East Africa oil boom centers on Uganda

KAMPALA, Uganda, March 26 (UPI) -- The scramble for East Africa's oil wealth is intensifying, with China's CNOOC outbidding India's Oil and Natural Gas Corp. for exploration rights in the Lake Albert Basin, the epicenter of the emerging new oil zone.

But a political storm is brewing in the Ugandan capital over alleged corruption in government of President Yoweri Museveni over the lucrative contracts and a swelling grassroots campaign for an equitable sharing of the wealth being generated by the oil boom in the western part of the former British colony.

Human-rights and anti-corruption campaigners claim the contracts are structured so that the risk lies largely with the state, while the oil companies moving into the region are virtually guaranteed a return of up to 35 percent on their capital investment.

That's considered three times the internationally recognized norm for fair profit.

Museveni initially refused to make the 20-year production-sharing contracts public amid widespread speculation that he had personally negotiated the terms.

However, a transparency campaign group, Platform, published three of the contracts. These, said Platform campaigner Taimour Lay, pointed to "a resource extraction program designed for profit, not development, and contain a series of provisions that undermine any hope of changing course."

Platform and others seek to ensure that Uganda's oil wealth -- which is expected to eventually produce around $2 billion a year in revenue -- doesn't enrich the country's elite as it has across Africa, from Nigeria and Angola to Sudan, Equatorial Guinea and Gabon.

In these states, heavily dependent on oil revenue, power elites are facing growing unrest over deep-rooted official corruption and inequitable sharing of the national wealth.

In Angola and Nigeria, sub-Saharan Africa's largest producers, there are insurgencies that target their oil industries.

Sudan's oil producing region became a battleground in its long civil war that ended in 2005 and may be the focus of renewed conflict if, as expected, the Christian and animist south splits with the Arab-dominated north.

In Uganda, the prospect of oil wealth is already stirring tribal and ethnic conflict, particularly in the Bunyoro region. This is one of several historic kingdoms within Uganda.

Lake Albert has historically been part of Bunyoro but under the current policy of Uganda's Ministry of Energy and Mineral Development the kingdom's share of the revenue from the Lake Albert basin will be negligible.

Bunyoro claims other tribal regions will benefit from the oil more than it will and the debate threatens to reignite regional rivalries and tribal violence.

In the meantime, Museveni's government has sought to secure Bunyoro's oil, by deploying troops to strategic locations in the region.

In February, Museveni announced the formation of a special army force commanded by son, Muhoozi Keinerugaba, to protect Uganda's oil fields.

Exploration of the Lake Albert Basin only began in earnest in 2007, with strikes by wildcat independents such as Tullow Oil of the United Kingdom and Heritage Oil of Canada.

Now larger international concerns are moving in. The Energy Ministry estimates there are reserves totaling the equivalent to 2 billion-6 billion barrels of oil. Production is due to begin later this year and could hit 350,000 barrels per day by 2015.

That would make Uganda the fourth or fifth largest producer in Africa.

Tullow, backed by a $1.4 billion loan from the Royal Bank of Scotland, is ready to acquire Heritage's stakes in the region for $1.5 billion once it gains the approval of Ugandan authorities.

That's expected sometime in the next few weeks.

According to industry sources, Tullow, which operates in 15 African countries, then intends to bring in Total of France and the state-run China National Offshore Oil Corp., with each holding 33 percent of three blocks.

CNOOC is part of Beijing's global drive to secure oil and gas supplies for China's mushrooming economy, with Africa a key target.

India, Asia's other economic titan, is waging a similar campaign but is trailing the Chinese badly.

The failure of India's Oil and Natural Gas Corp. to snap up Heritage's 50 percent share of Blocks 1 and 3A in the Lake Albert Basin testifies to its lack of success.

Total, CNOOC and Tullow are expected to invest about $10 billion in development projects in Uganda and to develop the nascent oil sector.