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Leaked report on oil deals puts pressure on govt

By Ariel Rubin

A scathing new report issued by the London-based environment and governance watchdog Platform has put government and oil companies under fire. Revealing for the first time one of the production sharing agreements (PSAs) between Heritage and the government, Platform’s analysis reveals that, contrary to oil company and government executives’ claims that the state would get up to 80% of oil revenues, internal figures reveal that the state will actually take in between 67%-74%. Platform’s own analysis puts the government take even lower at a potential 47.4% – 79.5%, depending on a variety of external factors (price of oil, developmental costs, etc).

Oil executives have publicly proclaimed that Uganda has secured some of the best deals in the world for its oil exploration, but this new report suggests otherwise. An April 2009 analysis of Heritage’s operations in Uganda by Credit Suisse noted that while ‘the Uganda exploration campaign has been a phenomenal success’, the ‘Ugandan fiscal terms are unattractive, with government take rising from 55% at $30 oil to 67% at $70 oil.’ A November 22 Sunday Monitor story referenced an August 2008 report commissioned by the Norwegian Agency for International Cooperation (NORAD) which noted:

‘The 2006 model PSA provides for production sharing on the basis of daily production volume. This model does not provide for the Government to capture economic rent as a consequence of higher prices, and cannot be regarded as being in accordance with the interests of the host country. ‘

Government and oil company sources have gone to great lengths to assure people that Uganda’s PSAs are more than generous. In September, a New Vision article about Aiden Heavey, the chief executive of Tullow Oil proclaimed that ‘Uganda secured one of the best deals in the world for its oil exploration.’ However, Platform’s report represents a major crack in the windshield. Without disclosure and (likely) renegotiations, it appears as though Ugandan oil exploitation could go much in the same, worrisome direction as other oil-rich, rent-seeking African countries.

In August of this year, Energy and Mineral Development Minister Hilary Onek stated that revenue PSAs signed by the government must remain confidential in order to protect the interests of both parties. But in a recent interview with The Independent, Neptune country manager Marilyn Hill said that any lack of transparency is ‘only on the government’s side’, before quickly assuring that ‘in all my experience and looking at the PSAs in other countries ‘” it’s one of the most advantageous for government I have ever seen.’

According to the Platform report, Heritage’s deal with the Kurdistan Regional Government in northern Iraq is actually a better one than Uganda’s, and ‘the KRG isn’t even a recognised state, doesn’t have legal authority to negotiate and remains under military occupation.’ In other words, it seems as though the wool might have been pulled over a naive government’s eyes. Or perhaps the hundreds of millions of dollars in signature bonuses have enticed key government figures to look the other way.

The shirking of responsibility to the citizens of Uganda allows for oil companies and government to quietly work together, securing short term deals that enrich certain elites and give the transnational oil corporations (TNOC) strongholds in the market. This in turn allows for, as Platform argues, ‘excessive profit-taking’. According to Godber W. Tumushabe, Executive Director for Advocates Coalition for Development and Environment (ACODE), this is emblematic of the ‘strategic alliance’ between the government and the TNOCs where ‘each of them can give the other as the excuse for not being transparent.’

This concern about lack of transparency has been further echoed by other civil society groups including the Wildlife Conservation Society, who have expressed concern at the lack of full-scale environmental impact surveys being conducted in the Albertine region. Sarah Prinsloo, the Oil Impact Mitigation Manager at WCS (Wildlife Conservation Society) notes that for oil companies, like all businesses, the first and foremost priority is profit maximisation. Much of the frustration lies with the Ministry of Energy where the apparent refusal to allow stakeholders to be involved in discussions over the potential impact of the extensive drilling emanates from the quandary of a Janus-faced government: trying to represent its constituents and its business interests. The Ministry of Energy is against additional investment in conservation measures because these expenses will be claimed back by the companies in the cost-recovery mechanisms. This is the problem facing the Petroleum Exploration and Production Department (PEPD) in its dual role as developer and as a ministry. It renders them totally not independent.

Speaking at the launch of the Civil Society Coalition for Oil (CSCO) on November 24, PEPD Senior Geologist Dozith Abenomugisha called Platform’s report ‘misleading’ in comparing Uganda’s deal with established oil-rich countries like Libya and Iraq as opposed to other newly explored countries like Chad and Sudan. Furthermore, he maintained, because the government’s take is based on production ‘if prices increase then the take for goverment also increases.’

Regarding the news that Heritage has sold its Ugandan interests to ENI, Minister of Energy Hilary Onek was quoted by the Daily Monitor on November 23 as being ‘unaware’ of any sale. Interestingly, Heritage’s PSA stipulates that government has to agree any new license holders. Repeated requests for comments were ignored and the Ministry of Energy’s website is defunct, not a promising sign for proponents of transparency.

For Tumushabe, the way towards reclaiming the oil exploitation process lies in serious civil society mobilisation and pressure; the answer may lie in the newly-formed CSCO. This 17-member coalition is comprised of different civil society groups with an interest in oil issues, with the objective to face and inform all relevant stake-holders ‘on the challenges and opportunities presented by oil and gas’. Pressure from below will remain an essential tool in ensuring governmental accountability and robust democratic freedom. Platform’s report and the Civil Society Coalition on Oil are two potential catalysts for change, demanding both government’s engagement with the people it represents and the companies’ engagement with the country from which they profit.


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