Discussion:
PUBLIC STATEMENT TO MR. MAGUFULI
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Hussein Amin
2017-11-13 18:52:53 UTC
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Raw Message
To His Excellency John Pombe Magufuli.
President of the Republic of Tanzania.

Date: 13/11/2017

Kampala, Uganda

Sir,

I am told that in your honourable speech last week during the launching of
construction works at Mutukula border post for the Uganda-Tanzania
pipeline, you claimed that "Amin did nothing about Uganda's oil".
At this point I am caught between keeping quiet and watch possible
ignorance unfold, or speak out now when it is too late for you anyway. You
have already launched the project with grand pomp.
But as they say, remaining silent can sometimes mean siding with what is
wrong.
I am not sure if in your assessments of the project you are looking
exclusively at the pipeline, or if you have been presented with an
extensive overall feasibility study of Uganda's oil and it's prospects
today.
So with all due respect (and I genuinely respect all leaders who do not
joke with corruption), here is a quick explanation that might give you some
insight into what this oil might actually mean for Uganda in real economic
terms. But also for Tanzania since there will come a time when you will
probably have an obsolete pipeline lying idle across your country.
So here is a brief exposé that I wrote in 2016 (which was also published in
Uganda's New Vision newspaper most probably for educational purposes). It
was entitled "Why Amin Didn't Exploit Uganda's Oil".
I stated therein that we needed to understand the reality regarding
Uganda's oil reserves which are estimated at a mere 5 billion barrels. And
from that, only a fifth of it (1 billion barrels) is extractable.
As of Friday, December 16, 2016, the Crude Oil Price was at $51 .90 per
barrel.
So if we sold all the 1 billion barrels of extractable oil at that price,
the total income would be $51 billion US Dollars.
Saudi Arabia for example, earned $200 billion dollars from oil in 2015.
This means that Uganda's entire oil reserves revenue is only a quarter of
what the Saudi's make from their oil in just one year.
And while the total oil revenue might be a huge amount to an individual, it
is only equivalent to five years of our own national budget which stands at
almost $10 billion USD for the 2016/2017 financial year. Meaning that every
five to six years, Uganda depletes the equivalent of all it's oil in terms
of revenue from the resource.
Remember that the oil production agreements give the oil companies around
60 to 70% of that total oil revenue as well. That amounts to approximately
$30 billion USD that deducted from the $51 billion total.
As well managed businesses they first want to recoup any investment they
made in the project. Last August, the Energy ministry announced that "the
oil companies will initially invest around $10 billion USD to undertake the
drilling of about 500 wells and construction of associated infrastructure,
before the country can see first commercial production by 2020."
The other major cost to deduct from the $51 billion US Dollars total
revenue is the $5 billion US Dollars for building the Uganda-Tanzania
pipeline, and another $5 billion to build a refinery and its pipeline from
Hoima in Western Uganda upto the capital Kampala.
If we make a simple calculation of the above amounts, we have an estimated
$40 billion dollars already gone from the $51 billion total.
Further more, I estimate that probably another billion dollars is spent in
advance expenditure like the relocation/compensation of populations. There
is also purchases and procurements like the Sukhoi fighter jets, plus
countless other projects where every three months our parliament is
approving loans in the hundreds of millions of dollars each.
These loans are based on the premise that we will soon have oil to repay
them plus any accrued interest.
According to Global Witness, some of the environmental hazards that come
with oil exploration activities include destruction of animal habitats,
water contamination, generation of waste; air pollution as a result of
flaring of crude oil; and danger to wildlife. The benefits will therefore
also go to protecting the surrounding populations and the environment.
Remember that land compensation features as part of the oil production
costs.
The refinery alone requires more than 29sq km of community land from 13
villages. The acquisition affects 1,221 households with a total population
of 7,118 people.
Moving these families required appropriate compensation and relocation into
newly built housing. If we add the road networks leading to and from the
oil wells plus storage facilities in Kampala for the refined products, the
cost is probably another billion dollars.
This leaves Uganda with barely any profits from the $51 billion USD total
oil revenue for
That sum is based on the assumption that the price per barrel doesn't
collapse again as it did early this year when it reached $30 per barrel. At
that rate, we would be producing oil at a total loss and would already now
be owing the production companies money instead.
In his speech on January 26th 2016, Mr. Yoweri Museveni explained that:
"When oil comes out, we shall have our own totally independent financial
base. Even when oil price is down at $50 per barrel, we shall have an
additional $2.5b new money. And when oil prices improve, we shall have at
least $4b."
If we reverse engineer the business maths, it simply means that one is
investing $45 billion US Dollars in oil and will get a maximum $4 billion
US Dollars profit only.
This is not even half the annual budget of Uganda for 2016/2017.
And what if oil prices fall?
In any case, when we hear people saying that revenue from oil has already
been depleted even before the product came out of the ground, this whole
calculation clearly exposes the sad reality.
People wonder why didn't President Idi Amin exploit Uganda's oil?
In the 1970's, the average price per barrel was even lower than todays
rate, an average $12 dollars a barrel between 1973 and 1979. Therefore oil
production would have been an even bigger loss for Uganda.
My late father's final decision was that it was better we left the oil
where it is was.
An article in the Daily Monitor newspaper published on Monday 7th March
2016, and titled "Discovery of oil in Uganda "
says : "By the 1930s, geologists, engineers and other mineral experts had
carried out test drills particularly in the Albertine region. The first
Petroleum Act was enacted in 1957, after confirming that the deposits were
substantial and might in some years to come be commercially viable. As of
then the oil was safer in the ground."
It therefore seems to me that everyone who had the bigger perspective in
mind saw that it made sense to leave the oil where it was.It has been
reported that Uganda is going to pay Tanzania $12.20 US Dollars for every
barrel of oil that passes through the pipeline.
If we say that half of the 1 billion barrels of extractable oil are going
through the pipeline and the other half to the refinery, that means Uganda
will pay a total $6.1billion US Dollars to Tanzania.
This is an extra cost to the ones earlier explained here. It actually is
now possible to say that any oil that passes in that pipeline makes the oil
operation a net financial loss to Uganda.
My advice last year was that in order to make the most out of a project
that is already underway, we are better off forgeting the Uganda-Tanzania
pipeline (It will soon become obsolete anyway), and instead focus
exclusively on the refinery. At least we will immediately save the $5
billion US dollars pipeline construction cost plus the $6.1 billion payable
to Tanzania. We will then simultaneously gain more from the oil refinery
which will be adding value to the entire extracted oil reserves by making
highly commercial products like petrol, diesel, kerosene, and others for
the local, regional, and continental markets.
In real terms this simple advice means that rather than getting only the $4
billion which is Mr. Museveni's projection of Uganda's earnings from oil
(if the international oil price is at $50 US dollars a barrel), Uganda will
now be able to earn anywhere upwards of $25 billion US dollars (with oil at
the same international price), and this we can achieve through the refinery
process and any onward transactions including taxation.


Signed: Hussein Lumumba Amin
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