Foreign explorers gear up for oil boom in Uganda

• Compared with deals around the world, from northern Iraq to Libya, Uganda’s government has signed deals that leave it worse off in real cash terms
• Uganda is locked into a set of terms that do not and will not in the future reflect the reality of doing business in the country

Foreign oil explorers are set to reap “excessive” profits once Uganda starts pumping crude with firms likely to make 31-35 per cent return on investments based on medium-price oil outlook, an advocacy group said on Monday.

East Africa’s third largest economy hopes to join the league of oil producing nations in the next few years after explorers found commercially-viable reserves of a few billion barrels in the nation’s west.

“Compared with deals around the world, from northern Iraq to Libya, Uganda’s government has signed deals that leave it worse off in real cash terms,” London-based Platform said in initial findings of a report to be released later.

There was no independent confirmation of the analysis.

Platform is a social justice and environmental advocacy group which has carried out oil sector studies in countries like Iraq.

“Uganda is locked into a set of terms that do not and will not in the future reflect the reality of doing business in the country,” the advocacy group said.

It said the report used draft copies of Production Sharing Agreements (PSAs), government documents and shareholder data.

Ugandan officials were not immediately available to comment.

The oil finds have raised investor interest in Uganda where crude explorers have been making discoveries in the Albertine Graben region bordering the Democratic Republic of Congo.

Kampala says initial, small production would start soon.

Neither companies nor the government have made public PSAs, and Ugandan opposition politicians have called for more transparency.

Tullow Oil and Heritage Oil, its partner in adjoining blocks, have found billions of barrels under Lake Albert but need to construct an expensive pipeline, and possibly a refinery, to bring the output to international markets.

Heritage said that it had agreed to sell its interests in two blocks in Uganda to Italy’s Eni for up to $1.5 billion.

Platform said that Heritage and Tullow may make an internal rate of return of 31-35 per cent on deals inked with Kampala, based on its investment and oil price projections.

“Since it’s internationally recognised that oil is a natural resource belonging to the country, any profit above 20 per cent is viewed as both a spectacular success for the companies, and an excessive profit earned at the expense of the host nation.”