In 2006, Uganda discovered it had commercially viable oil reserves in the Albertine Graben region near the Western border of the country. But almost a decade later production and export of the commodity has never taken place and investors are getting concerned.
The delay in producing oil from the landlocked African country north of Lake Victoria for the export market means it has been overtaken by its neighbors Mozambique, Tanzania and Kenya who discovered their own oil deposits in later years.
A recent fall in oil prices on the international market has added to the country’s woes. Exploration firms like Tullow Oil have scale down on their investment in developing oil fields across the continent until when crude prices recover and make business sense for them.
Uganda also suffers from country specific challenges in terms of delayed legislations that would enable development of their oil discoveries. Politics has also made it impossible for any construction to take place in the country’s estimated 6.5 billion barrels reserve.
“The constraint that companies are facing, which is very specific to Uganda, is that the environment is so unpredictable. I am not talking about the politics and security. I am talking about when things will happen,” The New Vision quoted Eric Olanya, the head of UK Trade and Investment at the British High Commission in Kampala, saying at a recent event.
“Companies have been here for six years and are asking, is this the right time to begin hiring staff? Is this the right time to start hiring staff?” he added.
Olanya said that due to the high capital intensive nature of oil field development, investors in that sector would only commit to a project if the environment is clear and they don’t expect any legal or regulatory hurdles in their way.
That is why major played in the east African nation oil and gas sector, including UK’s Tullow Oil, Total and China National Offshore Oil Corporation (CNOOC), have not made much headway to date.
“From an international company perspective, projects are capital intensive, and these companies invest and look to get a return in the next 10, 20 or even 30 years,” he said.
“That means that the investment environment has to be conducive. For a company to spend money they have to be sure of the readiness of the country, how the country fares in international rankings of doing business and so many things.”
After years of waiting, the Ugandan government finally opened up blocks for licensing in February this year and the licenses are expected to be issued before the close of the year.