Rival groups fuelling death of infant oil industry

Lack of transparency and failure to set up laws to manage the country’s oil industry has left Uganda vulnerable to vultures, writes DANIEL K. KALINAKI.

A couple of weeks ago, Energy Minister Hilary Onek received a text message on his cell phone. The message informed him that six million Euros had been paid into Mr Onek’s account in ‘Emirates Bank’ somewhere in the Middle East.

It was not the first time Eng. Onek was being accused of allegedly taking money over the oil deals. President Museveni was reportedly told that his minister had taken $2 million from Eni, the Italian oil firm, to help it muscle its way into the Ugandan oil industry. It was alleged that Mr Onek had spent the money on a hotel he is building in northern Uganda.

Mr Museveni initiated his own investigations and found that the $2 million bribe story was false and that the energy minister had actually borrowed over a billion shillings for his hotel.

Cash flows
Mr Onek’s troubles started when Heritage announced last November that it had agreed in principle to sell its stake to Eni. A senior cabinet minister with high-level government connections was fronting for Eni and had sent another senior female minister to Italy to meet officials from the company. With the help of the two ministers, Italy’s foreign minister Franco Frattini met President Museveni at State House Entebbe on January 15 to support Eni’s bid.

A few days later, Cabinet met in Kampala to discuss Eni’s proposed entry into the country. At this time Tullow Oil had indicated that it intended to exercise its pre-emptive rights and buy out Heritage’s 50 per cent stake in block 1 and 3A, the same stake that Heritage had agreed, in principle, to sell to Eni for $1.5 billion.

Eng. Onek and his permanent secretary, Mr Fredrick Kabagambe-Kaliisa, attended the meeting and Mr Kabagambe-Kaliisa told Cabinet that it was not desirable to have a monopoly in Tullow or any other oil firm.

Mr Onek went public with this position on January 21 and announced that the government would support Eni’s bid in order to avoid having a monopoly. Angry Tullow officials sought the audience of President Museveni and protested against the position. Mr Museveni telephoned Eng. Onek who was on leave in Kitgum to find out the basis of his position. The minister informed the President that it was the position of the ministry and had been discussed and endorsed by Cabinet.

Because of Tullow’s pre-emptive rights, the President and Mr Onek agreed to allow Tullow exercise its right as long as government’s concerns about the monopoly were taken into consideration. Mr Onek directed state minister for energy, Peter Lokeris, to withdraw a letter Onek had written to Tullow and Heritage blocking the proposed takeover of the latter’s assets by the former.

Although Eng. Onek had communicated a ministry position that had been defended in Cabinet by his permanent secretary, word started going around that he had received money from Eni to push its bid and had acted arbitrarily.

While the allegations against Eng. Onek were never proven, Eni’s entry into the picture sparked off a war of influence peddling as ministers, technocrats and other power brokers sought to push either Tullow’s interests or those of the Italians.

Hole of shame
The influence peddling that has characterised the negotiations over the country’s young oil industry has often allowed officials to connive with foreign firms and put personal gain above national interest.

Early this year, a government delegation, which included the ministers of energy, finance and foreign affairs, as well as other technocrats, visited Abu Dhabi in the United Arab Emirates and met with government officials there.

The officials in the oil-rich host country were stunned to learn from the Ugandan delegation that the cost of drilling an oil well in Uganda was between $20 - $30 million, compared to $7 - $10 million in other parts of the world, including the Middle East.

The Abu Dhabi officials offered the Ugandan delegation $6 million to carry out a technical audit of what exactly the oil firms prospecting in Uganda are doing and why it costs so much.

More than six months later, the government is yet to take up the offer because, sources familiar with the matter say, such an audit could expose the true cost of Uganda’s oil exploration programme – and those officials who are benefitting from the apparently inflated costs. Heritage claims it spent $150 million in its exploration work in Uganda – although documents in the Energy ministry indicate a lower figure of $125 million.

Tullow Oil, whose drilling operations were fewer than those of Heritage, says it has spent significantly more money – $500 million – in the process. Under the Production Sharing Agreements, the oil firms are entitled to recover these sums.