Friday, 22 August 2014

How are we managing expectations from Uganda’s oil discovery?

Oil discovery in Uganda has generated a lot of excitement in the population. I have heard stories of some people in the oil corridor of Bunyoro pausing to work hard to give their life a better meaning waiting on the proceeds from extraction of oil and gas. Some young men have sold land to scavenging land dealers in order to migrate to “oil towns”. Farmers are equally excited that their tomatoes will get market from workers in oil exploration and drilling companies.

The politicians are telling Ugandans that they found the oil during their reign so they deserve another term in office. The businessmen and women are also positioning themselves to tap into the oil money. The youth believe oil and gas sector is the answer to their unemployment woes. The policy makers are exciting the country that oil is the game changer in Uganda’s economic development. Cultural leaders are also clamouring for oil royalties. And, so on and so forth.

Naturally it is okay for people to have expectations whenever a natural resource like oil is discovered. It is not surprising that there is so much excitement over Uganda’s discovery of 3.5billion barrels of oil. But, what are the facts? How are we managing expectations?

Not all this oil will be extracted from the ground. In fact, about 1.7 billion barrels will be recoverable because oil is mined from rocky ground. The commercially viable oil discovered is much lower than over 35billion barrels in Nigeria, for example. However, Uganda has so far explored only 40% of its oil resources.

If managed well, oil and gas extraction in Uganda has the potential to improve Uganda’s economic development. At least annual revenue of $2billion is expected when oil production begins. Oil production in Uganda is estimated to last for a minimum of 30 years. This implies that about $60billion will be harvested from oil production. That money is huge. Currently Uganda’s total GDP is $21billion.

Even before the oil production begins, Uganda has so far made a kill on the capital gains tax resulting from the sale of oil wells by Heritage to Tullow and the farmdown of Tullow, China National Offshore Oil Company (CNOOC) and Total.

The elephant in the room, however, lies with the choices Uganda government will make regarding the use of the revenue from oil and gas. Will this money be used well or not? As it is now, the national oil policy states that its objective is eradicate poverty and create useful value from the oil resource. President Museveni has indicated that oil revenues will be used to develop infrastructure like roads and generate electricity. It is envisaged that good infrastructure like roads will enable farmers and investors do their business better.

It is upon the leaders to explain how someone in the rural area in Bulisa, and other parts of the country, will benefit from the oil revenues. Some rural folks think they will touch the oil cash. It is this complex process that needs to be made clear to ordinary citizens.

Because Oil and Gas production in Uganda will define the lives of Ugandans in 30 to 50 years, all must be interested in what’s happening in the sector.  It is also vital that we have realistic expectations regarding oil industry in the country.

For example, the much talked about oil sector jobs are not very many. Research by oil companies in Uganda shows that: direct jobs at peak time (when oil production will begin) are between 3000 and 13000 while indirect and induced jobs (investment, buying cars, etc) are expected to be between 100,000 and 150,000. Most of these jobs are seasonal. At the same time there are still huge gaps in local Ugandans who can work or supply in technical areas of oil industry.

My future blogs will expound on these issues.

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