20100104
ft.com

As the Tullow Oil car zips past mango trees and down a dirt track that leads to a drilling site, the conversation inside turns to local Ugandan folklore.

Jane Nyendwoha, a company official born close to one of the tiny fishing villages on Lake Albert, says people there grow up being told there was once oil beneath their feet that attracted British colonialists.

“They say that when the white man came, he came with the Bible and told them to close their eyes to pray,” says Ms Nyendwoha. “By the time they opened them, their land had been taken.”

She bursts into laughter, then adds: “This time, the people are not closing their eyes.”

Chart showing the Uganda map and crude oil reservesInstead, the whole of Uganda is watching intently as foreign companies prepare to haul it into the billion-barrel league of African oil exporters.

In a country more accustomed to producing Nile perch and cassava, the change is generating both anxiety and excitement .

Oil has the potential to transform the jobs market, living standards, ethnic relations, the environment and the status of Yoweri Museveni, Uganda’s veteran president.

But whether the changes will be for good or ill is the subject of a familiar but intense debate.

In Uganda, it is framed in extremes: will the country become like Nigeria, whose mismanagement is legendary, or Norway, a model of good stewardship from which they are already getting advice?

“You hear a lot of people saying it will be a curse,” says Peter Lokeris, minister of state for mineral development. “Those are the things we want to avoid.

“When they are shouting like that it is better for us to open our ears and say ‘We must attend to this’.”

Uganda’s reserves are not world-beating but two wildcat explorers listed in London – Tullow and Heritage Oil – say they have found 700m barrels in and around the nature reserves that line the placid shores of Lake Albert in the country’s west. They estimate there are up to 2bn barrels, which would put land-locked Uganda in the same production bracket as Equatorial Guinea and Chad.

Uganda’s emergence as a player on the global stage was cemented when Italy’s Eni became the first big company to signal its readiness to take the country through to commercial production by announcing a $1.5bn deal to buy Heritage’s Ugandan assets.

The deal has not yet been finalised. But Eni’s arrival has galvanised critics accusing the government of being both secretive and incautious.

Mr Museveni, who won power as a guerrilla fighter in 1986, is closely involved in plans for oil, but Kizza Besigye, leader of the opposition Forum for Democratic Change, rails against him for creating an “unaccountable” system of government.

“For such a system to superintend over resources like oil is without doubt bound to create a lot of problems rather than solutions,” says Mr Besigye.

Mr Museveni is expected to seek a fourth term in 2011 and although oil revenues are not likely to flow until 2012-13, critics fear that he will use the money to consolidate his grip on power.

The windfall – which Tullow says could be as much as $2bn a year – will reduce the government’s need to kowtow to western donors.

It could also help Mr Museveni realise his dream of turning Uganda into an economic hub, centred on a refinery that would serve Rwanda, Burundi, the Democratic Republic of Congo, Tanzania, Kenya and southern Sudan.

But the expected production of 150,000 barrels a day is probably more than east Africa needs and the oil is 1,300km from an Indian Ocean port.

Paul Collier, an Oxford University development economist who has advised the president, says Uganda is well-positioned to make the right decisions.

“There are a whole group of technocrats who brought Uganda back from the dead,” after Mr Museveni took control of an economy ravaged by war, he says. “This is their biggest opportunity for transformation. They’re not going to blow it without a fight.”

Syda Bbumba, the finance minister, says oil money will be used to upgrade decrepit transport and power infrastructure, which has long stifled business, and to promote agro-industry. “This being a finite resource, we are going to make sure we invest in things that have long-term effects,” she says.

But Mr Besigye says the lesson of Uganda’s anti-corruption battle is that laws and institutions will not act as safeguards: “The people who are putting them there are the people who are going to abuse them.”

Frank Muramuzi, executive director of the National Association of Professional Environmentalists, argues the government needs to be more transparent. Environmental impact assessments at drilling sites have been too narrow, he says. He has also called on the government to publish its production-sharing agreements with oil companies.

In Uganda’s Bunyoro-Kitara kingdom, a traditional community that led the fight against British colonialism and counts the oil in its territory, tensions and expectations are rising.

Shopkeepers are looking forward to free-spending oil workers, while speculators are already driving up land prices. Fishermen and cattle herders, meanwhile, are worried about being ­displaced.

Henry Ford Mirima, the Bunyoro king’s press secretary, says local people expect a “special share” of oil revenues and resent government statements that “this is national wealth so it should be shared nationally”.

Ms Nyendwoha, Tullow’s community liaison officer, says that when the company burnt off oil from a well during flow tests some people living nearby were so scared they could not sleep.

“They thought the flames could jump and burn their houses,” she says. “It was something new for all of us.”