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Will Ugandans benefit from country's new oil find?

From David McKenzie, CNN
Uganda is keen to avoid the example of Nigeria where oil has often become a source of conflict rather than development.
Uganda is keen to avoid the example of Nigeria where oil has often become a source of conflict rather than development.
  • Uganda's sizeable oil finds could boost the country's developing economy
  • The East African country faces calls for more transparency in its deals with oil firms
  • Uganda's government says it won't make the same mistakes as Nigeria

Kampala, Uganda (CNN) -- The recent oil discovery in Uganda could signal an influx of unprecedented wealth for a country where more than a third of the population lives below the poverty line.

With proven reserves of two billion barrels, the east African state could soon become an important oil exporter and potentially attract major foreign investments.

The biggest international player is Tullow Oil, a British-Irish firm that has signed contracts with Uganda to develop its oil reserves, investing hundreds of millions in the country. The company says it will produce the first oil by the end of 2011.

"What it means for Uganda, obviously we would like to think it's significant revenues," Tullow's country manager for Uganda Brian Glover told CNN.

"We are talking about potentially $2 billion a year being yielded from this world class asset. And given that that is roughly the revenue of Uganda today, that could have significant potential."

That potential was suspected as far as back the 1930s but it's only recently that Tullow and others discovered major reserves, lying mainly in the Albertine basin on the border with the Democratic Republic of Congo.

Uganda's sizeable oil finds could be of major benefit to its development efforts -- the country's economy has doubled in 10 years -- but some fear that oil could still become a curse due to lack of transparency in these deals.

We are talking about potentially $2 billion a year being yielded from this world class asset.
--Brian Glover, MD, Tullow Oil Uganda

According to independent surveys, graft is endemic in Uganda. The EU recently suspended some aid due to "slow progress" in the fight against corruption.

Angelo Izama, an investigative reporter with the respected Daily Monitor, is suing to force the government to make its production sharing agreements with oil companies public.

"Every Ugandan knows that public money is stolen," Izama told CNN. "The government of the day is like Dracula in charge of the blood bank, it is not exactly rocket science that oil money, just like donor money or tax payers money can be stolen."

UK-based industry watchdog Platform recently obtained some of the production sharing agreements. It said that the contracts "place profits before people," and called for more environmental protection, greater accountability for military forces protecting oil installations and more equitable distribution of revenues.

The watchdog, which concluded that the government will get much less than the 80 percent of revenues it expects, also claims that the secrecy in the deals will foster corruption -- a charge the Ugandan government vigorously rejects.

When asked why the government doesn't lay it open to say how the deals will benefit Ugandans, Kabagambe Kalisa, the Permanent Secretary of the Ministry of Energy and Minerals Development, said: "The people of Uganda have a government which clearly represents their interests. The people of Uganda have a parliament -- agreements are available to parliament. Obviously an agreement can not be put in the press, it is an agreement between the parties."

But the story of oil in Africa has not been a happy one. Nigeria has conspicuously failed to use billions of oil revenues to develop infrastructure and services and oil has often become a source of conflict, rather than development.

In the shadow of Nigeria's oil struggles, the Ugandan government says it won't make the same mistake. President Yoweri Museveni has insisted on a refinery in Uganda to help this landlocked country become energy independent.

And Tullow says its significant investment in the country deserves a return.

"One has to recognize that as we explore for oil, the company takes risks, sometimes you don't make any money out of it at all and we've a considerable amount of money here so far, some $750 million," Glover said.

"In order for us to go to development and production it will cost billions of dollars and at the end of the day we have to make some level of profit."

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