Photograph — Time Magazine

The Ugandan government has said it plans to borrow up to €108.5 million ($118.42 million) from China’s Industrial and Commercial Bank to fund the construction of three roads that are key to plans to begin oil production. The strategy is to accelerate the effort to commence crude oil production, which has failed to take off 14 years after crude reserves were discovered in the country’s west.

A statement issued by the government earlier this week said the roads upon completion are expected to “facilitate the efficient development and production of the strategic national oil resources.”

In recent years, Uganda has received huge credit lines from China as part of the Asian giant’s Belt and Road Initiative aimed at boosting trade and rebuilding the old Silk Road connecting  Asia, Europe and beyond.

However, Uganda’s public debt is reported to have been rising gradually based on the bilateral relationship. For instance, between January 2010 and June 2016, the government signed 96 loan agreements worth $8.8 billion with China (in particular EXIM Bank) being the largest creditor at 29 percent of the total loans, followed by the World Bank’s 27 percent and African Development Bank with 21 percent. 

In this regard, U.S. officials have been critical of Belt and Road lending, which they say can leave countries with excessive debt. The International Monetary Fund projects that Uganda’s public debt will hit the key benchmark of 50 percent of GDP as early as the 2021/22 financial year.

The first commercial oil discovery in Uganda was made in the Albertine Graben area in 2006. Since then, successful good appraisals have boosted its proven crude oil reserves from zero in 2010 to 2.5 billion barrels as of the end of 2015, according to the Oil and Gas Journal (OGJ). The Ugandan government estimates that the area contains 6.5 billion barrels of oil in place while proven natural gas reserves were estimated at 500 billion cubic feet as of the end of 2015.

Uganda’s 2020 target for the commencement of commercial oil production cannot be realized. And the IMF has said that the tardy progress with oil production will retard the country’s economic growth projection for the July 2019 to June 2020 financial year. Oil production is now targeted to commence by 2022.

By Ahmed Iyanda.

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