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For Uganda, oil industry is more curse than cure

Crude oil from Tullow Oil is displayed in Uganda's capital city Kampala.

Stephen Wandera/AP

When oil was discovered for the first time in Uganda in 2006, with the help of Canadian explorer Heritage Oil, there was great excitement in this impoverished country. The excitement was swiftly followed by fears that the oil revenue would simply be stolen by Uganda's notoriously corrupt elite.

Five years later, the oil discovery is still fuelling hopes for better days here. Yet the corruption fears have escalated, and the government is struggling to reassure Uganda's skeptical population that the oil wealth will actually benefit the impoverished masses.

The newly found reserves of 2.5 billion barrels should be a game-changer for a poor African country. It will allow Uganda to leapfrog into the world's top 50 oil producers. It will generate an expected $2-billion in annual revenue for the government – a massive 67 per cent boost in state revenue. But who will control this money, and will it be spent to benefit the people, or will it be diverted into private bank accounts?

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The latest to weigh in on this controversy is Microsoft tycoon Bill Gates, who is taking a growing interest in the fate of poor African countries. In a report to last week's summit of the Group of 20, Mr. Gates urged the Ugandan government to bring transparency into its opaque deals with the oil industry.

"Oil revenue should have a huge impact on the government's ability to address the needs of millions of poor Ugandans," Mr. Gates said in his report. "However, we have no insight into the country's oil leasing arrangements, and, as a result, Ugandan citizens have no means to protect their interests."

Transparency could be crucial to economic growth in Africa, where many countries have vast resource wealth that is often squandered by secret deals with mining companies or oil producers. Only five African countries are compliant with the Extractive Industries Transparency Initiative, even though the EITI, a global standard for the mining and oil industries, can be a powerful tool for economic justice.

In Ghana, for example, as Mr. Gates pointed out, the EITI made it possible for civil-society groups to discover that mining companies were paying an average royalty of just 3 per cent. When the low rate was revealed, they pressured the government to take action, and the average royalty rate was bumped to 6 per cent for future projects – a potentially key source of revenue for improving the plight of Ghana's poor.

"The first key priority is for poor countries to raise more revenue," Mr. Gates said. "One major source is natural resources, but many billions of dollars are currently wasted because of poor information, mismanagement, and sometimes outright corruption."

The proposal by Mr. Gates generated front-page headlines in Uganda, and it was praised by independent watchdog groups, which said it could be a major step toward ending the secrecy and preventing embezzlement. But the government's response was lacklustre and vague.

Energy Minister Irene Muloni said the "appropriate laws" will be put in place and the oil resources will be "adequately managed," she said, without giving any details.

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In the meantime, Ugandans are increasingly worried by the evidence of corruption in their oil sector. Diplomatic cables released by WikiLeaks have revealed that corruption allegations were made by Tullow Oil, the Anglo-Irish company that co-discovered the Ugandan oil reserves and subsequently bought out Heritage Oil's share. According to the leaked cables from the U.S. embassy, the company hinted that the corruption reached as high as Uganda's president, Yoweri Museveni, who has hotly denied the allegations.

Last month, Uganda's parliament voted to suspend all new deals in the oil sector, and a member of the ruling party released a batch of documents suggesting that government ministers took bribes from oil companies. Later investigations showed that the documents may have been forgeries, but they revealed the extent of the corruption suspicions – and they showed how parliament is taking a stronger stance on the oil-revenue issue.

Ugandan opposition leader Kizza Besigye, whose own attempts at street protests have been brutally suppressed by police and soldiers, says the oil bribery allegations are just "the tip of the iceberg" in the "systemic" corruption in Uganda. But the momentum for greater transparency in the Ugandan oil sector is unstoppable, he said in an interview.

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