Progress towards a long-awaited export pipeline is welcome news for Uganda’s oil industry – but politics could still hold things up.
- In July 2016 the Ugandan government announced that construction of a proposed $4bn pipeline to export the country’s crude oil discoveries would begin in January 2017. The announcement follows the government’s decision after lengthy delays in April 2016 to route the pipeline through Tanzania as opposed to Kenya. Uganda and Tanzania have now agreed to fast track the project to ensure completion by mid-2019, as commercial development of landlocked Uganda’s oil fields hinges on the pipeline.
- Uganda is estimated to have between 1.2bn and 1.7bn recoverable barrels of oil in the Lake Albert basin. A consortium comprised of Total E&P, Tullow Oil and the China National Offshore Oil Corporation (CNOOC) is developing these oil resources. Each company currently owns a one-third stake in five exploration blocks, with Total operating blocks EA-1 and EA-1A. To date, however, only CNOOC has been granted a production license. Our evaluation is specifically focused on Total, as the company successfully lobbied for a southern route through Tanzania for the pipeline.
- The Ugandan government’s pipeline decision is welcome news for the country’s oil industry, but should be viewed with a degree of caution. The process has been marred by lengthy delays. Total pushed for the southern route to the Tanzanian port of Tanga, while consortium partner Tullow, which also has operations in Kenya, pushed for the northern route to the Kenyan port of Lamu. Total argued that the Tanzanian route was cheaper (Kenya’s proposed tariff was almost $17 per barrel, compared to Tanzania’s tariff of $12 per barrel) and safer given security concerns in northern Kenya. Total was reportedly able to effectively leverage French diplomatic pressure to secure the southern route.
- While the pipeline decision is good news for Uganda and Tanzania, it could have geopolitical ramifications for the region as a whole. It is a major blow to Kenyan President Uhuru Kenyatta, who hoped to deliver investment and jobs in advance of next year’s elections. More broadly, the decision will likely boost Tanzania’s regional influence at the expense of Kenya. This could see political alliances shift, raising the possibility that Kenya, East Africa’s largest economy, will more closely align with Ethiopia and more actively pursue plans for the joint construction of a pipeline linking Ethiopia’s Ogaden oil basin to the Kenyan coast.
- The Ugandan government is optimistic that the oil industry will accelerate economic growth, reduce poverty, and help ease youth unemployment, but this could prove challenging. The government — which ramped up foreign borrowing in the wake of oil discoveries — is facing mounting financial pressure due to delays in pipeline discussions and the licencing process. Moreover, with the dip in oil prices, company activity in the sector has slowed. Both companies have been actively working to build trust and deliver economic benefits. However community expectations are high, as employment picked up significantly during the height of exploration between 2010 and 2013. Successful expectations management will therefore be key for Total in the long term.
- There are concerns about irregularities in the land acquisition process for the pipeline. Local residents in the Bunyoro sub-region claim that customary land in areas to be used for infrastructure developments and future exploration is being fraudulently registered by wealthy businessmen and land speculators. These titles are allegedly used to sell the land and evict residents. According to a report published by Transparency International Uganda and the NGO Civic Response for Environment and Development, these land acquisitions have left many families in the area homeless.
- There are also indications that oil development could exacerbate ethnic tensions and the government’s choice to route the pipeline south has heightened this risk. Total’s operating blocks are partly located in the Acholi sub-region to the northeast of Lake Albert, which was marred by conflict during the LRA insurgency. The Acholi ethnic group sees the oil sector as a much needed means of economic development but alleges that it is being systematically excluded from the benefits the sector is delivering. Acholi leadership has suggested that the change in the pipeline route was a political ploy to further exclude and marginalize the Acholi people. Total will need to tread carefully to ensure that its operations do not further enflame the situation.
This article uses Critical Resource’s LicenseSecure™ model to assess the likely level of political and stakeholder risk. Our updates provide a rapid overview of new or updated ratings in our database, with a focus on projects in the news. Please note that these ratings updates are provisional, based in part on open source analysis and are not from client projects. Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.