Uganda: Oil Resources and Development

Francisco Laguna & Meghan Milloy

In Uganda natural resources are the exclusive property of the state. When substantial oil reserves were discovered in 2005, experts in Uganda and throughout East Africa began speculating how the country would be affected financially, environmentally and politically.

To understand some possible consequences, it is important to know the basic history of Ugandan oil exploration.

In the late 19th century, British oil companies sent agents on exploratory missions to Uganda. However, these efforts were hindered by a general lack of funding and later by the start of World War I. After Uganda gained independence in 1962, then President Obote granted Shell Oil full exploratory rights. Little progress was made throughout the reign of Idi Amin, and when Yoweri Museveni came to power in 1986, he suspended all licensing negotiations until a group of Ugandans were sufficiently trained in petroleum matters to ensure that negotiations were advantageous to the country.

Over the next twenty years, various production sharing agreements were signed between the Ugandan government and foreign oil companies, but no oil was found to jointly produce. It wasn’t until 2005 that Australian company Hardman Petroleum discovered significant quantities of commercially viable oil and gas. Since then, several other companies have made discoveries in surrounding sites totaling approximately 2.5 billion barrels of oil. To put that in perspective, Saudi Arabia, the world’s most oil-rich state, has approximately 263 billion barrels of proven reserves. Experts predict that one or two billion barrels would supply Uganda’s domestic needs for at least twenty years while enabling the government to sell a significant surplus overseas.

Now come the looming questions of what to do with the revenue from these sales. The government has many factors to take into consideration including repaying those whose land was taken for exploration and production; issuing the appropriate production shares to the oil companies; and redistributing the funds to the central and local governments. A major topic of debate is the way in which the Ugandan government plans to place part of
the revenue into a Petroleum Fund for overseas investments in order to protect the Ugandan economy from the adverse effects of a domestic spending boom and to save money for future generations – an approach Qatar has implemented successfully. President Museveni has said that another part of the revenue will be invested in infrastructure projects to aid general economic growth and that his priority areas are energy, road and railway upgrades and construction, agriculture irrigation, and science and technology.

While increased revenues in a developing country may seem beneficial on their face, much will depend on the policies put in place and how they are implemented as the affected parties, which range from Uganda’s existing elites to rural youth and especially to those in the agriculture sector.

TransLegal has assisted clients negotiate agreements with foreign governments, including procurement contracts, and we have assisted clients with understanding the laws and regulations of various countries governing the use of biotechnology in the petrochemical industry. Contact us to discuss your questions about these matters.

Next week’s article will posit some hypothetical situations and how each group may be affected.

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