Uganda prefers to refine its oil in-country and export surplus to the EAC

Uganda, which has confirmed reserves of at least 600 million barrels of oil and an estimated potential of one billion, has four oil prospectors on the ground, of whom two —  Tullow Oil and Heritage Oil & Gas — have struck the black gold.

Flow rates of up to 3,500 barrels per day have also been demonstrated at some of the test wells, putting the country in the league of the biggest onshore oil fields on the continent.

Tullow Oil, which was not available for comment, had been engaged with the government in plans to build a mini-refinery on site first to produce heavy fuel oil for power generation before eventually scaling up to white fuels.

Uganda prefers to refine in-country and export any surpluses within the region and had expected Tullow to set up a 50-100MW fuel oil power plant by the end of 2009, to plug electric power supply shortfalls.

Apparently, the government had at the same time asked the oil companies to explore the possibility of using the gas deposits earlier found in some wells to generate electricity, as opposed to using diesel or heavy fuel oil plants.

While the other three companies licensed to prospect for oil were said to be willing to toe the government line, Tullow is now said to be holding back on its rollout plans, making the search for an alternative even more urgent.

Officials were not immediately available to explain what impact if any, Uganda’s independent stance would have on production-sharing agreements entered earlier with the oil prospectors.

The agreements have not been made public and earlier reports by this paper that had suggested ratios of 30 per cent of total revenue in favour of the government, with the prospectors taking 70 per cent, were refuted by Ministry of Energy officials who argued that the reverse was true.

But no one knows how much tax, royalty payments and other expenses the companies will demand.

As Museveni grapples with the oil companies, however, there are indications that internal consensus has not been reached over how oil wealth should be shared out, with the host communities agitating for royalties while the government argues that oil is a national resource.

The Kingdom of Bunyoro, on whose territory oil reserves were first confirmed, has renewed its quest for a substantial share of oil revenues while secessionist sentiments contained in a recent protest statement by legislators from northern Ugandan over the distribution of employment in the country, had innuendos of oil wealth to them.

Buffalo, with its flow rate of 3,500 barrels of oil per day, making it the biggest oil well discovered in the country so far, is located in the Amuru district of northern Ugandan.

Speaking to The EastAfrican last year, immediate former energy minister Daudi Migereko said the Cabinet was working on two new laws to guide the industry’s development.

One law will address oil resource management, covering aspects such as exploration, production and development of secondary industry, while the other is related to oil revenue collection and management.

Mr Migereko, who said public expectations were far too high, added that to avoid the problems countries such as Nigeria have experienced, Uganda preferred an approach that would ensure local communities benefited from any infrastructure developed to exploit the resource.