Uganda and Tanzania have discovered commercial reserves of oil and gas respectively but there is very little or nothing in terms of infrastructure to support a sector that has the capability to drive a robust and sustainable economy across the five EAC member states.
Brian Glover, the Tullow Uganda Operations general manager said, "We need to move away from conducting feasibility studies and talking and move to implement the required infrastructure for the success of the oil and gas sector or we will get big hiccups that could choke the young sector." Glover said they have so far found some 1 billion barrels of oil with a further 1.5 billion barrels yet to be found in the fields that Tullow operates.
The Irish exploration company's plans to develop the oil with partners Total and China National Offshore Oil Corporation (CNOOC), has been held back by a tax dispute with the Uganda government following its $1.5b purchase of Heritage Oil's assets Last month Tullow announced it was postponing first oil in Uganda from the end of this year to 2012 largely because of the tax dispute.
With first oil so close, Glover said there is need for oil pipelines, new roads, an airport in the Albertine rift and other relevant infrastructure if the oil story is to be successful in Uganda. He called for co-operation among the EAC member states to be able to develop infrastructure that the young sector needs.
He said for now, Uganda is the only country that has discovered commercial oil reserves, but believes the other countries prospecting for oil will join Uganda. Glover said EAC governments need to make strategic alignments to build infrastructure like a refinery or upgrade one like would be the case with the Mombasa refinery. He said the Mombasa port is one key infrastructure that needs a co-operative arrangement to serve the oil and gas sector.
Glover said East Africa needs to co-operate to put in place strong policies and regulation to be a competitive destination for new and further investment in the sector as well as work together to avoid the so called 'Dutch disease.' "Oil and gas is an old industry and it is very competitive. For East Africa to benefit so that investors don't send their money elsewhere, East Africa needs to be very competitive and this can be achieved through co-operation," Glover said.
He called for transparent management of the oil and gas revenues on the side of governments and transparent contract management between governments and the oil companies, saying this will be required for the oil and gas sector to be successful in East Africa.
Glover said East Africa will also have to co-operate on the benefits of the oil and gas sector. An EAC Common Market means labour can easily move across borders without too many restrictions.
In Uganda, he said the oil and gas sector will directly employ over 10,000 people with thousands more will indirectly benefit from the sector. Glover said East Africa has the workings of an oil sector that can be comprehensively linked if all the countries, including South Sudan, which has oil co-operated to develop the requisite oil and gas infrastructure.
Tullow has so far invested some $800 million in the exploration phase so far. He said the investment in Uganda will reach $4b when the farm down to Total SA and CNOOC is completed soon.
Ultimately, Tullow, Total and CNOOC will invest at least $10 billion in the project, which will include a refinery and a 1,300-kilometer long pipe line to the East African coast for an export project on top of other production infrastructure.
"Tullow has so far been very successful to attract big international companies which can help in raising the required capital," he said.
Talks over the approval of the joint venture and a tax dispute over Tullow's purchase of Heritage Oil PLC (HOIL.LN) stakes in two blocks continue and an approval is expected soon, according to Uganda's energy and minerals Minister.
Early in the week, Uganda announced it will jointly build a $2 billion oil refinery with East Africa regional states.
The move is aimed at processing petroleum products to meet the regional energy needs.
Fred Kabagambe, the energy ministry permanent secretary, said the refinery would process a wide range of products, including diesel, petrol, kerosene and aviation fuel. A government official said the refinery would be developed in three phases under a public-private partnership arrangement. The first phase is expected to produce at least 20,000 barrels a day of refined fuel products such as diesel, gasoline and kerosene to supply the domestic market.