THE PANAMA PAPERS AND UGANDA

Earlier this week the publication of stories, implicating several world leaders – past and present, in secreting millions of dollars abroad, brought into the full public glare the issue of off shore tax havens and how the rich and powerful are playing by different rules than the rest of us.

The “Panama Papers” a treasure trove of documents, 11.5 million pages deep, that were leaked from a Panamanian law firm, Mossack Fonseca, which evidently has distinguished itself in secreting money away from the prying eyes of the public or the invasive fingers of governments.

Imagine you are a big fish who has “eaten” a big frog or multinational company that just thinks they should not pay all the tax due to them or an independent consultant, not only making tonnes of cash on the side but who is keen not to make the sources of those incomes known. You get in touch with a lawyer – in this case Mossack Fonseca and they create a shell company domiciled in any number of tax havens around the world through which you can receive payment or pay out of. In this way you can become an employee of your shell company and receive payments in amounts that will not raise eyebrows or buy assets as a foreign company.

So for instance I got paid $100,000 (I wish) for consultancy work I did in Switzerland, I would ask my employers to pay into my offshore account in the Bahamas, which account belongs to my company SmartBush Inc, which every so often may send me a check or gives me free use of its credit card or may buy property in Uganda or come in as an investor to buy privatised companies for a song.

URA will not be the wiser as to my new income and I can enrich myself to no end, tax free.

On the other hand if my employers had sent it straight to my account here URA may claim as much 40 percent of my sh350m pay check or sh140m!!!

Often times these shell companies are just a post office box on a sunny island in the Caribbean, administered by a law firm which makes sure it meets all statutory requirements in those jurisdictions.

The Tax havens have gained notoriety in recent years as revelations of how much money they are turning over as a proportion of their general economies are revealed.

Uganda only came up in the case of Heritage Oil & Gas, which tried to dodge a capital gains tax on the sale of its rights to concessions in western Uganda. Domiciled in the Bermuda they tried to shift to Mauritius – another tax haven, which has a double taxation treaty with Uganda.

A double taxation treaty shelters companies from suffering a double taxation on their earnings in two different countries.

"It’s not to say that our big fish are squeaky clean, it’s just that the leak has been in only one firm. There are hundreds maybe even thousands of firms around the world offering these services...

The supporters of the tax havens argue that they have legitimate uses in the protecting companies from bad regimes or as above prevent businesses from being taxed twice or several other arguments, which while they have a sound legal basis, they cannot stand up to higher moral or ethical scrutiny.

Recent campaigns have fingered these tax havens as one of the major reasons why wealth inequality is rising across the world. While us mere mortals pay taxes on our incomes the very rich pay much less in tax as a proportion of their income to the authorities, with the surplus used to enrich themselves further.

There is very little people can do about it as it seems everybody, who is anybody, is in on the action.

However, western governments are beginning to take the scourge seriously as they realise how much in revenue they lose annually to these tax blackholes, affecting their ability to provide services for their people.

And finally about the Panama Papers how come the prominent stories released are about Russian president Vladmir Putin and African despots?

THE GHOSTS OF KARUMA PROCUREMENT RETURN TO HAUNT PROJECT

The troubles that dogged the Karuma Hydropower project’s procurement continue to stalk the project threatening the multi-billion dollar dam’s future usefulness.

In the current spurt the Energy ministry and the Uganda Electricity Generation Company Ltd (UEGCL) are in a heated battle over the supervision of the Karuma and Isimba dams, with accusations and counter accusations being traded, a situation that has been brought to President Yoweri Museveni’s attention.

But first some background.

"The tendering of the contractors of the $1.6b Karuma power dam was mired in controversy where government officials disregarded due process, ignored caution from the procurement agency, the courts of Uganda, the IGG, the cabinet and for good measure tried to rope in the President into their scheme to force through their favoured candidate in an unparalleled show of impunity.....

Ministry officials seemed to favour China International Water & Electric Corporation (CWE) over eventual winner Sino Hydro Corporation, another Chinese firm.

In the process they delayed the 600 MW dam’s construction by almost two years. Construction finally started in 2014, two years beyond the initial timelines.

The process was so compromised that the cabinet was forced to cancel it on the advice of the IGG and not only did Museveni have to personally appeal to China to help build the dam but had to chair an evaluation committee which interviewed and vetted the short listed companies!

As a compromise CWE was offered the 183 MW Isimba dam project, when Sino Hydro Corporation was eventually awarded the contract to construct Karuma Dam.

First forward to the present and the two projects are fast heading towards a stalemate as the energy ministry and UEGCL fight to resolve the issue of who is responsible for the two projects construction.

At the beginning of the project, in December 2013 a memorandum of understanding (MOU) was drawn up between the energy ministry, UEGCL and Uganda Electricity Transmission Company Ltd (UETCL).

In that agreement UEGCL was appointed the implementing agency of the Karuma and Isimba power plants and UETCL was to implement the construction of the transmission lines from the dams to substations in Namanve, Luzira, Mukono and Iganga.

The MOU was signed after the ministry had already identified the contractors for the two dams, employed its own supervising engineers – Energy Infratec PVT Ltd (EIPL) of India and already obtained financing of $1.69b from the China Exim bank.

China Exim Bank’s funding – a loan stretching over 20 years with a five year grace period at between two percent and four percent annual interest, will account for 85 percent of the project costs with the government coming up with the other 15 percent.

The distribution of responsibility on the projects was reiterated in a ministerial policy direction that was gazetted in September 2014 where the energy minister Irene Muloni instructed that,

“Government has appointed UEGCL as its representative in overseeing the construction works and later as owner of the hydropower plants and also appointed UETCL to oversee the construction of the evacuation lines and related substations.”

However months into the project, UEGCL following monitoring reports on the Karuma dam  complained that there was non-compliance with the project works and requested an expert  to assist in the supervision.

Finance ministry permanent secretary Keith Muhakanizi to whom the request was made, while pointing out the strategic nature of Karuma Dam and raising concerns about that UEGCL does not seem to be in control of the project, which he pointed out had ultimate responsibility for delivering the project, wrote,

“You are hereby required to urgently put in place adequate measures to fulfil the requirement as the implementing agency of the project,” Muhakanizi wrote in a 6^th March 2015 letter to UEGCL boss Harrison Mutikanga and copied to energy ministry permanent secretary Kaliisa Kabagambe.

Kabagame in response communicated to the finance ministry on 11^th March and Muhakanizi responded saying he had earmarked sh30b for project supervision in 2015/16 by UEGCL.

UEGCL went ahead and contracted two firms – SMEC International and AF-Consult Switzerland Ltd.

However this was after Austrian firm, ILF Consulting Engineersn -- hired by UEGCL,  did an independent audit of the Karuma and Isimba projects issuing a damning report which pointed out among other things,

“The confusing project management organisation structure of the Employer and conflicting roles and responsibilities between MEMD (energy ministry) and UEGCL has hindered the project implementation process,” the firm’s Dr Kamal Gautam said.

“The employer’s current project management system is ineffective and unable to provide firm leadership in project implementation process…. Such a project management approach by the employer will further impair the quality, cost and progress of the projects.”

In his references to the employer, even he was not clear whether he was talking about the ministry or UEGCL or both.

"In addition the consultant pointed out that the two projects were short of money, questioned the competence of the supervising engineers contracted and recommended that the supervising engineers should be in daily contact with the contractor engineers...

The consultant warned that “Delays in rectification of the identified issues and lack of implementation of the recommendations may prolong the project completion dates, impair project quality and easily overrun the project budget.”

Some shuffling and ejection of key staff at EIPL happened between the issue of the consultant’s report in June last year and the end of 2015, but were still found wanting by UEGCL’s own project management consultants – SMEC and AF-Cosult.

In January this year UEGCL boss Harrison Mutikanga wrote to the energy ministry pointing out that the poor supervision of the two projects continues and suggested that EIPL address issues that were raised in the consultant’s report, clarify on the different roles of the ministry and UEGCL on the project and halt payment to EIPL for their failure to adequately supervise.

In responding a month later on February 10, 2016 the ministry’s accounting officer Paul Mubiru first put Mutikanga in his place by pointing out that, “I am neither answerable to you nor do I get instructions from you,” before chastising him for his style of correspondence  which he circulates “wholesale”.

Mubiru went on to point out that the criticism of EIPL was unfair and may have been prompted by a conflict of interest between UEGCL’s project management consultants who bid and lost to EIPL, in an earlier tendering process for project management consultant.

“I wish to reiterate that EIPL won the tenders for Owners’ engineer for the two projects competitively,” Mubiru wrote. “Any attempt to smuggle the PMC into Owner Engineer role through the back door using the tactics of wide dissemination of malicious allegations against EIPL will be both futile and very costly to the nation.”

Mubiru questioned why the UEGCL’s engineers were reluctant to present their findings in the presence of the onsite engineers and wondered about the integrity of the reports.

Mubiru also pointed out that the ministry has ultimate responsibility over the two projects, “There is no way MEMD can bury her head or hide under any entity as regards to success or failure of these projects … the role of any other entity in delivering those projects is supportive and peripheral.”

He also declined to halt payments to the supervising engineers “on hearsay or your instructions.”

When contacted for comment on the breakdown in cordiality between his office and the ministry, Mutikanga said,

“All we are after is the smooth implementation of the project. Because eventually if we don’t get good dams we will spend a lot on operations and maintenance jeopardising the viability of the projects and our ability to repay the loan, which we are contracted to repay,” Mutikanga said.

He denied that they were trying to smuggle their supervisory engineers to take over the project pointing out that they were tendered with the full knowledge of the board, on which Mubiru seats and under the advisement of the Public Procurement Disposal of Public Assets Authority (PPDA).

Museveni has instructed minister Muloni to get to the bottom of these turf wars and suspend work in need be on the dams’ construction so that remedial work can be done if they are deemed necessary.

 And parliament too has summoned the warring parties to appear before them to resolve the issue.

Attempts to contact ministry officials were futile.

The continued bickering surrounding the two dams does not augur well for our power situation. The commissioning of the 250 MW Bujagali dam in 2012, alleviated debilitating daily load shedding up to that point and savesd government hundreds of billions of shillings in subsidies to the thermo generation operators.

However further delays on Karuma, which was supposed to be commissioned by 2018 according to the earlier time line, may send the country back into the "dark ages".

FACE TO FACE WITH THE BIG MAN, KANU NWANKWO

Last week The Vision Group had the honour of hosting former Arsenal Football Club striker Kanu Nwankwo to lunch.

In the country as a brand ambassador for Star Times TV, the lanky forward was down to earth and genial. A member of the Arsenal ”invincibles” who went the 2003/04 season without a loss it is hard to begrudge him the honorific of legend, especially since he won almost every honour in Europe, with only the World Cup eluding him.

A key player for Arsenal at the height of his career, it is reported that he may be worth about $9m.

It is this number when I came across it that got me thinking, how does a team pay a single player upwards of £25,000 (sh125m) weekly?

Arsenal formed in 1886 was valued at $1.3b last year by Forbes magazine. The revenues from their home ground, Emirates Stadium came in at £100m last year which was about a third of total revenues.

The question then becomes how do you build such a company?

Longevity helps. The club will be 130 years this year but even better it has to be run as a commercial enterprise to unlock its value. The Club went bankrupt before the First World War, was relegated to the second division, before being taken over by a businessman.

I am sure if you go look for the company’s audited accounts they date back to 1886. Record keeping is key because you can learn what you are doing right and continue doing but more importantly you can see what you were doing wrong and put a stop to it. It does away with the guesswork that many companies indulge in for lack of information or inability to analyse the information available.

"Generally records serve as an objective measure of progress or lack of thereof. Objective decision making meant they moved away from the Highbury grounds to the Emirates Stadium in 2006. They put aside 93 years of history, tradition and passion to improve the business. With one fell swoop they double the match day crowds and the last I heard make one million pounds more than the larger Old Trafford stadium home of Manchester United...

Aside from a long tradition of good management it helps too, that up to the second world war England was the top economy in the world, with an empire on which the sun never set.

Essentially, by the time Kanu came along in 1999 the company was an already well-oiled money making machine.

Of course Kanu’s pay pales in comparison to the current crop of top earners, but that’s academic. If he had played now he most probably would be racking it in with the best.

The question would then be for our own current circumstances, which of our teams are best placed to emerge, backed by a powerful corporate structure, in a hundred years be a stand out team like Arsenal FC? The prospects look rather bleak.

And we should not thumb our noses at organisation. The English league is arguably the most organised soccer league in the world, which organisation is reflected in the teams there. It makes the most money for its stakeholders, never mind that it is neither the most enjoyable league to watch or have the most talent in the sport.

You can have talent but for lack of organisation, struggle, lose that same talent to more organised leagues -- see South America.

On the day that Kanu was at the New Vision the Uganda Cranes were getting ready to take Burkina Faso in a match they needed to win to all but guarantee their chances to participate in the African Cup of Nations next year.

Following a similar pattern we failed to come up with the goods, drawing with the West Africans. 

While there is still hope for us me made that much harder by not shutting the door on the Burkinabe.

Undiscerning observers blame our lack of talent. But that is erroneous as 16 of the 18 member squad ply their trade as professionals abroad –okay none of them is in the premier league, but so too Burkina Faso.

"Our underwhelming performance on the international scene is down to poor management of our local teams and the local governing body FUFA....

How does one explain that golf a sport with a handful of elite hackers, relative to soccer’s local fan base, is the darling of corporate sponsors? Sponsors are looking for efficiency in deploying their marketing spend.

Of course recent events at the world soccer governing body FIFA suggest that clearly the sport struggles with governance issues right from the top. But is too much to ask that our sports’ administration taken the path less travelled, get their houses in order and give us something to cheer about?

Back to Kanu. Nigeria where the lanky dribbler comes from, lost his talent to Europe. Is it inconceivable to think that a soccer mad country of a 100 million people can fail to find the money to sustain a world class soccer league? You tell me.

NOW THAT THE SUPREME COURT HAS SPOKEN …

By the time of writing this column we were still waiting for the justices of the Supreme Court to make an appearance. But by the time you read this the Supreme Court would have made its ruling on the Amama Mbabazi petition against President Yoweri Museveni’s February 18^th election.

From a communications point of view this has been a first-of-its-kind campaign the amount of resources in cash and time invested in shaping the candidates message has been unprecedented.

In my mind there were actually two elections, the elections in the media, particularly on social media and the election conducted by the Electoral Commission (EC).

There was dichotomy in the message. There were messages for and against a Museveni re-election.

The Museveni campaign found themselves caught on the back foot wherever they turned. Being the “defenders” so to speak, it was always going to be that the Museveni campaign was going to be  guilty until proven innocent.

"The anti-Museveni strategy seemed to have been a simple one – discredit the Electoral Commission, the police and all government institutions, promote the narrative that a rigged vote is in the making and then finally downplay the successes and highlight the deficiencies of the NRM administration...

They had a strong media presence fuelled by an urban, youthful elite, who have known nothing but the Museveni administration and are opposed to it by a combination of unmet expectations, disgust at endemic corruption and creeping feeling that change for change’s sake is an acceptable outcome and let the consequences take care of themselves.

The NRM, while trying to highlight the progress the country has made over the last three decades, seemed content to mobilise for the nearly 300 rallies their candidate addressed and have a talking presence on the popular talk shows on Radio and TV.

The net effect of these and all other strategies employed by the antagonists was a 60 percent victory for Museveni at the polls.

A return to the drawing board for the opposition is imperative – they can huff and puff about all manner of things, slander the EC, police, the courts and burglars all they want, but in the still of the night when all the chatter has gone down some hard thinking, specifically about messaging has to be confronted.

The NRM too know that they cannot rest on their laurels. They are no strangers to elections having battled through the last five. Things have changed since 20 years ago in 1996.

"For one, communication technologies and accessibility are improving at a remarkable rate. Secondly, according to the final census results released last week less than 50 percent of the population was of voting age. In the next elections this figure will jump to 55 percent. And finally, during the next election the urbanised population will have grown to about 26 percent from the current 20 percent, assuming urban populations continue to grow faster than the general population. Urban population grew at double the three percent national population growth between 1991 and 2014...

The implications are obvious. A more technologically savvy, more urbanised voting population will mean NRM will have to tailor its communication better for the towns, whose indifference they have been able to shrug off in each of the last three elections, because their numbers were in the rural areas.

Elections have always been about the message and the effectiveness of delivery. This election has shown, if not emphasised that, for a ruling party they cannot afford to waffle on their message, to do so means the holes will be exploited and filled by every hare-brained conspiracy theory under the sun.

"Relatedly and more worryingly, this election has made true the old say that the lie will be half way around the world before the truth can lace up its running shoes...

THE UPDF SHOWING THE WAY ONCE AGAIN

Last week the UPDF’s Wazalendo Savings & Credit Coop had it annual meeting.

According to its financial report they made a profit of about sh12b, which was 30 percent higher than the previous year when profit after tax came in at sh9b. Savings almost doubled to sh60b while the loan book came in sh146b. The 69,000 member group had invested sh80b in their SACCO by subscribing to the SACCO’s shares.

And all this has been achieved in less a decade.

The devil is in the detail but on the surface of it this is progress not be laughed at.

"Our soldiers are nearer the worst paid than best paid workers in the economy, but by coming together they are now not only the largest SACCO in the county but, at the rate at which they are growing, it’s not inconceivable they will be a full-fledged commercial bank within the next decade....

The benefits to the soldiers, besides an avenue to save and invest, are affordable credit to resolve some of their most pressing needs – school fees, building and agriculture.

On a much wider level the UPDF are showing the rest of us once again the possibilities around us.

When in 1981 President Yoweri Museveni and his motley crew of 27 headed into the bush, they essentially took the little they had and emerged five years later much stronger and obviously much more influential.

Wazalendo, Swahili for patriots, is likely to change the configuration of the financial sector as they grow and also by their example, which one can expect will inspire other people to start SACCOs.

What is one of our major failings as an economy? The inability to aggregate the money we have into amounts that can drive development.

In 2011 money in circulation accounted for about 18 percent of total money supply. The rest of the money is being kept in banks. An equivalent comparison in the UK for instance shows that only about two percent of the total money is being held in people’s wallets and under their mattresses.

The net effect of this difference show themselves in lower lending rates and more efficient allocation of resources to the more productive sectors of the society.

So Wazalendo’s example means that money which had have found quick release at the nearest bar outside a UPDF barracks is instead being employed to build houses and set up farms. By lumping it together it more easily accessible to those who need it for productive endeavour.

Relatedly SACCOS like Wazalendo are reaching out into the furthest corners of these nation where the high street banks can’t be bothered to be caught dead.

And secondly, the profits are being distributed locally, as all Wazalendo’s members are citizens.  This important on several fronts but most importantly it means these monies are then being reemployed in this economy to create the virtuous multiplier effect we so badly need. Without naming names many of our banks pay some tax, some bonuses to their managers but the larger part of their profits are shipped out to pay off foreign shareholders who then benefit those economies.

Foreign Direct Investment is important for generating capacity and even allowing technological transfers. They are not charities so what they decide to do with their profits is entirely up to them. But what is stopping us building our own models and appropriating some of this profit for ourselves?

Even if for example the biggest shareholders in Wazalendo sometime in the future start taking home billions of shillings, chances are most of that money will be employed here – investing, paying salaries, donating to local charities and boosting demand locally.

"A pattern the multinationals are unlikely to do here, after all at the first sign of trouble – a few cans of teargas being sprayed around, they are quick to put projects on hold or expropriate their earnings, until things settle down...

Imagine a scenario with 100 Wazalendos and a few other lower tier SACCOs and imagine the transformation that would occur in the economy?

The point is, when you look down the history of development around the world, the more developed countries – many much less endowed than ourselves in terms of people and natural resources, relied on their own meagre resources to lift their societies out of poverty.

In fact no country has developed by relying on aid, the kind of which Africa has received over the last five decades, the patronising kind, designed to keep us locked in a dependency cycle, our best minds are convinced we cannot pull out of without the very aid that is perpetuating the vicious cycle.

"Of course Wazalendo should brace themselves for a backlash. Such attempts at self-sufficiency are frowned upon and they can expect that there will be attempts, overt and covert to subvert their project...

But then again they are big boys, they can take care of themselves.

NEW VISION’S LESSONS FOR UGANDA

The New Vision is in throes of celebrating its thirty years of existence.  On March 19^th 1986 the first issue – a grainy black and white, eight page newspaper hit the streets. The initial one thousand copy print run was snapped up within hours of landing in the vendors hands.

Uganda was barely two months into the new NRM administration and information was at a premium.

Over the last three decades the paper has grown into a multi-media company that straddles the media industry like a colossus.

"All this achieved while beginning from a literal standing start in 1986 – the company’s accounts show that it was started with only a sh42m grant or about $30,000 from government, which included the land it sat on, furniture and some cash...

There are lessons to be had from this 30 year odyssey that will not only serve Ugandan businessmen well but the country as a whole.

1.       Service above money

The New Vision was built with a mission to “Inform, Educate and Entertain”, which has informed its middle of the road reporting tradition. It has been a profitable company every year but the first one of its life. While being profitable has been good, it is the basis on which the company can continue to pursue its original mission. The company has been painfully frugal – in its first year the entertainment budget came in at sh360,000, about $250 then and there has been little need to contract debt over the company’s lifespan. There have been many opportunities to make money away from the company’s core mission but these have only provided a passing temptation. Making money is good but is only a by-product of a service that is delivered well and cost effectively.

2.       Systems are everything

From the very beginning there has been an emphasis on developing and respecting systems. So much so that management staff have taken regular leave from the company’s earliest days without a fear that they would return to find a company tittering on the brink of disaster. This discipline has ensured that even as the company has expanded it has done so almost seamlessly.

"The story of our businesses is that in the last half century of independent Uganda there are a handful of indigenous companies that have transcended a generation successfully, the major failure being their lack of structure...

3.       People are key

New Vision has no choice but to take its Human Resource seriously, as it is its biggest asset literally and figuratively. Systems are all very good but in a knowledge company, a lack of investment in the people would be detrimental to the product quality and company durability. Competitive remuneration, regular training and the establishing of a conducive working environment are the hallmarks of the company’s history.

It used be one of the better paying companies in town, not any more, but that is a function more of the economics of the industry than anything else.

4.       Life is a marathon not a sprint

"Media companies have come and gone. The New Vision is not more special only maybe in its strict adherence to its journalistic tradition and financial discipline, which has been key to not only staying afloat but thriving through the ups and downs of the last three decades. For many businessmen when the money starts flowing, the cost of their lifestyles rises to consume the new surpluses and when the bad times come as the inevitably do the business can’t stand on it’s own feet for lack of savings.

The media world is changing at a very rapid pace. No sooner have new technologies been adopted than they are rendered obsolete. It is against this background that it may be hard to say with certainty that the New Vision will be here in 30 years’ time, or at least still be a predominantly media company.

However, the lessons can serve as a useful basis for other companies to learn from.

It is critical that we build credible businesses, because a country is only as viable as its private sector.

OIL PIPELINE: UGANDA AT CENTER OF HIGH STAKES GAME

Uganda finds itself playing the coy bride in a high stakes competition as neighbours Kenya and Tanzania court it for the right to pipe its oil to the Indian Ocean.

Last week Dar es Salaam announced that they were intent on fast tracking development of an oil pipeline from Uganda to the seaside port of Tanga and that French oil firm, Total had already earmarked $4b for the project.

In October Uganda and Tanzania announced that they were exploring the viability of a joint pipeline barely weeks after an August announcement by Kampala and Nairobi on the same subject.

An oil pipeline through Kenya via its northern oil fields would tie in nicely with the much touted LAPSSET (Lamu Port South Sudan Ethiopia Transport), a $20b project aimed at developing Lamu port, an oil pipeline from South Sudan, a road network and coal powered electricity.

Total however expressed disquiet about passing the pipeline through northern Kenya and onto Lamu for fear of terrorist attacks from neighbouring Somalia.

Total, CNOOC (China National Offshore oil Corporation) and London-listed Tullow Oil are partners in the development of the oil reserves in western Uganda.

Uganda’s reserves were upgraded to 6.5 billion barrels last year. Development has stalled as government and the oil companies negotiate production licenses, which the energy ministry had promised would have been issued by the end of last year.

"Last year Uganda laid down its conditions for Kenya to meet before it could put pen to paper – Kenya had to meet the cost of a risk guarantee on the project, pay for any cost overruns, offer affordable tariffs for use of the pipeline and, what is considered a potential deal breaker, that its eastern neighbour establish commercial viability of its oil reserves...

Kenya’s reserves are currently estimated at 600 million barrels, however commercial viability has not yet been established.

Commercial and geopolitical reasons are pushing the latest thinking and in light of cratering oil prices time is of the essence for Uganda to reignite the momentum in the development of its oil resource, experts say.

Oil explorer Tullow needs the pipeline to pass through the oil fields of Lokichar near Lake Turkana, where it is also the lead explorer, to make the fields even more attractive to potential investors.

Oil explorers, often smaller operators than the oil majors, make their money by finding commercially viable oil fields and on selling them to the bigger oil companies. Accessibility of the fields is a major determinant in the final price they can get from a buyer. In land fields are invariably more attractive if the oil can be evacuated easily for export, hence the need for the pipeline.

Total, who is championing the southern pipeline, is not only averse to bypassing the highly insecure eastern Kenya but also sees the Tanzania as more cost effective.

Last year Uganda’s southern neighbour discovered more natural gas boosting their known reserves to 55 trillion cubic feet and is working on a pipeline to transport the gas from its southern astern shores to Dar es Salaam.

This find is key because of the nature of the Ugandan oil, which is waxy and solidifies under 40 degrees centigrade. As a result a pipeline to ferry the oil will need to be heated regularly along the length of the pipeline. Experts estimate that there will be a need for a two megawatt power station every 20 kilometers on the pipeline.

Total’s planners think that gas powered power stations would be more effective as along the northern line the extra infrastructure to get power to the heating stations would be an added cost they do not need in this time of historically low oil prices.

"US oil futures bottomed at $26 a barrel in February for deliveries in May. A brief rally last year saw the same prices peak at $60 a barrel, a far cry from the peaks in July 2007 of $140, around the time that commercial viability of the Ugandan fields was established....

In addition the Hoim-Tanga port route is shorter than the Hoima-Lokichar-Lamu route by about 150 km, which has obvious cost implications.

Uganda seen to be dragging its feet on the issue of developing its reserves by industry players, is determined to extract the maximum value for its oil that it can when it still can negotiate.

Kampala has been holding out for more recovery from its estimated reserves. All the 6.5 billion barrel reserve cannot be recovered mostly due to technology limitations. The proportion of the reserves that can be recovered is often a sticking point. If the anticipated recovery is too low the country can miss out on revenues and if it is too high it would affect the affordability of the project.

Negotiations have brought the figure up to about 30 percent from a low of as little as 10 percent.

In addition Uganda also made it a condition that the first call on the oil would be to the planned $2.5b oil refinery. The oil companies’ preference was to pipe all the crude oil out of the country and impasse that was only broken in 2013.

"The refinery which will initially handle 20,000 barrels day building up to 60,000 barrels daily is expected to spawn oil related industries in plastics, fertilisers, pharmaceuticals and other oil based derivatives like Heavy Fuel Oil used in power plants and bitumen, used for paving roads....

In addition the huge iron ore deposits established in the Kigezi region, of southern Uganda last year make a possible tie in with the infrastructure development – transport and energy infrastructure, surrounding the pipeline good economic sense.

In June the energy ministry announced that following surveys of the area that at least 200 million tonnes of iron ore worth about $16b had been verified. To optimally exploit these resources billions of dollars in investments in power generation, road and rail transport will be required in coming years.

Government planners also the development of the southern pipeline as a means to break decades long over reliance on Kenya for its access to the sea. This dependence means that more than 80 percent of Uganda’s external trade is funnelled through Mombasa currently. Historically disturbances in Kenya, most recently during the post-election violence in 2007, have left Uganda particularly vulnerable, triggering fuel shortages, trade blockages and subsequent price hikes.

"A fringe element also thinks by passing the pipeline through northern Kenya, making the LAPSSET economics more attractive, would shift South Sudan’s interest away from Uganda. Before the civil war broke out at the end of 2013 trade with our northern neighbour racked in more than a $100m a month, which has fallen drastically since but is expected to resume when things settle down in the troubled nation...

Tanzania of course is glad to have such a project passing through, making the planned Tanga port more viable and may even shift business away from Mombasa, especially from Rwanda, Burundi and the Democratic Republic of Congo.

Kenyan officials will be in Uganda in a fortnight’s time to address Kampala’s concerns about the pipeline and one can expect John Magufuli’s government will be casting a wary eye on developments then.