Michael Wakabi and Esther Nakazzi
5 October 2008
Uganda's emerging oil industry is in the spotlight yet again, as it emerges that the government has been quietly seeking Nigerian input to guide its development.
A report to this effect, vehemently denied by Energy Minister Daudi Migereko, are contained in the September 2008 edition of the Eastern Africa Association Newsletter.
An exclusive club of blue-chip companies and multinational corporations with business interests in the region, the association periodically releases a newsletter that tracks political and economic developments in East Africa.
"Optimistic reports continue to be received from the oil companies prospecting in the Lake Albert and Edward basins about the extent of the proven oil deposits. Less encouraging are the reports that the government has asked the Nigerians for assistance in developing the Uganda oil industry.
"Given the Nigerian track record of mismanagement and graft in their own industry, and the failure of successive Nigerian governments to use the proceeds of their oil output for the benefit of the Nigerian people, one could wish the Ugandans had chosen other more suitable mentors," reads the commentary.
The finer details of Uganda's oil exploration programme, especially the production-sharing agreements signed with the prospectors, have remained largely opaque, with the government showing little willingness to make them public.
Speaking to The East-African, Mr Migereko denied that any contract had been entered into with any Nigerian entity but conceded that Ugandan teams had been sent to that country to learn from their experience.
Equally, he said, the country had sent people to Trinidad and Tobago for training because of that country's successful management of its natural gas resource.
"To be honest with you, I am hearing this for the first time. What is true is that we have sent people to Nigeria to look at their industry and in the process learn from their experience with a view to avoiding the kind of mistakes they made," Mr Migereko said.
He added that the numerous expressions of interest in the industry by various companies could have been construed to mean an engagement but no contract had been entered into with any party.
"From time to time, a number of companies make offers to help here and there, but that does not mean that we take up those offers."
Mr Migereko further revealed that the Cabinet was working on two new laws to guide the industry's development. One addresses oil resource management, covering aspects such as exploration, production and development of secondary industries, while the other relates to oil revenue collection and management.
"We are working on those laws right now and we have tried to consult as many people as possible in the affected communities and the country as a whole in the development of an oil policy. The laws are supposed to be out by December, but the problem is that public expectations are too high. You have people talking about royalties even before you have collected a cent of oil wealth," he said.
The minister said that, in order to avoid the problems experienced by Nigeria in relating to oil resource communities, Uganda's preferred approach was to ensure that local communities benefited from any infrastructure developed to exploit the resource.
For instance, when power generation commences after a limited production programme starts next year, power will not just be transferred to the national grid but will be locally distributed to give locals a stake in the programme.
"In Nigeria, people see pipelines that have little bearing to any benefits for the local community," Mr Migereko said.
Several years after Uganda discovered commercially viable oil deposits in the Albertine Graben of western Uganda, agreements the government signed with the oil exploration companies have still not been fully disclosed to parliament or the public.
There have also been concerns about environmental protection, since at this stage there is no clear demarcation of responsibility between the government and oil companies.
In July this year, the government held a joint public hearing in an attempt to bring some degree of transparency to the whole process.
Although it was adjudged a fair hearing, the government was not forthcoming on the confidential clauses of the production-sharing agreements (PSA), citing economic and security reasons for keeping the information away the public.
The oil companies argue that it is up to the government to choose whom it shares the information with.
So far, contracts have been entered with three companies -- Tower Resources, Tullow Oil and Heritage Oil and Gas. Civil society has been pressing the government to make the PSAs public before extraction of oil begins.
Heritage Oil has recorded flows of 14,000 barrels a day in one of its recent wells, while Tullow Oil is proposing to pump 4,000 barrels a day in a limited production plan next year.
From what has been revealed so far, the government agreed to a royalty whose amount is not known while the companies will recover costs up to 50-60 per cent initially with any unrecovered costs automatically rolling over into the subsequent years.
In fact, when The East-African revealed that the state would receive only 30 per cent of all total revenue and the companies 70 per cent, ministry officials said the reverse was true. But no one knows how much tax, royalty payments and other expenses the companies will demand.
It is assumed that since Uganda has not spent any money on the exploration, the companies will obviously get a bigger percentage for a given period to recover costs.
Other costs paid by the licensee include a $2.5 per square kilometre fee for land in the exploration area; a training fee of $1,200 per year and once production starts, $500 per square kilometre.
A negotiated fee is also supposed to be paid for the signature bonus. A production well may require an area of not more than 100 by 100 metres while a production facility may require 1 square km of land.
It has been argued that it is important for parliament and the public to know the expected earnings from oil as a check against corruption.
Local media have reported that the Bunyoro kingdom first demanded half of the revenue from the proceeds while some leaders were suggesting remittances to the tune of 30 per cent to local communities.
Norway has also been active in helping Uganda develop a regulatory framework for its oil and natural gas resources.
The accent of this involvement has been on helping Uganda adopt Norway's approach of using oil and gas resources to benefit society, and its best practices on protecting the environment while carrying out oil exploration
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