“We should not rush”

“We should not rush”

Saturday, 5th April 2014 |

Hon. Elly Karuhanga

Hon. Elly Karuhanga is the Chairman of the Uganda Chamber of Mines and Petroleum andformer President of Tullow Oil in Uganda. He is also a former Member of Parliament. Oil in Uganda caught up with him at his office in Kampala, where he briefly shared his thoughts about Uganda’s extractives sector. 

Oil in UgandaHow would you rate the progress of the oil industry in Uganda to date?

Hon. Karuhanga: It has been a slow process but very steady and I think haraka haraka (rushing) would have caused us a lot of problems. Speed would have been very dangerous.

What I have finally learnt is that in the end, Uganda’s cautious steps will yield us a lot of long term results. We might have lost out on the short term gains but we will surely have long term benefits.

But you have been strongly criticising government for the slow pace towards production, what has changed?  

I have seen what has happened to those governments that have tried to jumpstart the industry. They have made a lot of mistakes and you know once you make a mistake in the oil and gas industry, it can be very expensive to reverse it.

For example, if you sink a wrong well in a wrong place, it costs a lot of money and you will get nothing. If, for example, they are making an assessment of how much oil should be produced from a particular well and the company says “We shall recover ten percent from this particular well,” and you sign, that is it.

Yet if you studied the well more, you can recover thirty percent and this is what has happened in Uganda in some cases.

By government saying “No, let us investigate the well more,” then the company can recover thirty per cent of the oil.  So when these negotiations are ongoing, there appears to be a delay, but if we rushed, it will give us quick oil but not all the oil that could have been possible to get. So we must balance.

All those things (exploration, discovery and appraisal) that happen underground are scientific and not political, religious or evangelical, it is all scientific. It is people who are claiming that if we go underground, this will happen and others are saying no. So they have to rely on scientific instruments to justify their arguments.

So if that debate takes long, I don’t mind, even if it ended up having the same results like the one that had been got in the beginning.

But some people feel that this delay is costing Uganda…

Yes, it is costing us and at the same time we are benefiting from it. This whole story about oil and gas is really how you prepare yourself to be able to extract something you don’t see.

For us in Uganda we are not inventing something new, everybody else has done this all over the world and we just need to pay a higher price to hire the right people to do the right job.

However the important thing is to get the right partners. Now that we have discovered oil, we are lucky and in the next licensing round we should aim at getting the big and medium companies or what we call independent companies who can invest money and give us good results.

Are the companies frustrated by the delay in granting them production licenses?

I don’t think the production licenses are not coming out because of government. I think sometimes the oil companies, before they prepare for the production license, want a good production license and not a bad one.

So they have to prepare themselves and it takes time for them to submit the applications which are quite humongous. They indicate what they will do when they are awarded licenses, which technologies and methods they will use.

Of course government has to look at it and ask questions on why this and not that. This conversation is not what I would like to be hurried.

There have been rumours that Tullow may leave Uganda as a result. Is it true?

I don’t think it is a rumour. The thing is that you have to understand the oil and gas industry.

Once you are in this business, you have to acquire many licenses and grow the company, so you just can’t come to Uganda and stay here forever.

You have to grow the company, get licenses in Kenya, Congo, Sudan and other parts of the world.

Tullow has got a lot of licenses and they are the best (exploration) company in the world, they find oil easier (than others).

As a result, they have to have money to develop the discoveries made and sometimes they have to do what we call farm-down or farm-out. That does not mean they are running away.

So it is not a rumour that Tullow sold part of its shares to CNOOC and Total and it’s a vicious cycle. If Tullow wants to sell part of its shares again, it is understandable and we have to understand the industry.

Has the media been supportive?

It took painful time to see it happen but I am very happy that our media has started really understanding the industry.

The media was concentrating on oil and gas as a curse and selling bad news, pumping a lot of fear in the population.

And if you really wanted to stand up and sound reasonable, the media would bring in the stories of what has happened in Nigeria and that is exactly what was sold to people.

They will not tell you what has happened in the United States of America due to the oil and gas discovery or how oil discoveries have transformed Britain’s economy.

The media majored on telling people that as soon as the oil is discovered, the country will end up like Nigeria, and this (negative reporting) was not answered by both the oil companies and government.

In fact it took government a long time to even understand and appreciate that they needed a communications officer to handle oil and gas.

So for so long, government was the punching bag for the media and academia. The oil companies were very cautious because it was not their business to talk about Uganda’s politics or manage Uganda’s expectations. Their work was to look for oil, but they were punched.

Of course there were politicians in parliament who created the worst scenario. But now parliament has learnt its lessons and the media has trained its people in oil and gas. We are also pleased with what the ministry and oil companies have been doing.

It took time because there was a lot of suspicion, allegations which were all completely unfounded and it was painful to see all that.

How come the mining sector in Uganda has not developed at the same pace?

The mineral sector slowed down because the Ministry concentrated so much on oil. Although the Department of Geology has also done a fantastic job, the political atmosphere was not very good. Look at the insecurity that was in Karamoja…

Human Rights Watch recently reported that people in Karamoja were suffering due to mining…

We are still very far, but we are trying. We have discovered the minerals but we still need the exploration companies and to get the companies, we really need to organize ourselves.

The Chamber of Mines has put up a task force together with government under the Office of the Prime Minister and we are trying to streamline all these things.

We have seen other companies in different countries who have done successful jobs like Botswana and we have seen those who have failed.

I think Uganda will be the most fantastic place to explore for minerals. Many companies are coming to venture into mining and we are holding another conference in October this year.

Yet the level of investment remains low…

I think we should convince our government to create a fund, an exploration fund.  If we had an exploration fund and established the presence of minerals, then the investors would come running and government would have a share in those mines and then the benefits to government would be very high.

As Chamber of mines and petroleum we are working very hard as a task force to convince the government to put up say $100m. That fund would be for conducting exploration and knowing where our minerals are and then the mining companies would line up (for licenses) unlike when they put in their money.

Is the Chamber doing anything about value addition of minerals locally?

We do not have certification yet, that is why the minerals are taken to Rwanda for certification so that they are later exported. We have very good minerals but we are yet to streamline the industry.

So what next for you after Tullow?

There are so many opportunities. The oil and gas industry has opened up so many opportunities for Ugandans. So if I venture into agriculture, I would be able to provide food supplies.

Oil is a new thing to us. It is down there and to get it you have to know what to do and you cannot say that because I have strength I will take my energy there or because I speak English I will get the oil out of the ground.

It is for technical people who studied it and have done it before, so we have to look for them and pay them a lot of money and we have to be friends with them and give them a good time when they come.

The most important thing is that we have to learn what they are doing and if need be, take our people abroad to study. We need to open universities here so that Ugandans can study oil and gas.

Again, this delay has helped us educate so many people and bring them back to negotiate these agreements and if we did not have these people who are knowledgeable, it would have been one way traffic.

Questions put by Beatrice Ongode and Flavia Nalubega


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