Saturday, January 23, 2010

The Robber Oil Barons

With the promise of new oil production in the near future both the Ugandan government and the oil companies involved have been busy painting a rosy picture of bumper revenues and a country transformed. We are promised that Uganda will be turned into a middle-income country by $2bn a year in hard cash.The truth , however , remains that Uganda's oil production sharing agreements point towards a resource extraction programme designed for company profit, not country development.The campaigning group PLATFORM published three of the production sharing agreements the government has spent years keeping a closely guarded secret and contain a series of provisions that undermine any hope of changing course.

The international oil companies, including Tullow Oil, backed by a $1.4bn loan arranged by the Royal Bank of Scotland, and Heritage, run by former mercenary Tony Buckingham are set to reap huge sums at Lake Albert - as much as a 35% return on their capital investment. That's three times what's internationally recognised as a fair profit.The oil contracts are structured so that price risk lies primarily with the state, while the private companies are virtually guaranteed a healthy return even if the market slumps. As the oil price rises, investors will make a higher and unlimited profit, taking close to one quarter of oil revenues, whether each barrel is fetching $70 or $200.The 20-year contracts, consistently weak or completely silent on human rights protection, also include a sweeping "stabilisation clause" - article 19 requires the Ugandan government to compensate the companies for any future change in the law that affects their profits - designed to militate against improvements in environmental standards.Possible future legal disputes between the two sides will not be resolved in Uganda, but in London: at the Energy Institute, whose president will pick the all-powerful arbitrator and for those in any doubt about the bias of the institution, it is currently headed by James Smith, chairman of Shell UK , another oil company mandarin.

Uganda secured one of the best deals in the world for its oil exploration according to claims by Tullow Oil , yet the Norwegian experts advising the government have expressed serious reservations: a review of Uganda's contracts commissioned by the Norwegian Agency for International Corporation in 2008 concluded that the profit-share model adopted "cannot be regarded as being in accordance with the interests of the host country".

Oil always promises growth, affordable energy and employment; from Nigeria to Angola, Sudan to Equatorial Guinea and Gabon, it has delivered only poverty and repression in Africa.While increased oil revenues give the impression of superficial growth, the sudden influx of cash distorts the economy and exchange rates, undermining alternative sectors, including agriculture and industry, that employ and feed far greater numbers. The ingredients for the so-called "oil curse" are all in place: contract secrecy, government corruption, commercial disinformation campaigns, with environmental protections ignored , and a simmering border dispute with the Democratic Republic of the Congo frozen rather than resolved. Lake Albert's oil is likely to prove yet another reason for the Kampala elite to ignore the struggling north and eastern regions of Uganda as the nation's focus shifts west to the oil fields. The transition to a sustainable energy economy will be put back two decades or more, while political tension will only increase.

For all the work of the country's 8,000 NGOs, the 30% budget support from donors and the rhetoric of international aid, it is these botched oil contracts and the financial interests of those oil companies that will do most to define Uganda's future.Uganda will not be transformed into a new Norway.

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