By Hussein Lumumba Amin
To: His Excellency John Pombe Magufuli. President of Tanzania.
Sir, I am told that in your honourable speech last week during the launching of construction works for the Uganda-Tanzania pipeline, you claimed that “Amin did nothing about Uganda’s oil”. At this point I am caught between keeping quiet and silently watch as possible ignorance unfolds, or speak out now when it is too late for you anyway.
You have already launched the project with grand pomp. But as they say, remaining silent can sometimes mean siding with what is wrong.
I am not sure if in your assessments of the project you are looking exclusively at the pipeline, or if you have been presented with an extensive overall feasibility study of Uganda’s oil and it’s prospects today.
So with all due respect (and I genuinely respect all leaders who do not joke with corruption), here is a quick explanation that might give you some insight into what this oil might actually mean for Uganda in real economic terms.
But also for Tanzania since there will come a time when you will probably have an obsolete pipeline lying idle across your country. So here is a brief exposé that I wrote in 2016 (which was also published in Uganda’s New Vision newspaper most probably for educational purposes). It was entitled “Why Amin Didn’t Exploit Uganda’s Oil”.
I stated therein that we needed to understand the reality regarding Uganda’s oil reserves which are estimated at a mere 5 billion barrels. And from that, only a fifth of it (1 billion barrels) is extractable. As of Friday, December 16, 2016, the Crude Oil Price was at $51 .90 per barrel [it is slightly higher today].
So if we sold all the 1 billion barrels of extractable oil at that price, the total income would be $51 billion US Dollars. Saudi Arabia for example, earned $200 billion dollars from oil in 2015. This means that Uganda’s entire oil reserves revenue is only a quarter of what the Saudi’s make from their oil in just one year.
And while the total oil revenue might be a huge amount to an individual, it is only equivalent to five years of our own national budget which stands at almost $10 billion USD for the 2016/2017 financial year. Meaning that every five to six years, Uganda depletes the equivalent of all it’s oil in terms of revenue from the resource.
Remember that the oil production agreements give the oil companies around 60 to 70% of that total oil revenue as well. That amounts to approximately $30 billion USD that deducted from the $51 billion total.
As well managed businesses they first want to recoup any investment they made in the project. Last August, the Energy ministry announced that “the oil companies will initially invest around $10 billion USD to undertake the drilling of about 500 wells and construction of associated infrastructure, before the country can see first commercial production by 2020.”
The other major cost to deduct from the $51 billion US Dollars total revenue is the $5 billion US Dollars for building the Uganda-Tanzania pipeline, and another $5 billion to build a refinery and its pipeline from Hoima in Western Uganda upto the capital Kampala plus the complex storage facilities.
If we make a simple calculation of the above amounts, we have an estimated $40 billion dollars already gone from the $51 billion total. Further more, I estimate that probably another billion dollars is spent in advance expenditure like the relocation and compensation of populations.
There is also purchases and procurements like the Sukhoi fighter jets, plus countless other projects where every three months our parliament is approving loans in the hundreds of millions of dollars each. These loans are based on the premise that we will soon have oil to repay them plus any accrued interest.
According to Global Witness, some of the environmental hazards that come with oil exploration activities include destruction of animal habitats, water contamination, generation of waste; air pollution as a result of flaring of crude oil; and danger to wildlife.
The benefits will therefore also go to protecting the surrounding populations and the environment. Remember that land compensation features as part of the oil production costs.
The refinery alone requires more than 29sq km of community land from 13 villages. The acquisition affects 1,221 households with a total population of 7,118 people. Moving these families required appropriate compensation and relocation into newly built housing.
If we add the road networks leading to and from the oil wells plus storage facilities in Kampala for the refined products, the cost is probably another billion dollars.
This leaves Uganda with barely any profits from the $51 billion USD total oil revenue. That sum is based on the assumption that the price per barrel doesn’t collapse again as it did early this year when it reached $30 per barrel.