Uganda: Oil company wars fueling corruption

By Mubatsi Asinja Habati

Leaked diplomatic cables on Uganda’s oil industry expose the wars among rival European and American oil “exploration” companies to control the sector and win favour from the state. The cables also show business interests of the different development partners in Uganda and Africa. Battles to have leverage in Uganda's oil finds have in turn fueled corruption and influence peddling in the sector as the battle for deals and supremacy rage.

 Heritage entered Uganda's oil sector after the Australian oil exploration company, Hardman Resources lacked sufficient resources to continue with work. But the United Kingdom's Tullow Oil had been undertaking explorations with Hardman Resources. When Heritage Oil, a Canadian-based company, entered the lucrative business it gained more stakes in Uganda’s oil exploration to match and later out compete others like Tullow from the United Kingdom, Italy’s ENI, China’s CNOCC and America’s ExxonMobil. And when Heritage Oil wanted to sell its stake in Uganda’s oil, there was a stampede of these interested oil companies. Faced with this competition, Tullow put a spirited fight to stave off ENI’s interest in the Heritage sale. Heritage and ENI had initially appeared to have struck a sale and buy out deal. But Tullow clang on its right to be sold to be sold first to as a partner with Heritage. This rivalry resulted in a verbal war and blackmail as revealed in leaked US diplomatic cables (SECURITY REPORT DETAILS OIL SECTOR CORRUPTION)

The cable, written in January 2010, alleges that money exchanged hands as ENI did not want to lose the deal. But Uganda’s external intelligence agency officials, who are said to be friendly to major oil companies in the country, wrote a report badmouthing ENI that it had links to Libya’s Gaddafi who sought to destabilize the regime. For fear of the alleged Gaddafi involvement, ENI lost backing of key government officials. Tullow is said to have participated in the drafting of this report.

A report by Uganda’s spy agency the External Security Organization (ESO) says current Prime Minister Amama Mbabazi [while Security Minister] was “eyeing” a $200 million commission for securing a deal between Heritage Oil and the Italian firm ENI. The WikiLeaks cable says Tullow Oil, Heritage Oil’s rival, helped draft the document (report) which also alleged that Mbabazi and the then Agriculture Minister Hope Mwesigye are indeed seeking kickbacks from ENI. Perhaps annoyed by the arrangement Tullow informed Heritage of its intention to seek an English Court injunction blocking the ENI sale. Tullow had previously expressed concern that ENI was using illicit payments to Ugandan officials to obtain government authorization for purchasing Heritage and depriving Tullow of oil holdings in Lake Albert.

Envisioning the consequences of this war the US ambassador to Kampala government, Jerry P. Lanier, wrote to Washington saying that a corrupt Heritage-ENI agreement would undermine a potential multi-billion dollar deal between ExxonMobil and Tullow, and that it would  "have serious long-term implications for U.S. Mission goals in Uganda in terms of good governance and economic development".

Lanier commented that: “We believe Mbabazi is positioning himself for a significant payoff, but the security report is undermined somewhat by Tullow’s apparent involvement in its drafting. In December, ExxonMobil said it lacked concrete evidence that its Ugandan interests have been harmed, but noted that ENI’s involvement has had a negative impact. If the Heritage-ENI sale proceeds unchanged, it will significantly reduce the value of Tullow’s Uganda holdings, zap ExxonMobil’s interest, and put Uganda on the road to rampant oil sector corruption.”