The slump in global oil prices: was it the wake-up call Uganda needed

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The slump in global oil prices: was it the wake-up call Uganda needed

Photo Courtesy of www.bobyfinance.com

Photo Courtesy of www.bobyfinance.com

February was a fairly busy month for anyone keen on developments in Uganda’s Oil and Gas sector.

Obviously Tullow Oil released its 2014 Full Financial Year Results as anticipated- the kind that Tullow would love to forget.

Uganda’s cabinet approved the first open licensing round for petroleum exploration putting some six blocks up for grabs and the government awarded the contract to construct the $4 Billion (More than Shs 11 Trillion) Oil Refinery to the Russian Consortium RT Global Resources. RT Global beat Japan’s Maruben Corporation, China’s Petroleum Pipeline Bureau (CPPB), and the South Korean SK Group to the ultimate deal to end a process that had started a couple of years back in 2013.

The government was running behind schedule given that it was expected to have announced the successful bidder for this project much earlier. No wonder Uganda won’t see its first oil till 2020.

It’s a pity that the government decision making process in matters pertaining to oil has been protracted and frustrating for the investors.  So slow that Kenya which started exploring ‘yesterday’ may even see its first oil before Uganda does.

Interestingly, the slump in oil prices has brought to the government’s attention the need to speed up the process and fast-track the development of the sector. Perhaps it’s the reason why there has been some progress in February and according to the scheduled time. Hopefully a lot more will continue to happen in 2015. May be the companies will even get the much needed productions licenses this year.

The government needs to attract investors you know. Every government wants to do that. And no investor will want to be unnecessarily delayed in what they have to do to get the needed return on their investment more so if you are dealing with a product like oil whose prices keep fluctuating every other time.

That aside, the oil prices have, albeit unintentionally, helped check the government’s exaggerated expectations in the industry. For the past few years, the government has labored to convince Ugandans that oil is the magic wand which will turn Uganda’s fortunes around.

In fact whereas the various programs designed to address the challenges in the sector have registered great success in helping manage citizen expectations, little had been done just as yet to manage government expectations.

But fortunately, the oil prices have come in as some form of reality check reminding the government that we are dealing with a resource whose prices are volatile.

Therefore the leaders have been rudely awakened to the fact that hinging Uganda’s success on solely oil whose prices keep fluctuating may be shooting ourselves in the foot and the planners will now know that, to shield the country from the fiscal shocks that may come from such slumps in the future, there is need to save what we earn from the resource to cover up for such eventualities.

By | 2015-03-04T22:12:39+00:00 March 4th, 2015|Analysis and reports, Featured, Opinions|0 Comments

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