Uganda opposition coalition hit by party pullout

* Analysts say move to slow down opposition

* Coalition due to name joint candidate on Tuesday

* Sought replacement of electoral body

By Elias Biryabarema

KAMPALA, Aug 30 (Reuters) - A Ugandan opposition coalition aiming to unseat President Yoweri Museveni suffered a setback on Monday when one of the five parties withdrew in a disagreement over a demand to replace the Electoral Commission.

The Uganda People's Congress (UPC) and its leader, Olara Otunnu, pulled out of the Inter-Party Cooperation (IPC) after it said other parties had reneged on an agreement that they demand the Electoral Commission be replaced before the elections.

The five opposition parties had formed the coalition in July 2008, agreeing to field a joint presidential candidate to challenge Museveni, who has held power in East Africa's third largest economy since 1986, in presidential and parliamentary elections set for early 2011.

"After careful review, UPC is unable to continue working with the IPC project and process," Otunnu told a news conference.

He said that his party disagreed with the other members of the coalition who, he said, still opposed the Electoral Commission but were nevertheless taking the position that "we shall participate in elections organised by the same Commission".

Analysts said UPC's pullout had weakened the opposition's chances of dislodging Museveni, but they still could be counted on to mount a stiff competition.

"President Yoweri Museveni can get some mileage from this setback but his own party is in the same internal wrangling and fights," political analyst Timothy Kalyegira said.

UPC was the second biggest party in the coalition after the Forum for Democratic Change (FDC), whose frontrunner is Kizza Besigye. The opposition coalition is due to name its flag bearer on Tuesday.

Uganda's opposition, donors and the country's Supreme Court have all accused the electoral body of incompetence and of being biased and said its ability to manage a free and fair election has been eroded.

Museveni announced on Saturday he is seeking re-election [ID:nLDE67S084]. His last two victories -- 2001 and 2006 -- were marred by accusations of widespread rigging and violence.

Another analyst, Daniel Kalinaki, said UPC's withdrawal was being given an exaggerated sense of importance.

"Voters will always go for someone they believe has a reasonable chance to win and for the opposition, it was not Otunnu but Kizza Besigye," he said.

Uganda discovered commercial hydrocarbon deposits in the Lake Albert Rift basin along the border with the Democratic Republic of Congo in 2006 and reserves are estimated at 2 billion barrels.

British explorer Tullow Oil (TLW.L) is expected to begin commercial production in the final quarter of next year. It aims to produce 200,000 barrels per day by 2015.

(Reporting by Elias Biryabarema; editing by George Obulutsa and Michael Roddy)