Russian Foreign Minister Sergei Lavrov (R) and Ugandan Foreign Minister Sam Kutesa in Moscow on May 12.(YURI KADOBNOV/AFP/Getty Images)
Summary
Uganda has long relied on purchases of Russian weapons to fuel a regional strategy based on an enduring ability to intervene militarily in its neighbors' disputes and to sometimes act as a regional arbiter. Ugandan Foreign Minister Sam Kutesa's three-day visit to Moscow, which started on May 11, will focus in part on securing continued military equipment and training from Russia.
Energy, however, will be the most pressing topic during Kutesa's meetings with his Russian counterpart, Sergei Lavrov. Uganda wants to build an oil refinery and a Russian state-owned consortium is one of six finalists for the contract. Uganda wants to use its relatively large pools of oil reserves to position itself as a hub for fuel products in the Great Lakes region, thus countering Kenyan influence within the East African Community.
Analysis
Kenya and Uganda have long vied for economic, military and political influence in East Africa. Since the colonial era, sea access and preference from the colonial power, Britain, have given Kenya the advantage. Strong kingdoms have historically originated from the Great Lakes region, thanks to the natural resources and fertile land found around the shores of Lake Victoria. Uganda today enjoys those same natural advantages, but the country depends on Kenya for overland transit to the sea.
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While smaller in size than its coastal neighbors Tanzania and Kenya, Uganda has sought to make the most of its energy reserves and natural resources. Kampala tries to use its resources to satisfy the demands of its internal market, reduce its dependence on high-cost imports and supply neighboring markets in the East African Community, a regional bloc that continues to integrate economically and politically. Uganda will continue to use its partners outside of East Africa, including Russia, to advance its interests during the integration process.
Continued Defense Cooperation
Uganda's military has long depended on Russian heavy equipment and will probably continue to do so. Russia offers a cheaper alternative to other sources of heavy military equipment available to Uganda -- including the United States. Because Uganda already has a logistical framework in place for Russian weapons systems, a transition to other arms suppliers would be complex and costly. Uganda's military capabilities play an important part in addressing Kampala's strategic interests. The country has taken up the role of a regional military power: Its forces participate in peacekeeping operations and military interventions in Somalia, Sudan and elsewhere, and Uganda has allegedly supported rebel groups in the Democratic Republic of the Congo for decades.
While other countries in the region have also tried to assert themselves as military powers, none of them approaches the level of capability and activity that Uganda has displayed. Certainly, some of Uganda's neighbors have the ability to project power in specific places as much as Uganda can -- as Rwanda does in the Democratic Republic of the Congo -- but none has shown the ability to operate throughout the region. Kenya's involvement in Somalia counts as its first ever military intervention beyond its own borders, while countries such as Ethiopia and Tanzania that have typically been more active militarily have not shown an aptitude for managing involvement in several conflict zones simultaneously the way Uganda does. While Uganda may not be in a position to militarily overpower its neighbors, military activity has propelled Kampala into a position as a key contributor to regional security -- and as an effective manipulator of insecurity. Russia has supported Uganda's role as a regional promoter of peace and has committed to cooperating with Kampala through U.N. diplomacy, but real Russian interests in the region are most likely limited to the economic realm -- in the energy sector and through arms sales.
Developing Uganda's Oil
The more pressing issue for both parties will be energy investment. Uganda first struck oil in 2006 on the shores of Lake Albert, where the country now has an estimated 3.5 billion barrels of oil reserves that are expected to support at least 200,000 barrels per day of production at their peak. Excessive bureaucracy, corruption and political factors have slowed the development of Uganda's oil resources, but Kampala in September 2013 finally awarded its first production contract: a $2 billion tender to China National Offshore Oil Corp. to develop the Kingfisher oil field, which is expected to start operations as soon as 2016 and to initially produce 30,000 barrels per day. Kampala is also expected to award production contracts to Total S.A. and Tullow Oil within a few months.
The problem for Uganda is that its oil is landlocked. The closest refinery is Kenya's lone facility in Mombasa -- a refinery that may even be scrapped or converted into an oil storage facility because of its simplicity, age and lack of maintenance. This means that in order for companies to produce the oil, there either needs to be a pipeline exporting it to the Indian Ocean or a local refinery to process it. (Uganda is also planning to build a small-scale crude-fired power plant.) The limited capacity of any potential refinery under discussion means that a pipeline would perforce need to be built in order for all three companies to justify expanding production.
Kampala ideally would build a refinery to produce cheaper transportation fuels for domestic use and a pipeline through which the leftover crude oil could be exported. However, the pipeline is a long-term project, and Kampala has struggled to raise the necessary funding. Complicating matters, the oil produced is waxy with a high viscosity, which this means that transportation of the unrefined crude requires a heated pipeline with constant temperatures exceeding 100 degrees Fahrenheit. This has helped push the pipeline's price tag as high as an estimated $4 billion -- about one-fifth of Uganda's gross domestic product. Despite its cost, a pipeline will probably be built eventually, but only once international oil companies can continue to book reserves and prove to their investors that there are enough economically viable oil reserves -- and political stability in Uganda and Kenya -- to justify the expense.
A small-scale refinery is much more feasible. Uganda wants such a refinery, since it would allow the country to decrease its dependence on costly imports and would facilitate region-wide Ugandan exports of petroleum products, the production of which right now depends on costly supplies imported from Mombasa. Uganda is expected in 2014 to award a final, $2.5 billion contract to build and operate a refinery with a capacity of 30,000 bpd -- to be eventually expanded to 60,000 bpd. Rostec, a Russian state-owned enterprise, heads a consortium that is one of the finalists for the project. The refinery will sit close enough to the oil fields to obviate the need for a pipeline. While for Russia the project is small and does not necessarily fit into a broader strategy, Uganda's local oil industry does seem like a good investment for those who move in quickly.
Developing its downstream processing capabilities would give Uganda a powerful card to play against regional rivals. Uganda's oil demand is increasing by 10 percent per year, but more broadly, demand in Rwanda, northeastern Tanzania and eastern Kenya, including Nairobi, is picking up as well. Because of the lack of connectivity to international energy markets --which means that all imported oil products are transported throughout the region by truck -- refined fuels also command a premium. Gasoline prices in the region frequently exceed $5.50 per gallon and unlike other countries with high gasoline prices, Uganda's are not due to taxes. This means that investment into the downstream sector can provide high returns.
Uganda, however, is not alone in attempting to build a refining center to supply regional partners. Nairobi and Dar es Salaam are exploring options for refineries of their own, but neither has taken as many concrete steps as Uganda toward building one. At least initially, Uganda looks like it will be the first country in the region to achieve the goal. A reliable refining system in Uganda would incentivize its neighbors to establish good relations with Kampala, since doing so could lead to cheaper fuel prices in places like Nairobi, Arusha and Kigali.
Uganda's efforts to outmaneuver its neighbors have historically relied on a powerful military that takes a proactive stance in regional disputes and crises. Uganda already benefits from the assets to become the breadbasket for the region, and Kampala is now looking to Russia to help strengthen its oil sector in order to reinforce the other levers that it uses to balance its two much larger coastal neighbors, Tanzania and especially Kenya.
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