PoliticsNews & AnalysisUganda's politics and bureaucracy block the grand oil plan

Fri,17Nov2017

Posted on Monday, 05 November 2012 15:27

Uganda's politics and bureaucracy block the grand oil plan

Tullow hopes approval will be given to start production work at its two Buliisa sites in a few months/Photo©ReutersThe government has been slow to create new legislation to regulate the industry, and is engaged in a long-running struggle with companies over taxation and infrastructure programs.

 

Politicking, bureaucracy and commercial rivalries help explain the long delays in developing Uganda's two billion barrels of oil reserves. Although the government proudly announced the commercial viability of its reserves in 2006, production is unlikely to start before 2017, according to Loic Laurandel, Total Uganda's general manager for exploration and production.

Total and the China National Offshore Oil Corporation (CNOOC) bought into Uganda's oil industry in a $2.8bn deal with Ireland's Tullow in February. But the investment has been plagued by disagreements over strategy and the government's unfinished business with Tullow's former partner Heritage Oil.

After the government launched a case in the London High Courts last year to force Heritage for pay more than $400m in capital gains tax after it sold its equity, the two sides started closed-door talks, prompting suspicions of backroom deals.

Roll out the barrels

The Ugandan government insists that companies investing in the country's oil must build a refinery with a capacity of least 150,000 barrels per day near the Lake Albert oil basin. Director of the petroleum exploration and production department, Ernest Rubondo, says the refinery is a "strategic" objective.

We want to exhaust the present discoveries and move them to development before making any new commitments to the sector

The government is intent on getting a refinery off the ground before moving to the next stage. "We want to exhaust the present discoveries and move them to development before making any new commitments to the sector," says Lawrence Kizza, director of economic affairs at the finance ministry and coordinator of an interagency group on the oil sector.

Total, CNOOC and Tullow question the commercial viability of the government's plan. Instead, they propose to build a refinery with capacity to process 20,000 barrels per day and a $5bn pipeline to the Kenyan coast. The companies have costed their development plans for oil production at another $7bn.

Under pressure from groups such as the Kampala-based Civil Society Coalition on Oil in Uganda (CSCO), the government agreed to set up a panel to review the oil development plans publicly. Few would demur from that position, but the minutiae of oil policy has become heavily politicised. CSCO chairman Henry Bazira says policy has been undermined by secrecy, heavy-handed executive controls and corruption.

Together with other activists, Bazira's group is demanding to know details about the government's negotiations with Heritage over its tax obligations. "The whole affair has transfixed the government. Nothing else is working. Everyone is focused on the money from the tax. Nothing is moving on," says a senior manager in the oil business.

Parliament is taking a long time to pass three new bills governing the oil industry, including the Public Finance Bill (2012), which will determine revenue management.

Lessons learnt

After much delay, the National Environmental Management Authority (NEMA) released its guidelines for oil waste disposal in May. NEMA director Tom Okurut said the agency is underfunded and that until June it had just one officer overseeing the entire Albertine basin.

Another two have been appointed, but the government rejected the agency's plea for an additional $2m for this financial year. Tullow Uganda alone has nine officers dedicated to the issue.

Uganda's technical staff say "lessons have been learnt" since the first generation of contracts. The government has not made the second generation of agreements public, but it has been taking a tougher line over stabilisation clauses. These are the provisions that impose swingeing fines on governments should they try to renegotiate taxation liabilities.

The second generation of contracts took much longer to negotiate, but insiders say the government has got a better deal. No oil company has secured a development licence yet because of delays in granting approvals. Oil experts predict a breakthrough in the next few months, with the government giving approval to Tullow to start production work at two sites in Buliisa. The days of waiting may soon be over●



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