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Uganda oil money agreements


What is govt hiding?

Kampala, Uganda | RONALD MUSOKE | Hussein Lumumba Amin, a renowned socio-political analyst, recently ignited debate on one of Uganda’s most sensitive subjects since Uganda discovered commercially viable oil reserves in 2006: What exactly will be Uganda’s share of its oil resource when production finally starts, possibly in 2025?

The subject is touchy because the government has never disclosed to the public what is in the Production Sharing Agreements (PSAs) it signed with the international oil companies. Both the government and the oil companies; Total of France and China National Offshore Oil Corporation (CNOOC), cite confidentiality clauses as the reason for the secrecy.

Lumumba Amin is neither an oil expert nor an economist but he penned a widely shared letter just a day after Uganda signed three key agreements with entities involved in the planned oil production including Total and CNOOC.

The Minister of Energy and Mineral Development, Mary Goretti Kitutu, on April 11 signed the Uganda Host Government Agreement, the Shareholders Agreement and the Tariff and Transportation Agreement at State House in Entebbe. Reacting upon the signing, Lumumba urged the Ugandan public not to get carried away with the oil excitement.

Like millions of Ugandans, Lumumba has never seen the oil agreements the government has signed with the oil companies but he made calculations based on his interpretation of reported snippets in the news media of the agreements and concluded that “Uganda got a terrible deal on its own oil and nobody should continue sugar-coating it.”

“This bad deal is not from what was signed yesterday (April 11) but from the entire oil exploration project,” he said in the letter copied to several local and international media houses.

“Let’s do the simple maths in five seconds. Today a barrel of oil costs US$60. Now the oil companies will get 70% of that which is US$42. And the Tanzanian government charges US$12.77 as transit tax for each barrel of oil passing on the Tanzanian portion of the pipeline,” Lumumba wrote.

“The oil companies and Tanzanian government take US$55 from the US$60 of each barrel, leaving Uganda to take only US$5 from each barrel of its own oil. Even a kid will know they have gotten a bad deal.”

“This alone shows that those responsible for negotiating on behalf of Uganda were either incompetent, or incompetent. What I am reading in the papers is how some individuals just trying to get everyone excited about what they themselves are going to eat from the oil production itself.”

A few days after Lumumba’s comments, on April 15, Ali Ssekatawa, the Director Legal and Corporate Affairs at the Petroleum Authority of Uganda (PAU) responded saying “that Lumumba’s claim that Uganda got a bad deal from the oil and gas projects and will only earn US$5 per barrel is not only factually wrong but does not make logical sense.”

Ssekatawa said Lumumba had “ignorantly” mixed up the money from the extraction of the oil, what he called “upstream,” with the money from transporting the oil, the “midstream.” He said the money the government expects to get must be calculated separately for each of the two segments of the value chain.

He said the East African Crude Oil Pipeline (EACOP) which will transport the crude oil from western Uganda to the Tanzanian port of Tanga on the Indian Ocean coast is jointly owned by the governments of Uganda and Tanzania, and the oil companies.  They will jointly fund it and share the dividends based on their shareholding.

The agreed shareholding on the pipeline is Total with participation of 62%, CNOOC Limited at 8%, the government of Uganda through the Ugandan National Oil Company (UNOC) with 15%, and the government of Tanzania through the Tanzania Petroleum Development Corporation (TPDC) agreeing to take up to 15%.

Meanwhile, the money the government will get from oil extraction operations will depend on what is in the Production Sharing Agreements (PSAs) and Special Provisions on the Taxation of Petroleum Operations contained in the Income Tax Act.

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