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From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Wed Sep 01 2010 - 09:06:24 EDT
FACTBOX-Key political risks to watch in Uganda
Wed Sep 1, 2010 12:30pm GMT
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By Elias Biryabarema
KAMPALA, Sept 1 (Reuters) - Uganda expects to become an oil-producing nation
in 2011, but a protracted dispute with British exploration firm Heritage Oil
may delay production and risks unsettling other investors.
With the potential to be a top 50 oil producer, Uganda stands to reduce its
budget dependence on foreign aid and improve poor infrastructure.
East Africa's third largest economy is seen growing by 6.7 percent this year
and 7 percent in 2011.
Here are some of the factors to watch:
BOMBING FALLOUT
Somali rebels killed 79 people in Kampala as they watched the World Cup
final on July 11 in revenge for the deployment of Ugandan peacekeepers.
Uganda replied by sending hundreds of additional troops to Somalia to
bolster the African Union's AMISOM mission, with President Yoweri Museveni
under pressure to act on al Shabaab as the country looks towards
presidential elections early next year.
The rebels have said they will strike Uganda again if it does not withdraw
its troops. Analysts and Western diplomats warn that a military solution
alone will fail.
What to watch:
-- More attacks. Does the deployment of additional Ugandan troops to Somalia
heighten the risk of another attack? Any targeting of the oil sector could
prove particularly damaging.
-- Any signs that the government is using the attacks as a pretext to
squeeze the opposition ahead of 2011 elections.
OIL WINDFALL
Uganda discovered oil along its border with the Democratic Republic of Congo
in 2006. Tullow Oil and Heritage Oil have found up to 2 billion barrels of
oil in the Albertine Rift Basin. Reserves may be four times bigger.
Tullow Oil said development of its Ugandan oil fields would be delayed due
to a dispute over capital gains tax between the government and Heritage Oil.
Heritage said it had sold 50 percent stakes in Blocks 1 and 3A to Tullow Oil
for $1.45 billion. Tullow deposited $405 million of the total with the
Ugandan government in an escrow account pending the resolution of a tax
dispute.
A completed deal would allow Tullow to start a $10 billion project to
develop Uganda's reserves. It plans to bring in France's Total and China's
CNOOC to fund infrastructure, which could include a refinery and pipeline to
the Kenyan coast.
Tullow had previously said it expected to start commercial oil production by
the fourth quarter of 2011, increasing output to 200,000 bpd.
What to watch:
-- A prolonged wrangle between Heritage and the government over tax on the
Tullow sale. On Aug. 27, Energy Minister Hillary Onek told Reuters
Heritage's licence had expired in February. Since Uganda had not received an
application for a production licence from any party within a 6 month period,
he said, the bloc had reverted to the government.
Onek said the government would consider any application when it arrived.
Heritage says it has been advised it does not owe tax in Uganda. The company
distributed the Ugandan sale proceeds by paying shareholders a special
dividend in late August.
Uganda's petroleum sector needs a heavy injection of capital to get into the
production phase. Investors will be looking for government commitments on
transparency and policy stability.
-- A personal intervention from Museveni who wants the final say on all oil
and gas deals. -- New regulations. The new law overseeing Uganda's
hydrocarbon sector is expected to be passed by parliament in the second half
of 2010. Remaining licences could then be auctioned.
-- The impact of oil on the economy. Economic growth is expected to
continue. However, flows of petrodollars could divert attention from other
sectors and encourage corruption.
-- Impact of oil on the local currency. The sudden inflow of petrodollars
will strengthen the Uganda shilling, making other exports less competitive
in neighbouring markets.
-- Decline in donor dependence. Economists say the influx of about $2
billion a year from oil will help the government plug its fiscal deficit.
This could diminish the leverage of donors.
-- Tension between government and Bunyoro Kingdom. Nearly all the oil has
been found in the Bunyoro Kingdom. The Banyoro want a 10 percent cut of the
petrodollars. An oil revenue-sharing formula is in the making.
REGIONAL RISKS
Uganda's economy has been buoyed by increasing exports, especially food, to
the neighbouring economies of South Sudan, Rwanda, Democratic Republic of
Congo and Kenya. The improved export flows have helped strengthen Uganda's
balance of payments. The country registered a cross border (informal) trade
surplus of $1.3 billion in 2008 from $776 million in 2007, according to the
Uganda Bureau of Statistics (UBOS).
South Sudan, which emerged from a decades-long civil war in 2005, imported
goods worth $910 million in 2009 compared to $465 million in 2007.
Landlocked Uganda is heavily dependent on imports from the Kenyan port of
Mombasa.
What to watch:
-- South Sudan referendum on secession due in January 2011. A yes vote is
expected but if the result ignites a dispute with Khartoum, or even a
resumption of war, trade could be blocked. It could also undermine the
fragile peace in northern Uganda.
-- Putting in place a new constitution in Kenya. On Aug. 4, Kenyans endorsed
a new constitution. But now the horse-trading begins on the appointment of
new political posts and how to implement sensitive new clauses such as land
ownership.
-- ICC arrest warrants for key architects of Kenya's 2008 post-election
violence. Fighting could break out if one ethnic group feels singled out.
The last bout of violence triggered a spike in fuel and food prices as
imports to Uganda were held up in the Kenyan chaos.
POLITICS
Museveni will almost certainly stand for a fourth term in elections in 2011,
most likely against arch rival Kizza Besigye.
With the oil find, Museveni now has reason to cling onto power. But the
opposition is striving to present a more united front, setting the scene for
an electoral showdown that could turn violent.
What to watch:
-- Can the opposition unite? Five of Uganda's opposition parties have picked
four candidates to vie for a single ticket in the election.
-- Media and opposition crackdown. With oil revenues set to surge, experts
expect Museveni to become more intolerant of dissent, critical media and
strong opposition.
-- Foreign aid cut? Donors may cut aid in the next financial year if the
government does not curb corruption. Foreign aid contributes 30 percent of
annual budget. Substantial cuts could stall key infrastructure projects.
(Editing by Richard Lough and Alison Williams)
C Thomson Reuters 2010 All rights reserved
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