Investors commit US$10 billion to pump Uganda's oil deposits

Delivering fuel to a gas station in the Kamwokya suburb of Kampala, Uganda, on Feb. 1, 2022. (Hajarah Nalwadda / AP)

KAMPALA, Uganda -

Uganda and a group of investors on Tuesday announced their decision to finally proceed with oil production following years of setbacks that threatened the East African country's efforts to become an oil exporter.

The China National Offshore Oil Corporation and the French energy conglomerate TotalEnergies said Tuesday that the investment in Uganda would be more than US$10 billion.

That sum includes about $3.5 billion to be spent constructing a heated pipeline linking oil fields in western Uganda to the Indian Ocean port of Tanga in Tanzania. At 897 miles, the pipeline will be one of the world's longest.

Uganda is estimated to have recoverable oil reserves of at least 1.4 billion barrels.

The signing of the final investment decision on Tuesday is a key milestone that authorities were eager to reach in the 16 years since the commercially viable quantities of oil were discovered. This means the investors are firmly committed to extracting Uganda's oil resources and will proceed to award major contracts.

Uganda's efforts to produce oil have been threatened by corruption allegations, tax disputes, and administrative delays.

The ceremony in Kampala, the capital, was marked by fanfare, with performances by tribal singers and a police brass band. Witnesses included Ugandan President Yoweri Museveni and Tanzanian Vice President Philip Mpango.

"This is the day that the Lord has made," said Ugandan Energy Minister Ruth Nankabirwa. "The country is now more confident than before."

TotalEnergies CEO Patrick Pouyanne said the ceremony marked a "historic" moment and urged unity and trust among the venture partners.

"We are also very conscious of the sensitivities of the areas where we are going to work, in particular from an environmental point of view," he said. "We are committed to leaving a positive environmental footprint."

It remains unclear precisely when Uganda will export its first drop of oil, since developing storage sites, processing facilities and other key infrastructure will take time.

Authorities expect oil exports to start in 2025.

Despite anxiety over falling crude prices in recent years, hopes have remained high in Uganda over the potential for oil exports to lift the country of 45 million people into upper middle-income status by 2040.

Annual per capita income in Uganda was less than $800 in 2019.

A 2015 World Bank study emphasized that the economic benefits would be considerable if local companies are competitive enough to win lucrative service contracts in the oil sector. Authorities hope majority shareholder TotalEnergies and its Chinese partner CNOOC will honor commitments to award up to 30% of the contracts to suppliers of Ugandan origin.

But activists have attacked the pipeline project as "irresponsible," saying it isn't compatible with the goals of the Paris climate accord.

Facing pressure to abandon its projects in Uganda, in 2021 TotalEnergies acknowledged "significant social and environmental stakes" posed by oil wells and the pipeline, pledging to proceed responsibly. The conglomerate has said it will limit oil extraction from a popular national park to less than 1% of the protected area.

Critics also say the rights of local residents are at risk and that the pipeline, which would cross rivers and farmland, will damage fragile ecosystems.

The pipeline project could cost more than 12,000 families their land rights, according to the Paris-based International Federation for Human Rights, which has been tracking Uganda's oil projects.

Others have warned against the personalization of oil resources and heavy borrowing by national budget authorities anticipating oil revenue.

Museveni, who has led Uganda since 1986, has sometimes suggested that the discovery of oil created an opportunity for him to remain in power while his government strives to lift more Ugandans out of poverty.