Uganda Should Consult Ghana on Oil

Posted on January 30, 2010


Originally published in GlobalPost:

KAMPALA, Uganda — In 2009, Uganda discovered oil reserves in its side of the Lake Albert Rift Basin that could place it in the ranks of major African producers such as Chad and Equatorial Guinea.

The oil discovery — optimistic estimates place it at 2 billion barrels — is just a fraction of the 36 billion barrels of proven reserves held by Nigeria, but it still means a windfall for Uganda.

Almost immediately, the debate started — will the oil help Uganda develop, or will the country fall prey to Africa’s resource curse?

Too many times in sub-Saharan Africa, natural resources — oil, diamonds, or minerals — do not bring wealth to the population but instead bring corruption, misgovernance and continued poverty. In an effort to avoid all that, Ugandan President Yoweri Museveni announced in his recent state of the nation address that the country will draft new oil legislation this year.

Uganda has very little domestic expertise on the oil and gas industry, let alone expertise on how to craft policy to regulate it. As Uganda forges an oil policy, it should consult Ghana.

Ghana discovered oil in 2006 after decades of exploration, and it expects to begin producing oil in late 2010. For the past two years, it has been developing legislation to manage its oil revenues responsibly. In late 2008, the country held successful presidential elections, in which the winner, John Atta Mills, had a margin of under one percentage point.

Despite the high stakes — whoever won the election would benefit from the economic boost of the oil — the election result was not contested. Like his predecessor, John Kufuor, Atta Mills has stressed that Ghana must be fiscally responsible and not pin its economic hopes on oil.

Uganda could learn from Ghana’s careful approach to managing its oil resources. The two countries are working with one of the same independent oil companies, the London-based Tullow Oil. In Ghana, Tullow holds a majority stake in the Jubilee Field, estimated to contain between 600 million and 1.8 billion barrels of oil. This field is roughly the same size as the one Tullow has discovered in Uganda.

In Uganda’s Lake Albert Rift Basin, Tullow holds stakes in two blocks estimated to contain between 700 million and 2 billion barrels of oil. The Ghanaian government has had several years of experience working with Tullow, and could advise Ugandan officials on how to work with the company. Further, through sharing information, the two countries could see if there are opportunities to negotiate more favorable contract terms.

Beyond the details of its relationship with Tullow, Uganda could benefit from Ghana’s experience trying to develop an oil and gas policy that is politically acceptable to the general public and sophisticated enough to create mechanisms for fiscal management that ensure oil revenues are spent responsibly.

Ghana started the policy process by bringing in the Norwegian government to share its expertise. It has worked to adapt Norway’s policies to construct legislation that is functional for a developing country. The Ghanaian government could share the lessons it has learned with Uganda, which sits at a similar position on the United Nation’s Human Development Index.

The Ghanaian government could also exert some gentle pressure and encourage the Ugandan government to be more transparent about its production-sharing contracts with the oil companies. The Ugandan government has already caused a stir by not being transparent to the public about the terms of its production agreement with the Canadian-based Heritage Oil. Heritage is currently in the process of selling its Ugandan oil assets.

The Ghanaian government’s work has been controversial, especially among fishermen in the region near the oil find, but it has made efforts at broad consultation, including hosting regional forums around the country for an open discussion about the oil policy process. In contrast, activists are in the process of taking the Ugandan government to court for its secrecy over oil contracts.

Uganda should not take Ghana’s approach wholesale, however. Ghana’s management of its oil and gas policy has not been without flaws. The country’s state-run oil company, GNPC, is currently locked in a dispute with Kosmos, one of the companies with rights in the Jubilee Field, over the sale of Kosmos’ stake to ExxonMobil. GNPC would like to prevent the sale and buy Kosmos’ stake itself. As the companies active in Uganda start to put their stakes in Uganda’s oil blocks up for sale, the Ugandan government should pay careful attention to what happens in the Kosmos-GNPC dispute.

With presidential elections scheduled for 2011 in Uganda, emotions are running high and President Museveni is focused on winning re-election. The Ugandan government should not allow itself to be distracted by the coming election.

By consulting the Ghanaian government and investing time and resources into forging a new oil-and-gas policy, Uganda can ensure that its oil windfall does not become a resource curse.

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