Government discloses oil deals

By Ibrahim Kasita in Munyonyo

Uganda has disclosed the details in the oil deals it entered with international oil companies to Parliamentarians, underscoring commitment to good transparency and good governance in the nascent petroleum industry.

Five active production sharing agreements have been signed with five multinational corporations namely Tullow Uganda, China’s National Oil Corporation (CNOOC Uganda), Total E&P Uganda Dominion Petroleum and Neptune Petroleum.

The details of the agreements, however, remained confidential due to “commercial interests” sparking speculation that Uganda may have got raw deal.

But on Thursday during a seminar for members of the 9th parliament convened at Speke Resort Munyonyo in Kampala, it emerged that Uganda will share 74% of oil benefits even after the oil companies recover their costs.

Robert Kasande, the assistant commission in the petroleum exploration and production department, told Parliamentarians that the high shares arise from signature bonuses, royalty fees, state participation, cost recovery limit, profit oil and taxation.

“Uganda terms are very well placed among African exporters such as Cong Brazzavile and Gabon and are better than other African countries which are in the process of becoming important new producers,” Kasande said.

He named such countries like Sierra Leone, Liberia, Ghana, Mauritania and Mozambique adding that Uganda’s contracts are only good as enforcement.

Documents circulated to lawmakers indicate that government will get royalty fees on monthly basis/quarterly basis in kind or cash and the percentage will be based on the size of the producing oil field.

For instance, a field that produces 2,500 will attract 5% of royalty fees. When production doubles to 5,000 barrels then 7.5% as royalty fees will be levied.

An oil field that produces 7,500 barrels will be subject to 10% of royalty fees and a field producing above 7,500 barrels is subjected to 12.5%.

However, lawmakers were interested in understanding how government monitors recoverable costs to ensure that oil companies do not inflate them.

Kasande explained that exploration, development and production costs are ring fenced around the each contracted area and that the annual recovery limits is between 50 and 60% of gross oil production.

He added that unrecovered costs carried forward to subsequent years until full recovery is completed.

The advisory committee reviews and approves any proposed exploration, appraisal and development and production operations contained in the annual work and budgets.

 “All institutions of government that are responsible for various aspects in these contracts need to do their monitoring and enforcement very diligently,” Kasande advised.

Speaker of Parliament, Rebecca Kadaga, said the information was important because it provided background for lawmakers to understand the draft petroleum laws awaiting parliamentary debate.

“Our mandate as Parliament is to make laws on any matter for the peace, order, development and good governance of Uganda and to protect the Constitution and promote democratic governance in Uganda,” she said in her opening remarks.

“We expect that key aspects of the sector that have for long caused concern such as stabilization, confidentiality and arbitration will be addressed.”

Eng Irene Muloni, the minister of energy and mineral development said specific objectives was to the status of the oil and gas sector in Uganda, appraise parliament on the implementation of Uganda’s national oil and gas policy.

The other objective, according to the minister, was to give an international perspective on petroleum industry best practice and to highlight the principles embodied in the petroleum bills.

“We hope the process of passing these bills into law will go on smoothly and expeditiously,” she said.

At the end of it all we will have admirable legislation for the sector that can be implemented to support the achievement of using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.”

Fred Kabagambe-Kaliisa, the permanent secretary in the ministry of energy and mineral development, said there is a need for the public to appreciate the long-term, capital intensive, high technology and internatonal nature of the oil and gas industry.

“Projects take long to mature and yet stakeholdes expect products yesterday. The communication strategy is implemented to manage expectations,” he said.

“(And) there is a need to finalise the various legislation before Parliament to stimulate activities like attracting more investments.”

Ernest Rubond, the commissioner in the petroleum and exploration department, revealed that investments in the oil and gas sector was over $1.3b at the end of last year and the resources discovered to date are in excess of 2.5 billion barrels of oil in place.

 “Investment in the sector is expected to increase especially as preparation of the infrastructure required for oil production is put in place,” he said.

“Employment opportunities for Ugandans in the oil and gas sector will increase as the country progresses the field development and production.”