HOIMA, Uganda -(Dow Jones)- The Ugandan president, currently on the campaign trail in the oil-rich Bunyoro Kingdom, has said the country's soon-to-be-developed oil reserves will help provide development infrastructure, and should be seen as a national, as opposed to a regional, resource.

Yoweri Museveni told a rally of thousands of supporters in Hoima district in western Uganda over the weekend that the oil revenues would help the government make independent and quick investment decisions on key infrastructure and industrial projects. In the past, projects such as these were dependent upon donors.

However, the Bunyoro region, a traditional stronghold of the ruling National Resistance Movement party, has in recent months been on a collision course with the central government over oil revenue sharing, following the discovery of at least one billion barrels of crude oil in the region.

"I am a staunch supporter of President Museveni, but I don't like the way he's planning to distribute oil revenues," said Patrick Byansi at the rally. "Oil should not develop other areas while Bunyoro remain in poverty, it's not fair," he said.

Ford Mirima, the Bunyoro Kingdom spokesman, told Dow Jones Newswires separately the President's decision not to pledge any oil revenue share to Bunyoro will cost him votes in the Kingdom.

Bunyoro, argued Mirima, needs a special status to address the historical imbalances emanating from atrocities committed against the Kingdom by British former colonial masters in the 1890-99 war, when Bunyoro is said to have lost at least two million people.

The colonial government, according to Mirima, and the subsequent governments after independence, inherited administrations which implemented policies such as a deliberate refusal to introduce cash crops in the Kingdom, intended to keep Bunyoro underdeveloped.

"The people are very disappointed, and the Kingdom's leadership wasn't even invited to any of the rallies," he said.

Unlike the ruling party, Kizza Besigye, Uganda's opposition leader, has pledged to amend the existing oil revenue sharing law once production starts. "Government is not being fair to the oil-rich regions, they deserve a fair share and our government will accord it to them," said Margaret Wokuri, an opposition spokeswoman.

According to Mirima, with the oil windfall, Bunyoro would be able to fund on its own projects, mainly in health, education, as well as agricultural commercialization, agro-based processing, and livestock restocking.

NRM campaign strategists say that while President Museveni concurs with many of the views expressed in Bunyoro, using oil revenues would not be the best solution, and the government is working on plans to give compensation packages to the Kingdom.

The World Bank projects that with Uganda's oil production will hit at least 350,000 barrels a day by 2018, with the country earning at least $2 billion in oil revenues every year.

Museveni, who is seeking to extend his stay in power to 30 years in the Feb. 18 polls, also warned people in the country's oil region that the anticipated oil windfall should not become a diversionary issue, in terms of creating complacency and preventing people from working hard to end household poverty.

"We can't pass oil revenue to the citizens' accounts, but will use it to deliver good services to enable them produce and get out of poverty," he said.

The president also asked the voters in the Bunyoro region to make good use of a national agricultural program which aims at commercializing agriculture, rather than waiting for the oil windfall.

Museveni further told the rally that the government had asked the U.K. government to contribute to the compensation packages to the Kingdom.

"I have asked the British prime minister to provide part of the money for the compensation because their government is responsible for these problems here," he said.

Hakim Muwonge, an energy analyst with Uganda Oil and Gas Ltd., the oil windfall is likely to transform the country form a hitherto donor dependent economy to a self-sustainable country with enough resources to finance its own budget.

However, first, the president has to solve the numerous problems that have appeared with the discovery of oil, including land disputes, social conflicts, as well as conflicts with oil exploration companies.

He added the demands of Bunyoro have put the president in a tight corner ahead of the elections.

"Its hard for the president to promise anything tangible because the oil law is still being revised, and he would need to first consult his technocrats," he said.

Museveni faces a strong challenge from Besigye, who scored 37% of the vote during the 2006 disputed polls. Political analysts say Besigye's popularity in urban areas, as well traditional NRM strongholds like Bunyoro and central Uganda, continue to grow, while Museveni's share of the vote dropped to 58% in 2006 from 69% the previous polls.

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