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There are many risks for local people related to resettlement schemes and compensation measures caused by different development projects. In Buseruka sub-county, Hoima district in Western Uganda, land was expropriated for an oil refinery project. A vulnerability assessment was conducted for this scheme. Households could choose between cash compensation as a resettlement measure, or a relocation to an established site with a house and some agricultural land and other inputs. A household survey was carried out involving 187 household heads and various key person interviews. An analysis of overall vulnerability among the resettled households was based on indices constructed from carefully selected indicators for exposure, sensitivity and the adaptive capacity. A principal Component Analysis was used in assigning weights to indicators of the vulnerability of resettled households. Affected households could choose between cash compensation or land /house. In addition we looked at effects of the measures on the host population receiving the relocated households. Cash compensated households were most vulnerable in relocation areas compared to both host community households and to formally resettled households with a house or land respectively. Cash compensation was found to be surrounded by much controversy which challenges the commonly held notion that cash can easily facilitate or restore the livelihoods of displaced people. There is thus a need to critically analyse how or to what extent different resettlement mechanisms restore livelihoods of project affected people and prevent household vulnerability. The findings in this study indicate that cash compensation may not reduce socio-economic vulnerability of affected persons in areas where land is the most important livelihood asset. [ABSTRACT FROM AUTHOR]