Uganda’s Final Investment Decision: Implications for South Sudan Investors

Photo: busiweek/File

By Peter Reat Gatkuoth


February 27, 2022 (SSNA) — Announcement of FID is a significant milestone for the country, but also comes with a very big responsibility on the work of all stakeholders involved in the management and development of the country’s oil and gas sector. The FID announcement now unlocks the biggest opportunities for Ugandans with over 16 fields ring-fenced for local entities. A ramp-up in activities is now expected with award and confirmation of contracts and tenders for the construction phase before the first oil expected in 2025. With a bit of planning, South Sudan and its investors can strategically place themselves in frontier positions to benefit from Uganda’s Oil Industry.


Government revenue in South Sudan is derived entirely from oil, which accounts for 98 percent of total revenue. Due to the fact that the country is a new state with a limited opportunity to regulate and govern its industries properly, it is critical that the country has an appropriate framework for attracting and managing investment into its developing mining industry from both an economic and social perspective (Barrows, 2018). It is necessary to ensure that businesses properly discharge their corporate social responsibilities and contribute to the advancement of sustainable development in the communities in which they operate.

South Sudan’s government should look into international and cross-border trade and investment as another means of diversifying the economy and avoiding the Dutch disease, according to the World Bank. As it happens, one such opportunity recently presented itself in the form of Uganda’s Final Investment Decision (FID) for the oil and gas industry, which occurred not all that long ago.

With the FID announcement, the oil companies have committed to investing close to US$ 10 billion in the development of Uganda’s oil and gas resources through the implementation of the Tilenga Project in Buliisa and Nwoya districts; the Kingfisher Project in Hoima and Kikuube districts (approximately US$6-8 billion); and the East African Crude Oil Pipeline (EACOP), which will cross the ten (10) districts (PAU, 2022).

Uganda’s Oil Journey

The Albertine Graben in western Uganda, where the oil projects are located, encompasses a territory of approximately 23,000 square kilometers that stretches from Uganda’s southwest border with South Sudan to the country’s border with South Sudan, and is divided with the Democratic Republic of the Congo along their common border. As early as the early twentieth century, attempts were made by the colonial government’s survey department, which was based in Entebbe at the time (Ugandan capital), to detect the presence of viable oil deposits by studying the geology and implications of the oil seepages that were common across large swaths of western Uganda, but these efforts were unsuccessful (Wayland 1925).

These efforts were ultimately thwarted by the country’s remote and hostile terrain, as well as by a lack of support from the colonial government in the process. It was the Colonial Office in London that viewed the search for oil in Uganda as a diversion from the focus on agriculture that it had set aside for East Africa in the first place. Furthermore, World War II curtailed much further oil exploration, and local agitation for political independence in the 1950s and 1960s meant that the oil project would not receive much attention from policymakers for several decades afterward (Kayizzi-Mugerwa, 2020).

Uganda was unable to take over the oil project following independence in the early 1960s because the country was embroiled in intra-party-political struggles that eventually spilled over into civil war and economic anarchy. Despite the establishment of an oil department within the Ministry of Energy in the mid-1980s, the department did not accomplish much, especially given the difficult political environment of the time, which saw parts of the country partitioned off by dissidents (Kayizzi-Mugerwa, 2020). However, it was not until the NRM’s assumption of power in 1986, and the subsequent economic reforms implemented over the following decades, that oil prospecting and development came to the forefront of public attention.

The oil industry in Uganda has also had significant geopolitical ramifications. The oil deposits were discovered in the remote western regions of the country, near the border with the eastern regions of the Democratic Republic of the Congo. This is significant because, during the 1990s, prior to the discovery of oil in Uganda, fierce battles had been fought in the eastern Democratic Republic of the Congo between Congolese, Rwandan, and Ugandan troops, allegedly for control over the region’s vast resources. The fighting displaced populations, increased the number of armed dissident groups, and had an impact on economic and political life in the region at the time (Kayizzi-Mugerwa, 2020). Oil wealth has been known to instigate conflict between communities, and the risk increases when oil reserves are discovered near countries that have a long history of unrest in their neighbouring countries.

Less than a year after Uganda’s oil discovery was announced in Kampala, reports of military clashes along the border between Uganda and the Democratic Republic of the Congo (DRC) emerged, necessitating a high-level meeting between the presidents of the two countries in Arusha, Tanzania, mediated by the United Nations Development Programme. According to the conclusions of the meeting, the establishment of a joint oil development commission between the two countries would be the most effective way to address the accusation that Uganda’s oil projects were secretly siphoning off DRC’s oil reserves across the international border (Kayizzi-Mugerwa, 2020). The initiative, on the other hand, failed to gain traction, while oil prospecting and development in this part of Uganda continued unabated with little interruption.

Ten years later, in 2017, Uganda and the Democratic Republic of the Congo had reconciled sufficiently to consider the possibility of collaborating on oil production and related activities. Their oil ministers reached an agreement on the Democratic Republic of the Congo’s interest in participating in the East African Crude Oil Pipeline (EACOP) project, which is part of the country’s broader interest in joining the East African Community (Kayizzi-Mugerwa, 2020).

It also wanted to be a part of the consortium that would build and operate an oil refinery near Hoima, which was estimated to cost US$3.5 billion and would employ 5,000 people. In particular, the latter would be critical for transporting any oil produced on the DRC side of the border, whose development had previously involved investors with similar interests (Tullow and Total) to those of the Ugandan projects (Tullow and Total).

The Albertine Graben is a large area of land in Uganda that is quite remote. The distance between Buliisa, the main oil-producing district, and Kampala, the country’s capital, is 284 kilometers, and the distance between Kampala and Mombasa, the nearest seaport, is another 924 kilometers, for a total distance of 1,208 kilometers between the two cities (Kayizzi-Mugerwa, 2020).

This is the distance that trailers transporting oil field equipment must travel in order to reach the oil field. For the proposed EACOP route from Hoima to Tanga to reach its destination on the Tanzanian coast, the proposed route will cover an even greater distance (1,410 kilometers). There have also been geopolitical ramifications from its proposed construction, with the governments of Kenya and Tanzania pitted against each other in what could prove to be a lucrative deal.

Despite the fact that Kenya (Uganda’s most important trading partner) had expected to ‘clinch’ the deal without much difficulty, it was ultimately awarded to Tanzania. For the latter, relative safety and political predictability were important factors (the proposed route through Kenya was considered vulnerable to rebel attack from Somalia-based fighting groups). Also important was the fact that the Tanzanian government owns all of its land, so the total compensation would be relatively modest (Kayizzi-Mugerwa, 2020).

After launching its second oil licensing round, which included five blocks in the Albertine Graben, Uganda is on track to sign the new production-sharing agreements (PSAs) and issue new exploration licenses by the end of 2020, according to the government (although the process has been severely delayed by COVID-19). Since the exploration success in adjacent blocks has been ‘de-risked’ by the exploration success in adjacent blocks (the region as a whole has recorded an 88 percent exploration success rate), it is expected that the new round will attract high bids. In addition, the blocks will benefit from significantly improved transportation, thanks to a decade of road construction in the area, and significantly improved access to local managerial and technical expertise (Kayizzi-Mugerwa, 2020).

Uganda has become quite attractive as a result, despite the fact that it is landlocked. The competitive bidding demonstrates that, since the first round, when exploration licenses were awarded on a first-come, first-served basis, the government’s handling of the oil and gas sector has grown in sophistication as a result of the increased sophistication in the bid process.

Beginning in the early 1980s, the government’s efforts were primarily focused on developing the institutional and regulatory capacity necessary to sustainably manage the oil and gas sector while simultaneously encouraging investment. This may have appeared to many to be a source of delays, but it was a necessary evil that brought about a number of positive outcomes. Uganda is known for having progressive laws and regulations that are being used as a model by other countries, some of which are already producing oil.

Uganda has, in fact, developed a one-of-a-kind model of oil and gas sector management, based on lessons learned from countries that have been successful as well as those that have failed. The government has also taken steps to ensure that the interests of Ugandans and those of investors are in sync. This alignment took several years, but it has culminated in the oil companies’ announcement of the Final Investment Decision (FID) (PAU, 2022).

The preliminary work necessary to prepare the ground for the launch and construction of these projects has made significant progress. The Kingfisher and Tilenga Development Projects, as well as the Environmental and Social Impact Assessment and Front-End Engineering Design studies for these projects, as well as the EACOP, were successfully completed with the EACOP. It has been determined and surveyed that all of the land required for these projects has been identified. The compensation and relocation of Project Affected Persons (PAPs) are still in the process of being completed. In terms of both technical and commercial maturity, Uganda’s oil and gas project is now fully operational and ready to begin production.

Why Uganda is Conducive for South Sudan’s Investment

Uganda enjoys a privileged geographic position at the crossroads of Sub-Saharan Africa and the East African region, and it is the only country in the world to be located directly on the equator. Sudan borders the country on the north, Kenya on the east, the United Republic of Tanzania on the south, Rwanda on the southwest, and the Democratic Republic of the Congo on the west; the country’s capital is Mogadishu (World Bank, 2020). Because of its land-linked location, the country has a strategic commanding base from which to serve as a regional hub for trade and investment. Uganda benefits from important trade partnerships that help to develop a viable business environment.

A potential investor considering investing in Uganda will find a well-regulated, highly liberalized economy in which all sectors are open for investment and capital can freely flow into and out of the country. The country also has a free exchange of goods and services.

With a score of 59.7 on the 2019 Index of Economic Freedom, Uganda was ranked as the 8th freest economy out of 47 countries in Sub-Saharan Africa, according to the index. The business operating environment allows for the full repatriation of profits after all mandatory taxes have been paid, as well as the ownership of private investments by foreigners at a rate of one hundred percent. As a result of the incentive regime’s structural integration into the country’s tax laws, it is non-discriminatory and accessible to both domestic and foreign investment, depending on the industry and level of investment (World Bank, 2020).

The minimum capital investment required for a foreign investor to be eligible to invest in the country in virtually any sector, with the exception of those that may jeopardize the country’s security, is US$100,000, with the maximum capital investment required being US$500,000. Uganda’s labor is highly trainable and English-speaking, and the country’s labor costs are competitively priced in Africa (World Bank, 2020).

The current return on investment is approximately 5 percent, with the expectation that it will increase to approximately 7 percent as a result of ongoing and planned infrastructure development (roads, railways, and energy) that will result from developments in the oil sector (refinery and crude oil export). Uganda’s GDP is approximately US$33 billion on average, with stable economic growth averaging 5 to 7 percent on an annual basis (World Bank, 2020). Following the global economic downturn, inflation has now stabilized at 6.6 percent, despite the fact that the Ugandan economy has proven to be resilient and has continued to attract foreign direct investment during this period.

Since 1986, the political and economic environment of the country has been steadily improving and becoming more stable. Uganda, under the leadership of H.E. Yoweri Kaguta Museveni, has emerged as a political stabilizing force in the region, creating an environment conducive to the growth of business. Uganda’s Constitution and Investment Code of 1991, as well as the major international investment-related agreements/ treaties to which Uganda is a signatory, provide additional assurances regarding the security of foreign investment in Uganda (World Bank, 2020).

Towards this end, the Uganda Investment Authority (UIA) has established a One Stop Centre (OSC) for business registration and licensing in order to create a conducive environment for doing business in the country. The OSC also provides assistance with tax planning and registration, immigration and work permit issues, land acquisition and verification, as well as environmental compliance and approvals, among other services. Having all of these services available under one roof saves the investor both time and money, allowing them to get their projects licensed and implemented as quickly as possible (World Bank, 2020).

How South Sudan Can Invest in Uganda’s Oil Industry

The South Sudanese government has the potential to gain exposure to oil, either directly or indirectly. However, as with any other type of investment security or asset type, this commodity carries a unique set of risks that investors should be aware of before making a purchase. The acquisition of direct or indirect exposure to the commodity can be accomplished through oil investment (Niyazbekova,, 2021). Oil futures, oil options, and commodity-based exchange-traded funds are all ways for investors to gain direct exposure to the oil market (ETFs).

Investors who want to invest in oil indirectly can do so by purchasing energy sector exchange-traded funds (ETFs), energy sector mutual funds (MFs), or stock in individual oil companies. South Sudan can gain direct exposure to oil by purchasing futures or options contracts, or by investing in commodities-based exchange-traded funds (ETFs) or mutual funds (MFs). A high degree of risk is associated with futures and options, whereas ETFs and mutual funds are relatively simple and have a moderate level of risk associated with them (Niyazbekova,, 2021).

South Sudanese investors can purchase shares in a mutual fund or exchange-traded fund (ETF) that invests in the stocks of companies in the oil industry to gain indirect exposure to the commodity. Rather than directly tracking the price of oil as a commodity, indirect oil investments will invest in stocks that may be affected by oil prices. Oil and exploration funds, as well as funds for the energy sector, are examples.

South Sudanese investors can also make indirect investments in the oil industry by purchasing stock in individual oil production companies (Niyazbekova,, 2021). There are three types of oil companies: upstream companies, which drill for oil; midstream companies, which operate pipelines for transporting crude oil; and downstream companies, which refine and sell the finished products. Upstream companies are responsible for drilling for oil; midstream companies are responsible for midstream operations.

Investors who prefer indirect exposure to oil are typically those who do not wish to take on the additional risk associated with direct exposure to oil as a commodity, such as hedge funds. For example, investing in an energy sector mutual fund or exchange-traded fund (ETF) can provide broad exposure to oil and energy stocks while being less sensitive to fluctuations in oil prices than direct oil investments.


As a result of the signing of the letter of intent, construction work on the Tilenga, Kingfisher, and the EACOP (East African Oil Pipeline) can now begin, with TotalEnergies, China National Offshore Oil Corporation (CNOOC), United Nations Oil Corporation (UNOC), and Tanzania Petroleum Development Corporation (TPDC) as venture partners. There are at least six oil fields in the project, and it is expected that they will produce up to 200,000 barrels of crude oil per day when fully operational. The fields are expected to be connected to a Central Processing Facility (CPF), where the crude oil will be separated from all impurities before being fed into the EACOP, which is currently under construction.

Furthermore, according to the World Bank, when commercial oil production reaches its peak, Uganda could earn up to $3 billion (equivalent to approximately shs 7 trillion) in revenue from oil exports per year. According to projections from the Petroleum Authority of Uganda (PAU), Ugandans can expect to earn up to $4.2 billion (Shs 13 trillion) per year from the provision of goods and services in the petroleum sector.

Given that South Sudan is a neighbouring country that has a positive working relationship with Uganda, the country should take advantage of Uganda’s favorable local content laws, which require foreign investors to form partnerships with Ugandan companies. These collaborations can assist South Sudanese investors in obtaining contracts for some of the projects that necessitate the use of their expertise.


Kayizzi-Mugerwa, S., 2020. Uganda’s nascent oil sector: Revenue generation, investor-stakeholder alignment, and public policy (No. 2020/175). WIDER Working Paper.

Oxford Analytica, 2017. Challenges abound in Uganda’s nascent oil sector. Emerald Expert Briefings, (oxan-db).

Niyazbekova, S.U., Ivanova, O.S., Suleimenova, B., Yerzhanova, S.K. and Berstembayeva, R.K., 2021. Oil and gas investment opportunities for companies in modern conditions. In Socio-economic Systems: Paradigms for the Future (pp. 669-676). Springer, Cham.

Oxford Analytica, 2021. New optimism will buoy Uganda-Tanzania energy sectors. Emerald Expert Briefings, (oxan-db).

Barrows, S.D., 2018. Do Sub-Saharan countries in Africa have the Dutch disease? Asian Social Science14(5), pp.14-28.

World Bank, 2020. Uganda Economic Update, December 2020: Investing in Uganda’s Youth. World Bank.

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