OilVoice - Security Ministry Warns Kampala Against Inking Eni-Heritage Deal

Security Ministry Warns Kampala Against Inking Eni-Heritage Deal

Thursday, January 07, 2010

The Ugandan security ministry has warned the government against approving a deal struck by Heritage Oil to dispose of its Ugandan assets to Italian industry major Eni. The ministry, which presented its findings in a security brief to the Ugandan President Yoweri Museveni before the turn of the year, claims that the deal would have a detrimental impact on the national economy.

The fear is that the agreement would allow Eni to monopolise the nation's oil industry once oil production begins. The ministry instead recommends that Heritage should openly solicit bids for international oil companies to acquire its Ugandan operations. The briefing claims that Eni has 'placed a deal on the table for a refinery and even produced a Memorandum of Understanding to be signed at the highest level in the country without any studies and due diligence.'

The government is due to make a decision on whether to approve the Heritage sale to Eni in mid-January. Meanwhile, Anglo-Irish independent Tullow Oil (who jointly owns blocks 1 and 3A), Heritage's partner in both of its Ugandan blocks, has until January 17 to decide whether to exercise its pre-emptive rights over the deal and match Eni's offer for the assets. And it seems Tullow is set to employ that option, after which it plans to bring in a partner to help it develop the assets and construct the infrastructure to transport the oil to target markets. Names on the partnership short-list are most likely to include US major ExxonMobil or France's Total.

Any change in the ownership of Heritage and Tullow's blocks will require government approval. The briefing claims that a number of senior government ministers are pushing for the sale to Eni to be approved are doing so for their own selfish interest. However, the broader government's objective is to secure a deal which provides the optimal amount of revenues from its oil.

The briefing added that allowing Eni to take over Heritage would provide Libya a greater stake in the Uganda's oil sector - which would come with serious security implications. Recent attempts by Libya to increase its holding stake in Eni to 10% would make it a leading shareholder in the company, secondly only to the Italian government - hence providing it with greater exposure to Uganda's oil industry is the deal is inked.