FACTBOX-Key political risks to watch in Uganda

KAMPALA, April 1 Fri Apr 1, 2011 6:38am EDT

Related Topics

KAMPALA, April 1 (Reuters) - The path appears clear for President Yoweri Museveni to lead Uganda through a fourth term in office after planned opposition protests failed to materialise.

East Africa's third largest economy took a step closer to becoming a significant oil producer in March. British oil explorer Tullow Oil (TLW.L) agreed to sell stakes in its Ugandan operations to France's Total (TOTF.PA) and China's CNOOC (0883.HK) for $2.9 billion, bringing in big partners to develop the oil fields.

Museveni, who won February's election with more than two-thirds of the vote, was for years considered one of Africa's standout leaders, astute on the economy and able to stabilise a country with a long history of strife.

He has come under increasing fire, however, for what critics see as an authoritarian streak and mounting levels of corruption.

Those allegations of corruption will worry investors watching the soon-to-be newest oil producer, set to start producing and exporting during Museveni's new tenure.

Here are some of the factors to watch:

PROTEST THREAT GONE, NEW CABINET

Opposition leader Kizza Besigye's calls for protests seem to have fallen on deaf ears. The stage is now set for Museveni to push forward with his programme for the next five years.

Museveni, in power for 25 years, will appoint a cabinet in April. Most analysts expect him to try to distribute seats fairly among the country's ethnic groups and regions, though some fear he may reward areas that supported him the most.

If there is a perception that plum jobs have been awarded to close allies and those from Museveni's home region, discontent could simmer.

What to watch:

-- The cabinet reshuffle and the reaction to it.

-- A proposal by a member of the ruling National Resistance Movement to extend the presidential term to seven years from five years. If parliament passes such an act, it will fuel suspicions that Museveni wants to remain president for life, worrying potential oil and gas investors.

OIL DISPUTE RESOLVED?

Tullow has agreed to sell each of Total and CNOOC a one third interest in fields around Lake Albert, which Tullow estimates to contain 1 billion barrels of oil, and potentially as much as 3.5 billion barrels. Tullow will retain a third share.

But the deal appears to leave a massive tax dispute with the government unresolved.

Uganda's Energy Minster Hilary Onek said the country would receive a total of $472 million in taxes from the farmdown deal.

Tullow, however, said this figure was calculated incorrectly and that it believes the total liability to be "significantly less" than the $141 million it has agreed to deposit with the government pending discussions on the matter.

Tullow brought in Total and CNOOC to help develop the fields in a $10 billion project. This will involve the construction of a pipeline to the east African coast and other infrastructure.

Tullow said it expected production of around 20,000 barrels per day for the local market by 2015. Total said full scale production could exceed 300,000 bpd.

With the Tullow's new partners onboard, Uganda's oil industry is set to power forward, though worries persist over potential corruption and the fact the deals Uganda struck with oil firms remain secret.

A leaked U.S. diplomatic dispatch revealed America's Ambassador Jerry P. Lanier had proposed travel bans on certain Ugandan cabinet ministers following allegations by Tullow the politicians had taken bribes from Italian oil group Eni.

What to watch:

-- Closure on the tax spat. How much will Uganda get?

-- Any impact from the windfall on Uganda's shilling? Most traders doubt Uganda will use its new petrodollars to prop up a currency the central bank considers undervalued. But will government spending surge, strengthening the shilling and possibly easing inflation concerns.

-- Renewed allegations of corruption around oil industry.

-- Uganda plans to open a new petroleum exploration licensing round for blocks in its oil-rich Albertine Rift basin in 2011. Investors will be watching how the tax dispute plays out and any changes to legislation.

-- Sustained post-election calm might help engineer a rally in the shilling, helping to check a rising inflation rate in the import-heavy economy.

SECURITY THREAT

Somalia's al Shabaab rebels have threatened more attacks on Uganda after their twin suicide-bomb attack on Kampala in July last year claimed 79 lives. The latest warning came on Dec. 23.

Three days earlier, one person was killed in a grenade blast on a Kampala-bound bus in Nairobi. Kenyan and Ugandan police said the explosion may have been linked to al Shabaab's threats.

On Dec. 10, Ugandan police, acting on intelligence, seized suspected bomb making materials from another bus in Kampala.

Al Shabaab has vowed to strike Uganda and nearby Burundi until they withdraw their peacekeeping troops from Somalia's capital, Mogadishu. The troops are all that stop insurgents from toppling the weak Somali government, many experts say.

Uganda tightened security in Kampala before the elections and has had a number of intelligence successes against al Shabaab.

What to watch:

-- More attacks by al Shabaab. Further strikes could deter foreign investment inflows, send the shilling UGX= south, disrupt the business tempo, hurt tourism and knock the economy.

-- Continued foiling of al Shabaab plans by Ugandan security forces may convince some that they are on top of the threat.

(Editing by Richard Lough)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.