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Lead oil exploration firm, Tullow Oil Plc says it has nothing to hide. But the government continues to hide the Production Sharing Agreements (PSAs) it has signed with Tullow and others. Why?
Research shows that the more resources a country has, the fewer chances it has to economically develop unless it can overcome the so-called “resource curse”. Discovery of oil breeds armed conflict and corruption. In addition, rent replaces entrepreneurship as those in position to do so seek to steal the oil wealth. Secrecy is the weapon favoured by oil-wealth thieves. Can President Yoweri Museveni avoid the curse?
The story starts in the former fishing village of Kaiso-Tonya on the rocky eastern shores of Lake Albert. Fishing still goes on today but with little hope of continuing for much longer. Oil exploration activity is rapidly displacing the local fishing community.
Kaiso-Tonya residents still live in squalid, malaria mosquito infested camps tormented by dysentery, bilharzias and other waterborne diseases.
But the former game reserve town on the Uganda side of the border with the Democratic Republic of Congo (DRC) which is six and half hours by road from Kampala has rapidly turned into a drilling rigs village.
Kaiso-Tonya is where Tullow Oil, Heritage Oil and Nabos Drilling Company are based as they prospect for oil in the western Uganda’s Albertine Rift Valley region on behalf of the Uganda government.
Kaiso-Tonya was in the news recently when a near riot broke out on June 17 after journalists and Civil Society Organisations (CSOs) were barred from entering the Tullow Oil drilling area.
Tullow is in the eye of the storm as the dominant oil exploration company in Uganda. It holds interests in three licences on the Ugandan side of the Albert Rift Basin EA 1 (Block 1), EA 2 (Block 2) and EA 3 (Block 3A).
Uganda also has oil exploration, production and sharing agreements with Heritage Oil Ltd (HOIL.LN) and Tower Resources Plc (TRP.LN).
The journalists travelled to Kaiso-Tonya on invitation by the African Institute of Energy Governance (AFIEGO). Together with members of the East African Legislative Assembly, they expected to see first-hand progress made in the oil sector which has been shrouded in secrecy. But it was not to be.
Unknown to the group, their visit coincided with unprecedented challenges being faced in the Uganda oil sector
Tullow is under pressure from the government over disagreements on whether a huge refinery, a pipeline, or a pipeline and a small refinery is the best route for exploiting Uganda’s oil.
Disagreements have led to a delay and shift in plans on at least two occasions. Now the early production scheme that was projected to start this year has been pushed to next year, or even 2012.
“We are in the process of finalising details to put together a power project in 2010.What we are aiming at is to provide an early power project in the Kaiso-Tonya area. With the construction commencing in 2010, hopefully we shall have a transmission line by the end of 2010. That would mean that gas and oil would be the basis of power generation in that area and that is what we are working towards. At this stage we won’t be producing petrol or diesel,” Brian Glover, Tullow’s Business Unit Manager for Uganda and East Africa told The Independent last week.
About Tullow Apart from its Ugandan and Ghanaian oilfields, Tullow has interests across the African subcontinent, with oilfields and acreage in countries from Cote d’Ivoire, Congo, Senegal, Namibia, Equatorial Guinea and Tanzania. It also produces oil in Gabon in West Africa. Tullow is the largest owner of oil acreage in the country. Samuel Dossou, formerly the chief oil adviser to Gabon’s leader Omar Bongo, has emerged as one of the largest single shareholders in Tullow. Dossou’s Monaco-based Petrolin firm owns over one per cent of Tullow – almost double Mr Heavey’s stake. Mr Dossou may even own a larger share. Tullow has estimated that African investors own close to 8 per cent of the company. This is largely due to shareholders in Africa Energy taking shares instead of cash when Tullow bought the firm for €390m in 2004. Last October, Tullow issued 6.3 million shares to the African Petroleum Investment Company as a final part of the buyout of the Energy Africa deal. The African Petroleum Investment Company owned a stake in a joint venture with Energy Africa in Gabon. Last year Tullow signed a contract to hire one of the largest rigs in the world for a five-year term – that at a cost of $1m a day. Tullow can produce up to 250,000 barrels a day. Drilling an oil well can cost between €40m and €80m and take between two and three years before production is achieved. |
Observers say if differences on production are not resolved amicably, Tullow could find itself looped out.
But while commenting on the long-running debate, Tullow chief executive Aidan Heavey told the Irish Times: “If they want the oil refined locally that’s what we will do. It’s their oil, we don’t own it; we are essentially a service company working for the country.”
Tullow’s style is to try to please governments in the countries where it operates in order to avert political risk like having its assets seized by an angry government.
In a recent interview, Heavey recalled an experience in Congo. Tullow had an 11% share in the M’Boundi field and was getting 4,000 barrels a day. It decided to sell to the Koreans for a very high price. The government refused to approve the deal. Tullow is still stuck there.
The same applies to how it handles its production sharing agreements (PSAs). Heavey is on record saying that in a major change from previous decades, the bulk of oil money would now go to the government.
“It used to be 70-30 (in favour of the oil companies) now it’s the reverse of that.”
But that is only part of the story.
Heavey, for example, dismissed claims of a “political risk” looming over the oil sector in Uganda. But just a week before, on Friday June 12, the Wall Street Journal had run a headline: “Uganda-DRC: Tensions mount over Lake Albert resources, oil and gold deposits in a border town breed confusion”.
The story claimed tensions were mounting between Uganda and DRC because the DRC government had put up a checkpoint at Goli, a major commercial town in its territory of Mahagi, Ituri.
The story quoted Betty Adima, the Resident District Commissioner (RDC) of Nebbi district in Uganda (which is adjacent to Congo’s Ituri region) fuming: “I believe this is just aggression. It is provocation. That is the simplest way I can put it.”
The story re-awakened similar tension in August 2007 when a British engineer exploring for Heritage Oil on the Ugandan side of Lake Albert was killed in armed clashes between Uganda and DRC armies. The two countries almost went to war.
Tullow holds rights to Block I on the DRC side of Lake Albert, which straddles the border with Uganda.
On March 4, the DRC President Joseph Kabila and Museveni on March 4 agreed to accelerate the planned joint exploration of oil in the region.
Meanwhile, activists have since threatened to sue the government for failing to make public the contents of the oil production agreements signed with exploration companies operating in the Albertine Region.
When asked about the secrecy surrounding the agreements, Energy Minister Hillary Onek waves the government’s oil policy which he claims is a public document having been debated and passed by Parliament.
“All the members of Parliament know it and for negative political motives they create the impression that whatever this ministry is doing is secretive,” he says, “As government we don’t really have anything to hide.”
Even Bukhooli South MP Patrick Ochieng, the vice chairman of the Natural Resources Committee of Parliament, said there is nothing secret about the oil deals.
“The only issue is that there are some clauses in the production sharing agreement which are not supposed to be disclosed to everyone. The Albertine Graben was divided into many blocks and some have not yet been given out. When they are all given out these clauses will be made public.”
Despite the official claims of transparency, even people who closely watch the Ugandan oil sector are in the dark.
AFIEGO chief executive Dickens Kamugisha says the “government’s refusal to make public the contracts contravenes the constitution and the Access to Information Act”.
Kamugisha says the CSOs and the National Association of Professional Environmentalists (NAPE) with funding from the National Democratic Institute of the US government wants the Constitutional Court to order the government to make the agreements public before oil production starts.
The activists are asking questions like when is the EPS likely to start, when is the New Petroleum Bill likely to be tabled in Parliament, are there any revenues the government of Uganda is getting as signature bonuses on licences with the oil exploration, how many licences have been issued so far, how many PSAs have been concluded and which law in Uganda regulates the importations of oil companies, and what law regulates developments by oil companies under corporate social responsibility?
There are concerns about how the 2008 Oil and Gas policy of Uganda is being implemented and also practical concerns like “if oil companies insisted on exporting crude oil instead of building a refinery, what will the government do considering that the companies are spending their own money? Will the government pay off the companies?
