UGANDAN PRESIDENT SEEKS OIL SECTOR SUPPORT IN IRAN

C O N F I D E N T I A L SECTION 01 OF 02 KAMPALA 000561

SIPDIS

E.O. 12958: DECL: 06/04/19
TAGS: PGOV PREL UG IR
SUBJECT: UGANDAN PRESIDENT SEEKS OIL SECTOR SUPPORT IN IRAN

REF: KAMPALA 492

Classified By: P/E Chief Kathleen FitzGibbon for reasons 1.4 (b) and (d
).


1. (C) Summary: Iran agreed to provide funding and
expertise to Uganda's fledgling oil industry during a visit
by Ugandan President Museveni from May 15-18. Museveni
raised the issue of Iran's nuclear program, arguing that the
trouble it was causing Iran internationally was doing more
harm than good. We remain concerned about the implications
of Iran's promised investment in the oil sector and for
Uganda's foreign policy decision-making. End Summary.


2. (U) Museveni fulfilled a "longstanding commitment" to
visit Iran from May 15-18 (reftel). According to a State
House press release, Iran agreed to fund the entire value
chain of Uganda's oil production. Iran would jointly fund an
oil refinery with Uganda. Iran agreed to train Ugandans in
its University of Petroleum Studies and other institutions in
Iran. Iran also would consider Uganda's request to supply
fuel for Uganda's thermal power plant. They agreed to
cooperate in production, processing and marketing of
agro-products and mechanization of agriculture and set up a
free trade zone. Museveni invited President Ahmadinejad to
visit Uganda; Ahmadinejad accepted.


3. (C) Minister of State for Foreign Affairs Henry Okello
Oryem, who traveled to Iran with Museveni, gave Charge a
debrief on June 1. Oryem said that Museveni outlined his
request for assistance for an oil refinery to Iranian
officials, including Ahmadinejad. The Iranians were
skeptical that Uganda's oil would be a commercially viable
export given its waxy consistency. Museveni explained that
the refinery would produce diesel fuel for use in Uganda and
its neighboring countries as well as to run its
thermo-generators for electricity. According to Oryem, the
Iranians said they would consider the refinery's viability
and assist in other areas of oil production.


4. (C) Oryem said that Museveni received the U.S.
Government's message that the Charge delivered on Iran's U.N.
sanctions violations and support for extremism (reftel).
Oryem said that the British High Commissioner also expressed
concerns about the Iran trip. Oryem said that Museveni felt
he had to raise the issue of Iran's nuclear program with
Ahmadinejad because Uganda was a member of the U.N. Security
Council. However, Museveni discussed the issue in a
typically "African" way, which was non-confrontational,
according to Oryem. Museveni told Ahmadinejad that Iran did
not need a nuclear program, given that it had already
industrialized with the resources that it had. Moreover,
Museveni argued, since Iran did not need a nuclear program,
Iran's nuclear program was causing Iran more harm
internationally than any benefits it could bring economically.


5. (C) Museveni further made his case by informing
Ahmadinejad that Uganda had a large uranium deposit but had
decided not to exploit it. If Uganda decided to use it in
the future, it would be to develop a nuclear power plant in
consultation with and as part of a regional plan for cheap
energy supply. Uganda would only pursue such a plan with its
east and central African membership organizations and in
compliance with international standards. The Iranian
president listened, but was non-committal, according to Oryem.


6. (C) Tamoil East Africa Director Habib Kagimu saw
President Museveni after his return from Iran. Libyan-owned
Tamoil has the contract to build a pipeline from El Doret,
Kenya to Jinja, Uganda to bring fuel from the port into
Uganda. Kagimu wanted and received assurances from Museveni
that the Iranian deal would not interfere with the pipeline.
However, Kagimu told P/E Chief on May 25 that Foreign
Minister Sam Kutesa had been pushing Museveni to go to Iran
to secure funding for the refinery. Kagimu stated that
Kutesa and First Lady Janet Museveni, who are the financiers
of Aggreko, an oil services company, and Kenloyd, a fuel
importing/exporting company owned by Kutesa's son, want to
corner the market on the production and distribution of
Uganda's future oil products. Kutesa allegedly believes that
Iranian funding will allow their companies to circumvent
normal procurement procedures.


7. (C) According to Kagimu, Kutesa persuaded Museveni to
seek Iranian support to undermine Libya's investment in the
pipeline, a contract that Kutesa,s company sought, but lost
to Tamoil. (Note: Construction of the pipeline is stalled
over a disputed land title, which Kutesa and presidency
insider, Elly Kayanjo, have allegedly engineered. Post has
been following the case because the genuine landowner is an
American citizen. The corrupt twists and turns in the case
continue to defy legal remedy, but Tamoil reached a deal with

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the parties to the court case to buy the land from whomever
wins. End Note.)

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COMMENT
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8. (C) Museveni's trip to Iran raised eyebrows in Kampala.
We are not surprised that Museveni raised the issue of Iran's
nuclear program, but do not expect Uganda to press the case
any harder. It appears the focus of the visit was to secure
funding for oil production facilities, which probably does
not bode well for the future transparency of the sector. Oil
companies in Uganda argue that an inland refinery would not
likely be cost effective, as the market in the region is not
large enough for the products it would make. The Iranians
probably have similar concerns. Nevertheless, President
Museveni reportedly continues to insist on a domestic
refinery to boost Uganda's energy independence. Uganda's
appeal to Iran on this issue demonstrates that, at some
level, Museveni may know that finding an investor for his
refinery pet project could be difficult.
BROWNING