By Elias Biryabarema
KAMPALA, March 12 (Reuters) - Uganda faces possible fallout from the conflict in the neighbouring east of Democratic Republic of Congo (DRC), cuts in aid due to concerns over embezzlement, and worries over crucial new oil laws which will regulate the nascent energy sector.
CONGO REBELLION
Allegations that Uganda is backing the Congo rebels has soured relations with the government in Kinshasa. Uganda denies the accusations and some Ugandans wonder whether Congo might retaliate by supporting Ugandan rebels thought to be encamped just inside its territory.
What to watch out for:
- Peace deal. If the M23 faction loyal to commander Sultani Makenga signs an agreement and disarms, how will the other faction led by Bosco Ntaganda react?
- Congo could punish Uganda by supplying arms to the Allied Democratic Forces (ADF), an anti-Kampala rebel group based in eastern Congo.
- If M23 refuses to sign, Congo's North Kivu province could remain lawless, providing a vast and resourceful sanctuary for the ADF to build capacity and plan attacks even without Kinshasa's support.
AID CUTS
Six Western donors have suspended aid after Ugandan officials were accused of embezzling ${esc.dollar}13 million.
Uganda, which depends on aid for a quarter of its annual budget, has already reimbursed Ireland all its stolen aid and promised to refund the others.
The donors want corrupt officials punished, stolen money recovered and tight controls put in place before aid resumes.
What to watch out for:
- Aid flows partly support the Ugandan shilling and a long suspension is likely to weaken the currency.
- A prolonged aid freeze could hit public services, such as health, and stir public anger.
OIL
Uganda's parliament has passed the second of three long-delayed but crucial oil laws meant to regulate the country's emerging oil sector.
The two bills, which are now awaiting presidential assent before becoming law, would clear the way for construction of a refinery and a fresh round of exploration licensing focused on 13 new blocks in the Albertine graben.
Exploration company Tullow Oil and the government are in dispute over the size of a planned refinery to process crude discovered in the Albertine rift basin along the border with the Democratic Republic of Congo.
What to watch out for:
- Corruption. Critics say one of the new laws vests immense power in the executive including negotiating, granting and revoking oil deals and potentially exposes the sector to graft.
- Signs of frustration among foreign investors, including Tullow Oil, Total and CNOOC over delays getting final approvals to start production.
KENYA ELECTION
Uganda breathed a sigh of relief at the election passing peacefully in neighbouring Kenya, the region's main trade gateway, but there could still be trouble if a court petition against the outcome by the loser, Raila Odinga, fails. His supporters could become angry, raising the risk of violence that could disrupt Uganda's trade as happened following the 2007 vote.
What to watch out for:
- Any major outbreak of protests in Kenya is certain to disrupt the flow of goods to Uganda, potentially leading to a spike in inflation and a depreciation of the local currency. (Reporting by Elias Biryabarema; Editing by James Macharia and Jon Hemming)
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