Low oil prices to hit investment in Uganda’s oil sector – c.bank governor

The sharp drop in oil prices will likely slow down the flow of investment capital tied to Uganda’s emerging hydrocarbons industry, and hurt economic growth, the country’s central bank governor said on Wednesday.

Governor Emmanuel Tumusiime-Mutebile’s warning underscores worries the east African country might struggle to attract capital to fund an ambitions array of infrastructure projects vital to Uganda’s crude production.

Uganda discovered an estimated 6.5 billion barrels of crude deposits in its Albertine rift basin, along its border with the Democratic Republic of Congo, almost a decade ago.

But the start of commercial production has been delayed repeatedly by disputes over a refinery, taxes and crude extraction plans, and it is not expected to begin until 2018.

Crude prices collapsed last year and although they have since stabilised, they might be too low in the future to make investments in Uganda’s oil sector viable, Tumusiime-Mutebile said in a speech on the impact of oil price volatility.

“Investors in the oil industry face incentives to delay or slow down their investments as they wait to see how global oil prices might evolve,” he said.

“They (investors) will be more cautious about committing resources … the pace of capital investment in oil production and the associated infrastructure will be slower.”

After a protracted tendering process, Uganda this month picked a consortium led by Russia’s RT Global Resources to develop and operate the country’s planned $2.5 billion refinery.

UK’s Tullow Oil and French oil major Total are awaiting government approval of their applications for production licenses expected to trigger so called final investment decision on several discoveries in the Albertine.

The Ugandan government has previously estimated the cost of developing the country’s oil fields and building the required infrastructure at between $15 billion and $22 billion.

This week Uganda also announced it had started conducting a licensing round for six exploration blocks covering nearly 3,000 square kilometres.

Tumusiime-Mutebile said the oil price crisis would also likely hit private investments in Uganda’s non-oil sector and dampen growth prospects. “We can expect the uncertainty about future global oil prices to … cause real economic growth rates to be lower,” he said.

The IMF has forecast that Uganda’s economic growth will hit 6.1 percent in the 2014/15 (July-June) fiscal year from 5.7 percent in the previous period.

The governor also cautioned against expanding public spending tied to expected petrol earnings. “If government were to undertake such commitments and future oil revenues are too low … the government would face a fiscal crisis.” he said.