Auditor General opposes London oil arbitration

 By Joyce Namutebi      

THE Auditor General, John Muwanga has recommended that arbitration in oil disputes between government and oil companies should be done in Uganda and not London.

Appearing before the Ad-Hoc committee on regularisation of the oil and gas sector with a team of senior officials from his office Wednesday, Muwanga told MPs that arbitration should take place in Uganda and not London because the Production sharing Agreements (PSAs) are governed by the laws of Uganda. “Why should we go to London to arbitrate?” he asked.

He also explained later that arbitrating from London was an expensive venture.

Article 26 of the PSA states that all disputes which cannot be settled amicably within 60 days shall be referred for arbitration. It, however, provides that the arbitration shall take place in London as opposed to here in Uganda.

In his presentation on oil exploration activities in Uganda, Muwanga revealed that oil companies including Heritage Oil and Gas Ltd, Hardman Petroleum Resources Ltd, Dominion (U) Ltd, Neptune Petroleum (U) Ltd had up to 2008 spent about US$500m (about Sh1.3 trillion), which they will recover (recoverable expenditure) from  sale of oil once it starts flowing.

He explained that the specific amounts to each company were included in the reports he had already submitted to the Speaker of Parliament in accordance with the confidentiality clauses governing PSAs.

Muwanga said that audits for recoverable expenditure incurred by various licensees were being undertaken by his office.

He cited five agreements between the government and private exploration companies, which had been so far availed to him and noted that since 2001, the various companies had so far paid to the Government slightly over US$4.49m in respect of signature bonus, surface rentals and training fees. He said the money had been deposited onto the Consolidated Fund Account.

He said that from the audits he had carried out he had noted that on the Advisory Committees (ACs) that are empowered by PSAs to make most of decisions related to oil exploration, the government was only being represented by the Ministry of Energy.

“The AC meeting minutes also lacked evidence of detailed review of the budgets and forecasts submitted by the licensees for approval.”

He also raised concerns on employment of foreign nationals, work plans and budgets, tax issues and scanned documents. Muwanga stated that he had rejected the proposal that Ugandans should pay for corporate social responsibility.

MPs strongly recommended building capacity of the Office of Auditor General to deal with oil issues instead of relying on outside audit firms.

They also wanted to know whether PSAs were still relevant.