Tracing Uganda’s oil journey

In his October 8, 2006 address, President Museveni stated firmly that it was his government’s intentions to have a local refinery; initially starting with production capacity of 6,000 barrels per day (bpd) but would later be scaled up to 10,000 bpd—to cater for local demand (10,313 barrels) per day at the time with an annual import bill of about Shs146b ($43m). Production, he expected, would start in 2009.

A day later, the dailies, quoting ministry of Energy officials and oil company executives screamed with headlines that construction of the refinery would commence in 2007. 

In the subsequent months Hardman, Heritage and Tullow, continued appraising and making more discoveries, reinforcing the point that the sun had risen on Uganda as another oil frontier on the continent.  By the end of the year the oil reserves stood around 300 million barrels.

Fifteen years later so much has happened—both good and bad. For instance, the oil reserves in place stand at 6.5 billion barrels of which at least 1.4 billion barrels is recoverable. The reserves are expected to increase further once ongoing exploration work by Nigeria’s Oranto Petroleum and Australia’s Armour Energy Ltd (both licensed in 2017) on the Ngassa and Kanywataba, respectively, oil fields yield any significant oil deposits.

Failed attempts
Attempts to construct a local refinery remain, albeit sluggishly. The tender to design, finance, construct and operate a 60,000 barrels per day refinery was in 2018 awarded to a consortium of Italian and American investors through a special purpose vehicle, the Albertine Graben Refinery Consortium.

The company last year submitted the technical Front End Engineering Design study for the project which is being reviewed, and is in process of embarking on the Environment Social Impact Assessment study. The project development previously project to start in 2023 will now likely start much later—around 2024/2025. Its economics is another ongoing debate.

For the most part, the negotiations leading to today’s ceremony have been the most hectic and involving a lot of pulling and shoving. It took almost two years to agree on a commercialisation plan between government and the oil companies—then Total, Tullow and Cnooc—until a deal was signed in February 2014.

The commercialisation plan provided for development of the oil fields, a pipeline, a refinery, and generating electricity from the available gas reserves estimated around 500million cubic feet. 

The oil companies were initially opposed to the refinery with the view that all crude oil should be fed in the pipeline, but government stood its ground emboldened by 2010 study by a Swiss consultancy firm, Foster Wheeler, which detailed a local refinery to be economically viable.

The negotiation for the EACOP route took several twists and turns. The project was fist dangled to Kenya then it wound up south to Tanzania, which decision punctured Uganda-Kenya bilateral relations. Then there was the fights over concessions, taxes, among others, which usually left a bitter taste. The start dates for commercial oil production changed from 2009, to 2012 to 2018 to now 2025.

The signing of the EACOP agreements—Host Government Agreement (HGA), Shareholders Agreement, and Tariff and Transportation Agreement—on April 12, 2020 was almost called off with last minute demands to some of the clauses by Total chief executives who flew early in early that morning. In one of the meeting rooms at State House, Entebbe, a tough talking Mr Pouyane, breathed fire in the room as the flummoxed government technocrats from PAU, Unoc, ministry of Energy, Finance, and Bank of Uganda looked on seemingly shell-shocked. 

Much earlier in mid-2019 the fight over Tullow’s farm down led to TotalEnergies freezing work on EACOP. The haggling over the concessions lasted for several months, until early 2020 and a deal of TotalEnergies buying off Tullow was announced later in April.

The story of Uganda’s oil discovery, however, dates back to the beginning of the last century. Drilling of the first oil well on L. Albert shores is said to have first been attempted in 1913 by a South African company, the Anglo-Europe Investment Company, though unsuccessful.

Sequential developments transpired throughout the years but it was in 1983 when the Obote II’s government with the help of the World Bank undertook aerial magnetic surveys in the Albertine Graben to identify major basins. A Petroleum Unit was established two years later and the Petroleum (Exploration and Production) Act was enacted.

In the book ‘A Matter of Faith: the Story of Petroleum Exploration in Uganda 1984—2008,’ Rueben Kashambuzi, the former head of the PEPD narrates that when President Museveni took power a year in 1986, he  “suspended all negotiations for licensing until some Ugandans were trained in petroleum matters ....” 

A group of 25 Ugandans were sent to Europe for further studies in oil a year later.  The PEPD was established in 1991, and later that year, according to Kashambuzi, the government licenced the entire Albertine Graben to the Belgian oil company Petrofina, which expired in 1993 without the company doing any significant work.

Mr Museveni will be credited for the decision to send Ugandans abroad to develop expertise in the sector and upon return home take the leechy oil companies head on.