Poverty to Persist In Uganda; Even With Oil—Expert Declares.

On Monday Oct. 29th, 2007 I was exclusively supplied a report on Uganda's unfolding petroleum industry. I wrote a story that tried to be as accurate as possible while at the same time placing issues in perspective and bringing a measure of intelligence to bear on key points in that report. BUT because our media is full of mediocre and naïve editors (check a commentary on Uganda’s media on this blog), they messed up the original copy. Here’s an adaptation of an article published in Daily Monitor on Oct 30, 2007, page 4.


ELIAS BIRYABAREMA


Kampala--An independent assessment of Uganda’s burgeoning petroleum industry has cast deep doubt over its economic impact, widely trumpeted by President Museveni’s government as potentially profound.

Dr. Keith Myers who conducted research this month on the viability and possible scenarios of petroleum exploitation in Uganda has suggested in a report obtained by this blogger that Uganda’s reserves could be much more modest than has been reported.

Dr Myers is a founding partner of UK-based Richmond Energy Partners which specialises in provision of research and advice to financial investors in small petroleum companies the likes of which operate in Uganda. He’s also a member of the International Monetary Fund, IMF’s panel of fiscal experts.

His incredulity about the size Uganda’s reserves stems from what he called “a huge uncertainty” on how much oil can be recovered commercially from the Albertine Graben. Although the exploration companies—Heritage Oil Corp and Tullow Oil—have already made their reserve estimates, Dr Myers said their numbers were not “supported by data or relevant analogues.”

From the three substantive oil wells drilled so far (Mputa, Waraga and Nzizi), Tullow Oil has estimated its oil reserves of recoverable oil at between 100-250 million barrels while Heritage Oil Corp which has one well has hinted that theirs is much higher although they have not provided a solid figure.

The two companies are listed in London and Toronto and “good news,” from Uganda, Dr Myers said, automatically pushes up their market value, a fact that could entice the companies to manipulate figures of their reserves in the country.

Although he didn’t point to a possible inflation of the stated reserve figures, he said the government should conduct independent surveys and verification and produce their own reserve estimates so that data provided by the companies can be cross referenced.

Mr. Reuben Kashambuzi, the Commissioner for Petroleum Exploration and Production Department in Entebbe told Daily Monitor yesterday that the government geologists have their own estimates but that they can’t release them because that would invite legal liability. “If we announce our own estimates and they contradict theirs (exploration companies) and their share price plunges, they can sue us and we would pay them enormous amounts of money,” he said.

Even then, it was highly unlikely, he said, that the companies would engage in duplicity since it could, too, result in stock crushes once the falsehoods come to light.

Dampening the euphoria that has bubbled across the country since oil was struck at Mputa in Hoima early last year, Dr. Myers suggested that Uganda still has several years before it starts earning any petrol dollars.

“Oil development will require significant cross-border investment in export infrastructure for either crude oil or refined products,” he said. “Significant oil revenues are unlikely before 2015 at the earliest.”

He offered a range of factors for his conclusion foremost of which, he said, is the frustrating remoteness of the oil fields in Western Uganda which are 1,200 Kilometres from Mombasa, the nearest seaport. Worse still, the locality of the fields (Hoima) has no functioning transportation and utilities infrastructure, and erecting them will take time and tremendous amounts of money.

The nature of Uganda’s oil, too, is a significant setback. It’s waxy and solidifies at room temperatures which imply, he said, that the export pipeline to the coast would have to be heated, a project that will require billions of dollars.

Also, the limited size of Uganda’s market renders home refinement a futile venture, a fact that necessitates immediate need of crude export infrastructure. Uganda’s daily demand is estimated at 13,650 barrels worth of oil products a day while a commercial refinery would have to have a capacity of about 100,000 barrels per day.

Dr Myers’ research reveals that the impact of the petrol dollars on the material welfare of Ugandans might in fact be negligible, contradicting popular expectation that oil will do much in ending abject poverty which afflicts 40% of the population.

According to his calculations, if exploration proves a reserve capacity of 750-1000 million barrels and an export project is agreed on, then Uganda would be able to sustain a production rate of 100-150,000 barrels per day.
Assuming a population of 27 million people and crude price of $60 a barrel, such an output would translate into 1-2 barrels per person per year. “This would mean $36-72 in oil revenues per Ugandan per year assuming a government take of 60 percent (on every barrel of crude exported),” he said.