First oil production stirs debate on revenue management
May 05, 2011
UGANDA'S first crude oil production is expected to start next month as a pilot project. The three-month project will see crude oil between 500-1,000 barrels pumped out daily to test oil wells’ behaviour and flow rate before commercial production commences.
By IBRAHIM KASITA
UGANDA'S first crude oil production is expected to start next month as a pilot project. The three-month project will see crude oil between 500-1,000 barrels pumped out daily to test oil wells’ behaviour and flow rate before commercial production commences.
Three wells, Kigogore 1 and 3 and Kasameme 1, will be tested.
This will also help establish the volume of oil in the wells before a refinery is set up.
In the early exploration days when such tests were carried out, the crude was burned or flared, resulting in environmental pollution.
However, this time the petroleum exploration and production department has encouraged Tullow Oil Uganda to pump the crude, load it on specialised trucks and sell to industrial users.
“We are gearing up for the well-testing exercise that will commence at the end of July,†Jimmy Kiberu, the Tullow corporate affairs manager, said.
The development has, however, raised debate on the management of revenue from the crude sales.
“The oil and gas industry is moving at a very fast speed for the local community to understand,†Michael Mugume, the founder of The Albertine Rift Basin Environment Watch, a local non-profit body in Hoima, observed.
“We are not aware about the crude oil testing project, or how the oil is going to be transported to the market and how the revenue will be shared.â€
There is worry on how the revenue accruing from the first oil would be managed and shared without updated laws, a national oil company and a petroleum authority to regulate the nascent sector.
“There is no clear mechanism to empower citizens. We don’t have powers to demand for accountability because there are no clear systems to manage the sector,†Dickens Kamugisha, the African Institute of Energy Governance boss, said.
This calls for a strong legal and regulatory framework for oil revenue needs to have stability laws on capital recovery rules, income and withholding tax and royalty rates, and maximum rate on import duties.
But sources privy to oil and gas development said the Government would grant the petroleum exploration and production department temporary powers to manage the oil.
“This is because the crude sales are part of the wells’ appraisal process and PEPD will be the recognised authority for the production of the test crude on behalf of Uganda for the 90-days. This is a unique production stage,†the source explained.
The Government will also authorise the use of the production sharing agreements (PSAs) as far as crude sales are concerned, according to another source.
Twenty-four regional civil society networks on environment and petroleum in the Albertine Rift under the leadership of World Wildlife Fund for Nature, called for transparency and accountability, saying it is important for the Government and the private sector to secure the social licence to operate.
“Without addressing these two important issues, CSOs and the communities are left to speculate. This could lead to negative perceptions that will be hard to reverse in the end,†they stated in a joint document, “Our 12 government asks.â€
“The Government should make public the contents of Production Sharing Agreements so that the civil society and citizens can hold them accountable to the commitments they made therein regarding social, environmental and economic aspects associated with petroleum development,†the statement said.
When contacted, Fred Kabagambe-Kaliisa, the permanent secretary in the energy ministry, said: “All the issues you are raising are under discussion and we shall inform the public at an appropriate time.â€
Asked whether it would publish the money it pays to the Government, Tullow’s Kiberu said: “We never provide details of our operations this way. The PSAs are confidential at the request of government for commercial reasons. That said, the agreements are in line with those signed elsewhere in the oil and gas industry.
But communities in the Albertine Basin have called on the Government to ensure their views are sought early in the decision-making process. They also want the Government to give them adequate feedback on how community views have been integrated in the final decisions.
UGANDA'S first crude oil production is expected to start next month as a pilot project. The three-month project will see crude oil between 500-1,000 barrels pumped out daily to test oil wells’ behaviour and flow rate before commercial production commences.
Three wells, Kigogore 1 and 3 and Kasameme 1, will be tested.
This will also help establish the volume of oil in the wells before a refinery is set up.
In the early exploration days when such tests were carried out, the crude was burned or flared, resulting in environmental pollution.
However, this time the petroleum exploration and production department has encouraged Tullow Oil Uganda to pump the crude, load it on specialised trucks and sell to industrial users.
“We are gearing up for the well-testing exercise that will commence at the end of July,†Jimmy Kiberu, the Tullow corporate affairs manager, said.
The development has, however, raised debate on the management of revenue from the crude sales.
“The oil and gas industry is moving at a very fast speed for the local community to understand,†Michael Mugume, the founder of The Albertine Rift Basin Environment Watch, a local non-profit body in Hoima, observed.
“We are not aware about the crude oil testing project, or how the oil is going to be transported to the market and how the revenue will be shared.â€
There is worry on how the revenue accruing from the first oil would be managed and shared without updated laws, a national oil company and a petroleum authority to regulate the nascent sector.
“There is no clear mechanism to empower citizens. We don’t have powers to demand for accountability because there are no clear systems to manage the sector,†Dickens Kamugisha, the African Institute of Energy Governance boss, said.
This calls for a strong legal and regulatory framework for oil revenue needs to have stability laws on capital recovery rules, income and withholding tax and royalty rates, and maximum rate on import duties.
But sources privy to oil and gas development said the Government would grant the petroleum exploration and production department temporary powers to manage the oil.
“This is because the crude sales are part of the wells’ appraisal process and PEPD will be the recognised authority for the production of the test crude on behalf of Uganda for the 90-days. This is a unique production stage,†the source explained.
The Government will also authorise the use of the production sharing agreements (PSAs) as far as crude sales are concerned, according to another source.
Twenty-four regional civil society networks on environment and petroleum in the Albertine Rift under the leadership of World Wildlife Fund for Nature, called for transparency and accountability, saying it is important for the Government and the private sector to secure the social licence to operate.
“Without addressing these two important issues, CSOs and the communities are left to speculate. This could lead to negative perceptions that will be hard to reverse in the end,†they stated in a joint document, “Our 12 government asks.â€
“The Government should make public the contents of Production Sharing Agreements so that the civil society and citizens can hold them accountable to the commitments they made therein regarding social, environmental and economic aspects associated with petroleum development,†the statement said.
When contacted, Fred Kabagambe-Kaliisa, the permanent secretary in the energy ministry, said: “All the issues you are raising are under discussion and we shall inform the public at an appropriate time.â€
Asked whether it would publish the money it pays to the Government, Tullow’s Kiberu said: “We never provide details of our operations this way. The PSAs are confidential at the request of government for commercial reasons. That said, the agreements are in line with those signed elsewhere in the oil and gas industry.
But communities in the Albertine Basin have called on the Government to ensure their views are sought early in the decision-making process. They also want the Government to give them adequate feedback on how community views have been integrated in the final decisions.