An Oil Windfall Can Wreak Havoc on A Developing Nation

An Oil Windfall Can Wreak Havoc on A Developing Nation

by | published June 18th, 2010

The heat here is overwhelming.

For the past 90 minutes, I have been sitting in the outer office of a rather powerful government minister. So have dozens of others. I am here to give advice. They are waiting to talk to this same official in the hopes of profiting from the new game in town: Oil.

Welcome to Kampala, the capital of Uganda. This east African country found oil several years back – a lot of it – at least two billion barrels initially, with more likely to come, which puts Uganda among the top 50 oil producing nations. The drilling is already starting to change the economic and social outlooks here in fundamental ways. And much of that change may not be for the better.

I am here at the minister’s request. But that does not seem to help him in managing what must be an impossible schedule. The U.S. State Department asked me to come here and advise on setting up laws and regulations to deal with this new windfall. I have been meeting with parliamentary committees, oil companies, government officials, civic leaders, the media, and U.S. Ambassador Jerry Lanier and his staff.

There is not an American company in the fight for the oil concessions. As a result, I have the rare opportunity to advise without having a client’s interests in the mix or U.S. policy interests to consider. This one is purely from the outside; I have no dog in this particular fight.

Finally, he arrives. A very tall man, Hilary Onek moves slowly – attesting to the pressures of the office and the already long day he has spent dealing with its rapidly escalating fallout. He is minister of Energy and Mineral Development. And these days, he is at the center of an intense political fight that will certainly determine the future of this country.

We move into his inner office, and I am immediately in heaven. It has working air conditioning!

After quick pleasantries, the minister moves to several urgent matters on his mind. We discuss a new petroleum law being debated, rising popular concerns over the usage of revenue, and broad-based suspicions that the secret production-sharing agreements have already sold the oil to outsiders.

But what Onek most wanted to hear about was a trip I had taken earlier in the week – I had been in the eye of the storm, a desperately poor district called Buliisa. There in western Uganda, on the shores of Lake Albert, you find oil. But you also find frustration, fear, resignation, developing anger… and hunger.

Uganda’s Struggles Are A Microcosm of the Global Energy Pursuit

It took us over eight hours to get to Buliisa, much on what can only with great charity be called roads. Our embassy SUV had to compete for traveling space with baboons, long-horned cattle, monkeys, and six-inch trenches in the “roadway.” Occasionally, I could hear one of the remaining mountain gorillas grunting in the distance.

This is one of the most ecologically sensitive areas in the world. Nestled between the Murchison Falls National Refuge and a lake providing source water for the Nile River, Buliisa is ground zero for a brewing fight – between oil interests, a government in need of a quick cash infusion, environmental concerns, and the Democratic Republic of the Congo, on the other side of the lake, increasingly making claims to the oil under development in Uganda.

That’s why I came here.

You see, contests in places like northwestern Uganda will increasingly determine whether significant volumes of new crude oil will ever make it to market, who will profit, who will suffer, and whether we can continue to extract the raw materials we need without destroying their natural base.

The people there depend upon agriculture from earth that is miserable for growing to begin with – and the oil companies have made the situation even worse. Streams are being polluted, land destroyed, and crops dozed over. The residents are paid some compensation, but their livelihood is gone.

And this is what Minister Onek really wanted to talk about. Uganda has an amazing opportunity to develop a workable legal and regulatory structure to develop significant oil reserves. Yet they have a limited amount of time to do it. They must figure out the policy before the people take to the hills… or starve.

Uganda is a microcosm of what is happening elsewhere in the global pursuit of energy. This is not simply about barrels per well. This is, fundamentally, about people.

In one of the poorest nations on the face of the earth, the government has committed itself to using oil wealth to eradicate poverty. It is a commitment enshrined in a National Oil and Gas Policy, a new National Petroleum Law, and the revenue legislation being developed to implement the policy.

However, there may not be enough time to start this process before the society begins to crumble under the weight.

The Human Side of Oil Policy

In the Oil & Energy Investor, we discuss profit spreads, new technology, and the latest ways to make higher returns. I know this is how a market must operate. It is the key to prosperity. But we also need to understand that some of this energy will come at the expense of the humans involved.

Like the people in Buliisa.

I addressed a group of almost 200 in an old meetinghouse that was too small, too hot, and collapsing before my eyes. Finally lunch came. It was set up outside, and people just squatted on the grass to eat. There were now well over 400.

“Was the crowd that large in there?” I asked one of the local officials.

“No,” he answered. “People have been walking for hours to get here. They know if they make it, they will eat today.”

Oil policy no longer was on my mind…

Back in the air conditioning in Kampala, Minister Onek knows the situation is unraveling. It is why there are never enough hours in the day for him. Mother Nature has provided a bounty in a country that may not have enough life to benefit from it.

And then Onek does the unexpected. He asks if I will provide suggestions to the ministry on how to bring the interests together and make the new oil legislation work.

Seems I’ll be coming back.


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