Pearl Sweet and bitter truth of the oil resource

Uganda has officially branded its impending crude oil export as “Pearl Sweet”. It has been a long wait for Uganda’s oil to be ready for prime time in the export markets. We had long delays as foreign corporations that initially took a stake in the oil fields suddenly pulled out and sold their holdings, triggering protracted arbitration procedures over tax liabilities to the Government of Uganda.

The delays in kicking off commercial drilling for export were also due to lack of requisite physical infrastructure, arguably the most important being the nearly 1,443km East Africa Crude Oil Pipeline (EACOP) from the oil fields to the Tanzanian port of Tanga.

Apropos is the world’s longest crude pipeline, heated to boot because the Pearl Sweet crude type must be at a certain temperature to flow. Huge financial muscle, more than $5b (Shs19 trillion), was needed to complete the pipeline. What is more, the project attracted global attention for its environment and human rights implications, given that it traverses conservation areas and inevitably caused displacement of citizens. The other large infrastructure project that has dragged on and whose financing is yet to be concluded is the refinery.

A full picture of the Pearl Sweet product we are about to export requires facing up to the bitter truth of the oil sector, particularly the historical experiences of African countries. Before I get to that thought, there are things the Ugandan government ought right, whether intentionally or compelled by circumstances, that deserve credit.

For starters, our is easily one of the longest waits to have oil flow for export. This is both good and bad. In the first instance, the long delay means Uganda got all the time in the world to get things right, and the government will drive a hard bargain with foreign oil companies in ways that, at least on paper, protected the national interests.

The secrecy of oil contracts, primarily the production sharing agreements, has always remained a source of speculation by critics, especially with the 2011 explosive allegations of corruption involving several senior top government officials. On the other hand, the long-delayed by very well underscored the bureaucratic efficiency and corrupt red tape that often characterises Uganda’s public sector.

The other positive is the government’s resolve to construct an oil pipeline and refinery. There are legitimate environmental, natural habitat and ecological dangers, but there is no other way for Uganda to visibly and efficiently get its crude to the coast other than through a pipeline.

Similarly, insisting on building a refinery for national and regional, East African, markets is absolutely the right decision, which the government stuck to despite opposing arguments pointing to inadequate demand to match the refinery output. If there is an oil surplus of petroleum products, surely Ugandans will pay less at the pump, and there will be higher overall national productivity and output powered by cheaper petrol and other products. This is a no-brainer.

All said, the bitter truth of oil in Africa is one of the most tragic stories of the continent. Along with other precious natural endowments, oil has been associated with the so-called ‘resource curse’, the paradoxical reality of a natural resource causing more harm than helping a country’s economy.

Rather than propel shared prosperity, oil drilling and its export as unrefined crude has tended to fuel all sorts of negative outcomes, from armed conflict and endemic violence to elite corruption and white elephant projects that are meaningless and of no value to the poor citizen. From Luanda to Lagos and Malabo, not to mention the most extreme case of South Sudan, the oil resource has not quite worked for the ordinary African citizen. It has engendered moral hazard.

The other bitter truth is that Uganda is entering the oil export market in an era of extraordinary and rapid shifts powered by unprecedently technological advances. Current crude oil prices are elevated. Uganda can cash in on windfalls, but this is ephemeral, driven by the ongoing American-Iranian conflict; who knows what comes tomorrow with intensified electrification of automobiles and automation of machinery using sources of fossil fuels.

Yet, to be sure, Uganda is a poor country. At a minimum, we have a lot to gain from a natural resource with local utilisation and consumption even if the export market looks bleak. The real task is how to efficiently govern the resource in ways that advance the national interest, not the narrow and predatory interests of small elite cliques. This then comes down to the politics of the day and the extent system of rule.

For me, it would be useful to have a system readily responding to the sceptic, and all the political uncertainty swirling as to the direction the country is taking potentially puts in peril the future prudence of managing the proceeds from Pearl Sweet petroleum.

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