Lack of output places Uganda’s oil-boom town in slow lane
BEFORE the discovery of large amounts of oil in Lake Albert, Hoima was a forlorn and remote town in western Uganda, whose main sources of income were farming and the trickle of tourists heading to nearby national parks.
A decade later, an oil-fuelled boom is transforming the town nearest the lake, with smart new office blocks and hotels drawing scores of new businesses and people from engineers to prostitutes to bankers.
But with the east African nation yet to pump a single drop of oil, this rapid development may be premature. Oil executives say production will start in 2018 at the earliest.
“Everybody in the country and the region is looking at Hoima,” said Betty Tibesigwa, the manager of Rosaline Suites, a new hotel and office complex that is home to Chinese oil company Cnooc’s operations in Uganda.
“People from all over the world will be visiting Hoima,” she said. “We’re coming in to offer services at the standard one would expect of a town with such promising and booming business.”
Oil
Cnooc, Britain’s Tullow Oil and France’s Total are among companies exploring for oil beneath Lake Albert, a pristine body of water in the heart of the Rift Valley estimated to contain crude reserves of 6.5 billion barrels.
The discovery of oil there about 10 years ago unleashed dreams of an economic windfall that would lift Uganda’s 38 million people out of poverty but development has proceeded at a snail’s pace, stymied by spats over planning and taxes.
“Oil comes with its own hype. This investment seems to be way ahead of its time,” said Stephen Kaboyo, the managing director at Ugandan fund manager Alpha Capital Partners. “These investors won’t find enough business activity to support them right away. We’ll have idle capacity.”
Officials are now eyeing 2018 as the start of production, but Kaboyo believes this is too optimistic, pointing to infrastructure delays such as a $4.5 billion (R53.6bn), 1 300km export pipeline to the Kenyan coast that has not yet been started.
But the delays in oil production are pushing back the expected payday for investors.
The tender to build a $2.5bn domestic refinery was awarded only early this year, to Russia’s RT-Global Resources, and construction is not expected to start before 2016.
Government economists estimate that developing the oil fields will cost $15 to R22bn, against $50bn that Tullow says the country could earn from crude sales during the lifetime of the Lake Albert fields.
Investors
Such sums are exciting investors around Hoima, where a new tarmac highway shimmers westwards through marshes and forests before plunging over an escarpment to the Albertine basin and the border with Democratic Republic of Congo.
Alongside the road, warehouses are springing up in fields, next to banks, motor showrooms, office blocks and shopping malls.
Estate agents estimate that land prices have gone up 50 percent in the last four years as speculators have snapped up plots. They anticipate huge demand from a population that has quadrupled since 2002 to 100 000, according to census data.
But the delays in oil production are pushing back the expected payday for investors who have banked on the arrival of oil men ready to splash out on everything from burgers and beer, fancy clothes and electronics, to schooling for their children.
For 40-year-old Godfrey Muleke, who sells and services Renault and Mitsubishi trucks and water pumps and generators, business in the last two years has not been brisk.
Since opening he has sold only 10 Renault trucks and has about 25 off-roader vehicles under management on both lease and rental arrangements.
But he still believes he made the right choice by getting his foot in the door before anybody else.
“Moving in now is good,” Muleke said. “You invest less when you move in early. And you’re given a bird’s eye view of the scene.” – Reuters FUEL shortages are set to worsen in Nigeria as international traders and local marketers back away from imports over fears that the cash-strapped new government will halt costly subsidy payments.
Already, lines at petrol stations in the major cities are blocking traffic as Africa’s largest crude oil exporter runs out of domestic fuels. The shortage in some rural areas is even more acute due to a payment battle between independent retailers and the government.
“We have exhausted our stocks,” said Stanley Yakubu, a worker at the Forte Filling Station in the Maitama neighbourhood of Abuja. “We thought government and marketers have resolved their issues but supply is very slow in coming.”
Traders said new bookings for vital tanker imports of transport fuel into Nigeria had slowed to a trickle, and some cargoes offshore were being redirected to other regions.
Efforts by outgoing president Goodluck Jonathan in 2012 to end expensive subsidies, which would have doubled gasoline prices, led to riots in the street.
The steep drop in world oil prices would have cushioned consumers from any withdrawal of subsidies, but gasoline prices would still jump by roughly 30 percent if the current capped price of 87 naira per litre is allowed to move closer to the 115 it would cost without the government support.
Additionally, as subsidies cover the difference between the capped price and the cost to buy the fuel on the international market, marketers worry Nigeria could end the payments without letting capped prices rise, leaving them to shoulder the potentially sizeable price difference.
Nigeria relies on oil exports for 80 percent of its revenue and has already burned through half of its borrowing allowance this year.
It could follow Angola and Indonesia in cutting expensive subsidies, but with crude prices now edging back up after last year’s slump, the most ideal moment may well have passed.
“The time to cut was January/February, when oil prices were so low,” said Stanislas Drochon, director of Africa oil and gas with IHS. “That was really a missed opportunity, but it’s not too late.”
Though Nigeria exports around two million barrels per day of crude, it is almost wholly reliant on imports for the 40 million litres per day of gasoline it consumes, due to inadequate refineries.
The effort is expensive, accounting for an average of 2.5 percent of gross domestic product from 2006-2012, according to the International Monetary Fund. The government set aside 914 billion naira (R54.5bn) for it in 2014.
Critics say the subsidies are not only inefficient but open to abuse by corrupt operators.
Imports that have arrived so far this year total at least 300bn naira, according to pan-African lender Ecobank, a bill that would come due after incoming President Muhammadu Buhari’s May 29 inauguration.
“The new regime will be the one who pays the bills,” said Dolapo Oni, a Lagos-based energy analyst with Ecobank. “And no one wants to wait for the new government.”
Buhari has not made clear his plans for subsidies, which are paid by the Petroleum Products Pricing Regulatory Agency.
The latest budget, passed earlier this week, slashed the money dedicated to it by 90 percent, to 100bn naira. – Reuters
India picks head of Brics bank INDIA’S Finance Ministry yesterday nominated Kundapur Vaman Kamath, the chairman of the nation’s largest private sector lender, as the first head of the $50 billion (R595bn) Brics Bank, ministry spokesman DS Malik said.
Kamath, 68, is non-executive chairman at ICICI Bank and software company Infosys. He has a degree in mechanical engineering and studied management at India’s top business school. He started his career at infrastructure lender ICICI in 1971 before working with the Asian Development Bank in south-east Asia in the late 1980s. He ran ICICI, which later merged with ICICI Bank, until 2009.
Brazil, Russia, India, China and South Africa had agreed on the structure of the development bank in July by granting India its first rotating presidency and China its headquarters. The leaders also formalised the creation of a $100bn currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil.
Founding members have equal voting rights in the Brics bank. – Bloomberg