Avoiding the 'Curse' of Oil: The News That Oil Has Been Discovered in the Lake Albert Basin Has Been Widely Welcomed in Kampala. Even Modest Oil Production Could Provide a Much Needed Injection of Finance into the Government's Coffers. Can Uganda Avoid the 'Curse of Oil' Asks Neil Ford

Article excerpt

Although the Ugandan government has made a great deal of progress in rebuilding the national economy over the past decade, the country's economic base remains dangerously thin. Revenues from oil can help to fund infrastructural projects and improve educational services. Yet the dangers of the discovery are equally plain for all to see.

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A joint venture of Anglo-Irish firm Tullow Oil and Gas and Canadian company Heritage made the initial hydrocarbon discovery earlier this year and results from exploration wells have confirmed the find. John Morley, Tullow's country manager for Uganda, said: "The significance, I think, will be immense. I think we could be looking at changing the economics of the region, not only of Uganda itself."

However, the size of the oilfield has not yet been confirmed and there is no guarantee that production will be commercially viable. Many hydrocarbon finds made elsewhere in Africa have been abandoned because production costs were not economically viable, often because the reserves involved were too small or the site geology imposed great technical difficulties.

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Nevertheless, the early indications are positive. Given that very little exploration work has actually been carried out in Uganda in the past, it is likely that further investment in other prospective areas will now be made. At least 90% of oil and gas discoveries are made within 100 miles of an existing productive well, so niche independent oil companies are now likely to have Uganda on their radars for the first time.

Even limited oil production would enable Uganda to satisfy its own requirements for refined petroleum products. If the field yields high production volumes, an export pipeline to the East African coast will probably be required.

Yet even a smaller field could be used to feed an oil refinery within landlocked Uganda that could be used to supply the domestic market and much of the rest of central, eastern Africa, which is currently forced to import fuel at high cost from the east coast ports of Dar es Salaam and Mombasa.

Of course, given the track record of other African oil producers, there is a very real danger that hydrocarbon production could cause more problems than it solves. The sudden injection of large amounts of money--or even the prospect of its arrival--can destabilise a political system. Ambitious politicians can become ever more eager to take power in order to take a share of the new revenues. At the same time, rapidly rising income can stoke inflation and divert attention from other sectors of the economy that may be of more importance in terms of creating employment.

However, the minister of energy, Daudi Migereko, said: "I do not think the discovery will cause Uganda any problems. What we have done is to involve literally everybody. We have been carrying out consultations in the oil producing areas. Our view is that with this approach, you make sure you avoid the kind of mistakes other people have made."

Indeed, rather than taking advice from Africa's existing oil producers, the Ugandan government has opted to accept an offer from Norway to act as an informal adviser. Migereko has already held talks with officials from Oslo.

Border dispute

The geographical location of the oil find has already generated another problem--potential conflict between Uganda and DR Congo. Sovereignty of Lake Albert is divided between Uganda and DR Congo, although ownership of some islands in the middle of lake is still disputed.

The size of the hydrocarbon discovery has not yet been determined but it is quite possible that the field extends across the international boundary. An oil or gas well that lies on one side of a border can tap hydrocarbons from a large reservoir that may extend across the boundary, thereby reducing reserves in a neighbouring state.

In addition, Lake Albert lies within one of the most unstable regions on earth. …