OIL: Final Investment Decision to be postponed into next year over COVID-19, the delay to materially weigh on growth- experts

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Uganda government and oil companies were expected to sign the final investment decision (FID) early this year. However, the coronavirus struck at the critical time.

‘‘Given the sharp fall in international oil prices, it’s quite likely that the Final Investment Decision on oil will also be postponed into next year’’ Said Jibran Qureishi, Regional Economist E.A., Global Markets at Stanbic Bank
He added: Admittedly, the impact of Covid-19 and the possible delay in the FID, will materially weigh on economic growth this year.”

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He was reacting to The Stanbic Purchase Managers Index (PMI) for March which recorded the first decline in activity. This is due to the global coronavirus disease 2019 (COVID-19) pandemic which has led to fall in new business, company shutdowns and issues with the supply of materials in, thus pushing the Ugandan private sector into contraction
The headline PMI posted below the 50.0 no-change mark at 45.3 in March, following a reading of 56.2 in February. This marked the first deterioration in business conditions in the private sector since January 2017.
Jibran Qureishi, said the first sub-50 reading since 2017 was not a surprise, given the on-going concerns associated with Covid-19.

“The impact is likely to be broad based across the economy. Sectors such as tourism and manufacturing are already feeling the pain as global supply chains are disrupted and cross border travel is restricted. But of course, diaspora remittances could also decline as global growth slows,” he said.
Government had initially hoped that the first oil would come out in 2013 but the deadlines have since been changed six times to 2022. The Final Investment Decision constitute decisions made by various partners to inject money in projects to commercialize Uganda’s oil resource

Recently joint venture partners — CNOOC, Total and Tullow —postponed their activities
Chinese firm – CNOOC (China National Offshore Oil Corporation) –suspended field visits by its teams to Kingfisher fields on the shores of Lake Albert, shared between Uganda and DR Congo.

In a March 11 letter to the permanent secretary in the energy ministry and the executive director of the petroleum authority, CNOOC stated that the suspension of trips to fields under its operatorship is a measure of precaution to minimise unnecessary exposure and contact of persons whose recent travel itineraries are not known.

Total has suspended some activities and has written to the petroleum authority to that effect
It is understood that the petroleum authority has also suspended some of the activities due to the virus
The government has heavily invested in the Infrastructure, Technology, security, legal and fiscal framework as well as human resource to ensure that the international oil companies are satisfied and can tick all the boxes leading to the signing of the Final Investment Decision.

read: Only oil money can rescue Uganda from the looming debt crisis –BoU official

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