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Museveni tightens grip on Uganda's oil

April 7, 2011 at 5:24 PM   |   Comments

KAMPALA, Uganda, April 7 (UPI) -- Ugandan President Yoweri Museveni is reported to be tightening his grip on the East African country's emerging oil sector in a region that seems set to become the new frontier for oil and gas exploration.

The centerpiece of Uganda's nascent oil industry is the Lake Albert field that holds at least 2.5 billion barrels of oil. Some estimates go as high as 6 billion barrels.

But whatever the total, Lake Albert, lying in the center of Africa between Uganda and the Democratic Republic of Congo, is the biggest discovery in sub-Saharan Africa in two decades.

That underlines the potential of East Africa, long considered an oil industry backwater, as a hot energy zone to rival the continent's resource-rich western and northern regions despite its notoriously corrupt and often violent politics.

Museveni was re-elected, as expected, in a February presidential poll while his ruling National Resistance Movement steamrollered to victory in parliamentary elections at the same time.

His electoral triumph has heightened political unrest, which could hamper energy development in the future.

But it has allowed him to ensure that his government, widely accused of corruption, has a firm hold on energy policy and control of the profits expected to result from exploitation of oil production, as well as recently discovered natural gas fields.

Indeed, these strikes, which have also been made off southern Tanzania and northern Mozambique, and expectations of further finds in the volatile states of Ethiopia, Somalia's Puntland and Kenya, have enhanced the prospect of significant wealth generation in the near and medium term.

The Indian Ocean island of Madagascar off East Africa holds "enormous reserves" of gas, industry sources say.

The chances are there's more to come. In North Africa, oilmen drilled 20,000 wells over the last few decades to find its energy treasures.

In West Africa, which began emerging as a major production zone in the 1990s, it took around 14,000 wells to determine the extent of the oil reserves.

So far, only about 500 wells have been drilled in East Africa.

But right now, Uganda is the center of attention and Museveni's putting his stamp on things before production starts next year at Lake Albert in the field operated by Ireland's Tullow Oil.

It made the initial strikes there in 2007, when the only operators in East Africa were wildcatters like itself. But now Big Oil is horning in.

On March 30, Tullow, which has exploration projects in Tanzania, Kenya, Ethiopia and Madagascar, sold one-third of its Lake Albert block to Total of France and another third to the state-owned China National Offshore Oil Corp. for a combined $2.9 billion.

That was to offset the anticipated $10 billion cost of developing the region's oilfields.

But the long-delayed deal underlined how Museveni has been tightening his grip on Uganda's newfound energy wealth.

He held up the Tullow deal for more than a year, claiming that the company's $1.45 billion purchase of the Lake Albert stake held by its exploration partner Heritage Oil violated Ugandan tax regulations.

The government demanded $472 million in capital gains tax on the deal with Total and CNOOC. Tullow disputed that but ended up agreeing to pay 30 percent while the issue undergoes further investigation.

Industry insiders believe Tullow will have to fork up the full $472 million in the end, cutting its net value of the Total-CNOOC deal to $2.4 billion.

But, the Financial Times noted, "it would free up Tullow to go in search of the next big thing" somewhere in its various East African exploration zones.

Meantime, Museveni's regime has been extending its control over the oil region, particularly in the western city of Hoima. It was for years a bastion of the political opposition, which was decimated in the February elections.

Hoima is set to be a storage area from where a pipeline will carry the crude to an Indian Ocean export terminal. The city will also get a refinery with a capacity of 20,000 barrels a day.

The Paris Web site African Intelligence said Museveni has also locked up the exploration zone by installing his son, Col. Muhoozi Kainerugaba, who commands the army's special forces, as the military governor.

© 2011 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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