In its Economic Update report, the bank says “the sharp decline in world oil prices resulting from the COVID-19 crisis could delay oil sector investments in the medium term and oil production beyond 2025”
Uganda’s dream to be an oil-producing country may not be realized until 2025, the World Bank has said.
In its Economic Update report, the bank says “the sharp decline in
world oil prices resulting from the COVID-19 crisis could delay oil sector
investments in the medium term and oil production beyond 2025” even when the
private sector remains optimistic about oil production in Uganda.
This will bring the wait to have the first oil to more than nineteen years
after the country discovered the hydrocarbons in 2006.
“Given the significant fall in oil prices to date and the projection that they
will remain well below the estimated break-even price of US$60 for Ugandan
production over the next two to three years, this could postpone key investment
decisions into the oil sector, thus pushing back further the timing of oil
production,” the World Bank says.
Mathias Katamba, the Dfcu Bank Chief Executive Officer, said if the prevailing
conditions of low prices in the global market are anything to go by, it does
look gloomy for the country. But he is hopeful that things will look better
when the world gets back to business. Banks are expected to play a key role in
financing companies to participate in the oil sector.
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For Uganda, the World Bank says, Total’s recent purchase of Tullow’s oil
interests gives hope that the industry could move forward.
It adds, though, that another challenge could be that that the start of oil production
may also be impacted by lending decisions of the Chinese EXIM Bank, which
already has a large exposure to the financing of Uganda’s infrastructure
The delay in oil production can impact how Uganda will be able to afford to pay
its debts. Last October, Bank of Governor Emmanuel Mutebile said the expectation
of oil revenues had pushed Uganda to go for more expensive loans to finance
infrastructure projects, a precursor for the much dreaded 'oil curse'.
And the central bank has also been on record that if Uganda doesn’t earn oil
revenue by 2023, it will struggle to pay its debts. The country is raking in
more debts in the name of fighting coronavirus.
Richard Walker, the economist at the World Bank Uganda country
office, said Uganda should not peg all its future on oil. He said the country
should prioritize investment in other sectors like agriculture and education to
develop human capital. These can be a springboard to develop faster than oil.
Uganda has discovered 6.5bn barrels of oil with between 1.4bn and 1.7bn barrels