The bank says in its economic update report that “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” although the private sector remains optimistic about Uganda to produce oil.
This means more than 19 years of wait 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.
Dfcu bank chief executive officer, Mr Mathias Katamba, says in case the current low fuel prices in the global market continue, Uganda will not enjoy it well.
However, he is optimistic that once the situation normalises and the world resumes business, all will be better. Banks are expected to play a central role in financing companies to participate in the oil sector.
The World Bank says Total’s purchase of Tullow’s oil interests in Uganda, gives hope that the industry could move forward.
It continues 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 investments.
The delay in oil production can impact how Uganda will be able to afford to pay its debts. Last October, the Governor of the Bank of Uganda, Prof Emmanuel Tumusiime Mutebile, said that 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’.
Bank of Uganda has also been on record that if Uganda does not 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.
An economist at the World Bank Uganda country office Mr Richard Walker, says that Uganda should not peg all its future on oil but should instead prioritise investment in other sectors including agriculture and education to develop human capital.
He says that this can be a springboard to develop faster than oil.
At least 6.5 billion barrels of oil was discovered in the Albertine Graben with between 1.4 billion and 1.7 billion barrels commercially viable.