wall from those in the defense sector. As the oil licensing round was being announced – defense sector officials were reportedly in Parliament seeking close to US$ 300 million for the purchase of tanks from Rosoboronexport.

Oil as a national security issue is mentioned specifically in Uganda’s yet to be approved Draft Foreign Policy Review of 2012, which amongst others focuses on deepening Uganda’s political economy within the region. Add to this that the location of the oil assets is along security sensitive border with DR Congo and it would make sense that defense and oil policies are a dual lane issue.

However both local and international NGOs and civil society may look nervously at the merging of oil and defense in the picking of Rostec and ponder about the underlying risks to accountability within the oil sector. In a statement to the investment community in Nairobi this week, Control Risks, one of the larger risk consultancies offered a rather hedged view about resource and conflict in the region claiming optimistically that likelihood of "resource based conflict in East Africa is low".

There is logic to this.

Big defense spending by East African countries including Uganda and Kenya or Rwanda act broadly as a deterrent against future conflict. The troika have ongoing defense and economic agreements that include cooperation on promoting oil production. However the conflict in South Sudan - where Uganda is involved can be called a bonafide resource war as can other tensions abated by political insecurity forecast for a trying period of elections over the next three years.

UK based Global Witness in welcoming the announcement of a new licensing round said accountability of the new process must be at a higher bar- if only because the Albertine Graben is not just resource rich in oil or located next to the DRC. Oil extraction here must contend with the environmental profile of the region- home to most of Uganda’s national game parks.

In short, a competitive, open and transparent process can redeem interest in the Ugandan oil sector, reassure the investment world and add a worthwhile chapter in the country’s continuing oil journey. All things considered a rather demanding balancing act.

By Angelo Izama
February 25, 2015