The Uganda National Oil Company Ltd needs at least $ 759.4 million (Approximately Shs 2.8 trillion to cater for government's equity in oil projects.
Members of Parliament on the Natural Resources Committee have asked government to increase its funding to Uganda National Oil Company Limited (UNOC) to enable the Company execute its mandate. "The Committee noted that Uganda National Oil Company is not adequately financed to realize its equity contribution to the development of the refinery, pipeline and petroleum storage terminal," the Committee noted in the report.
It adds, "The budget ceiling for UNOC for the financial year 2019/20 is Uganda Shs 31.48 billion against the initial budget requirement of Shs 102.3 billion leaving a funding gap of Uganda Shs 70 bn."
Due to the funding gap, MPs noted, "UNOC cannot fully participate in key activities with joint venture partners - Tullow Uganda, CNOOC Uganda and Total E&P Uganda, which are fully funded thus failing to protect government's commercial interests in development of the oil and gas sector,"
MPs emphasised that UNOC's inability to cash calls in time attracts compound interest costs and dilution of rights when in default.
UNOC is established by section 42 (I) of the Petroleum (Exploration, Production and Development) Act, 2013 as a private company, wholly owned by the state to manage the country's commercial interests and state participation in the petroleum sub-sector.
Under section 43 of the same Act, among other functions of the national oil company is to manage business aspects of state participation, develop deep expertise in the oil and gas industry and participate in accordance with the terms of petroleum agreements, in joint ventures in which the company holds an interest on behalf of the state.
"UNOC should adequately be financed to ensure good management of Uganda's commercial interests within the oil and gas sub-sector," the Committee recommended in the report
Equity contribution of Shs 2.8 trillion
According to the Budget Performance Report by the Ministry of Energy and Mineral Development 2018/2019, UNOC has to cash in its equity requirements with joint venture partners in the oil refinery, crude oil pipeline, storage terminal among other oil projects.
"UNOC requires USD $ 795.4 million (Approximately Shs 2.8 trillion) to cater for government's share in the investment projects. As we draw closer to the FID for each of the projects, UNOC needs to firm up its equity participation and must be in position to settle it when it is called," budget performance report reads in part.
UNOC has a participating interest of 15% in each of the oil blocks and therefore is equally obliged to financially contribute towards the development of the oil fields. "Unfortunately, all revenues from the petroleum sector go to the Petroleum Fund which is inaccessible by UNOC. The Joint Operating Agreement (JOA) to which UNOC is a party requires parties to answer cash calls within a period of 5 days failure to do so attracts heavy penalties.," the report reads in part.
In 2017, the then Chief Operations Officer, UNOC Proscovia Nabbanja noted that financing was one of the key challenges facing the company.
"Financing is our biggest challenge. Currently, we are being treated like a Ministry, yet we are private limited company, we cannot respond to cash calls for investment. We are dreaming big, but without financing, it is a big problem," Nabbanja who is now the Company's Chief Executive Officer (CEO) said.