FACTBOX-Key political risks to watch in Uganda

KAMPALA Tue May 3, 2011 9:17am EDT

KAMPALA May 3 (Reuters) - Deadly clashes between security forces and protesters livid at the repeated arrest of the country's opposition leader and surging prices have rocked the start of President Yoweri Museveni's fourth term in office. Demonstrations erupted across the capital, Kampala, on April 29, a day after television pictures showed Kizza Besigye being beaten, doused with pepper spray and dragged away by police. [ID:nLDE73S0PH]

It was the fourth time Besigye, who was defeated again by Museveni at the ballot box in February, had been arrested in April during protests against high food and fuel costs.

Museveni blames drought and global oil prices for the leap in consumer prices, which pushed the rate of inflation UGCPIY=ECI to 14.1 percent in April. He has warned Besigye he will not tolerate street action.

The veteran leader's latest crackdown on dissent will firm his critics' conviction that Museveni's leadership is displaying an increasingly autocratic streak.

Uganda, east Africa's third largest economy, has taken a step closer to becoming a significant oil producer after British oil explorer Tullow Oil (TLW.L) agreed to sell stakes in its operations there to France's Total (TOTF.PA) and China's CNOOC (0883.HK) for $2.9 billion. [ID:nLDE72E1GE]

PROTESTS MOUNT, LETHAL RESPONSE

Loud explosions and the crack of gunfire reverberated around Kampala on April 29 as Ugandan police fired live rounds, rubber bullets and tear gas to disperse anti government protestors who set up road barricades and burnt tyres.

Protests spread to at least two other towns, including Besigye's hometown. At least seven people have been killed in the wave of protests.

Previous protests spearheaded by Besigye against high prices failed to muster large numbers and political analysts had predicted the rallies would fizzle out, with Museveni still commanding huge widespread popular support and military backing.

His brutal arrest, however, sparked an eruption of discontent a day later, increasing the prospect of sustained street-battles between his supporters and security forces.

Some opposition supporters vowed to take to the street every day until Besigye's security could be guaranteed.

What to watch:

-- Will the price protests and anger at Museveni's harsh treatment of Besigye spread further?

-- Market reaction. To date Uganda's shilling UGX= has appeared relatively unfazed by the unrest but traders warn more violence could unsettle foreign investors and push the local currency towards the psychologically key level of 2,400 per dollar.

If the shilling is hurt, then food and fuel imports will become even dearer. Uganda's bourse also risks taking a hit if the wave of protests shows no sign of abating.

-- Reaction of donors. The top U.S. diplomat to Africa, Jonnie Carson, has urged reconciliation and for peaceful protests to be allowed. Will they make rumblings regarding budgetary support as June's budget looms? Will Museveni care with Uganda poised to fill its coffers with petrodollars?

-- A proposal 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 DEAL SEALED

Tullow has sold each of Total and CNOOC a one third interest in fields around Lake Albert, paving the way for a $10 billion project to develop the oil fields, including the construction of a pipeline to the east African coast and other infrastructure.

Tullow estimates the fields contain 1 billion barrels of oil, and potentially as much as 3.5 billion barrels.

The British firm, which retains a third share, has paid Uganda $327.5 million in capital gains tax from the sale of the stakes.

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 Tullow's new partners on board, 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.

What to watch:

-- Any impact from the windfall on Uganda's shilling? The government said it would use the tax windfall to finance the construction of a hydro-electricity dam. There was no indication when the funds would be disbursed.

-- 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 out for any changes to legislation.

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 insurgents 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.

Diplomats say that while a military offensive against al Shabaab in Mogadishu in March weakened the militants, they remain a potent security threat to the region.

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

What to watch:

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

(Editing by Richard Lough)

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