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Lack of a legalframework for Oil & Gas undermining the Industry.


June 24, 2011

Secrecy, lack of regulation undermining oil industryBottom of Form
Posted  Friday, April 8 2011 at 00:00

The developments in Uganda’s oil industry are turning out to be a classic parody of an oil kleptocracy in the country. The government has continuously fed the public with a deceptive lustrous emerging industry, yet it continues to engage international oil companies in questionable transactions.

It all started in 2004 when Tullow Oil acquired South Africa-based Energy Africa’s interests in Uganda at a paltry $570 million. It also acquired Australian-based Hardman Resources interests in Uganda at $1.1 billion in September 2006. Both transactions were not taxed by the government of Uganda, yet the Income Tax Act provided for a Capital Gain tax.

In 2010, the Government of Uganda got itself entangled in an avoidable tax dispute between Heritage and Tullow worth $404 million originating from 1.45 billion acquisitions of 50 per cent interests of Heritage in the oil wells in the Albertine Graben, giving Tullow Oil 100 per cent stake. All the above could have been avoided had government heeded expert advice to suspend all oil transactions and first lay a harmonious policy and legal framework that would institutionalise the sector. Amidst this confusion, the President instructed that no oil deal was to be concluded without his consent.

In March 2011, a beaming Minster of Energy and Mineral Development appeared on state television flanked by the head of Uganda Revenue Authority and proudly but falsely declared that the standing dispute between Tullow Oil and the Government of Uganda had been resolved with Tullow agreeing to pay all the outstanding debts owed. More drama unfolded at a press conference in Kampala held by Tullow Oil on March 31 when it, in essence, admitted to have been compelled by the Government of Uganda to deposit $313.4 million in 10 days if the government was to endorse its planned farm-down of 1/3 of its interests to CNNOC and Total at a cost of $2.93 billion accruing a capital gain tax of $472.7 which, according to London (Dow Jones –Newswire), the Chief Executive Officer of Tullow, Aidan Heavey, admits is money owed to the Government of Uganda, yet his operations manager in Uganda disputes and now seeks the intervention of the Tax Appeals Tribunal.

In essence, the Government of Uganda abandoned an unresolved tax dispute just to deliberately enter into another. The reason advanced by Tullow Oil for disputing the current tax dispute is lack of adequate petroleum laws. While the government was quick to pass the Cultural Leaders Bill into Law before the elections to subdue cultural leaders, the Petroleum (Exploration, Development, Production and value Addition) and Revenue Management laws have been shelved to enable government continue secret deals that have not been sanctioned by Parliament.

One is left wondering the wisdom, expertise and or intentions of government representatives in the conclusion of these dubious transactions. Why is the government defying all expert advice and is in such a hurry to continue sealing deals in an unregulated industry? Where is the accountability for the $121 million paid by Heritage and the $141.8 million recently paid by Tullow?

Could this be evidence that the oil cancer is already eating up our own political fabric?

Mr Bwesigye is A Minerals, Oil & Energy Justice Advocate
donbinyina@yahoo.com

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Mr. Bwesigye, I am not sure if you were able to see last Thursday's event that was webcast on GOXI's homepage regarding the disclosure of oil agreements.  The discussion was focused on Ghana as a case study for contract disclosure, sharing some of the advances and also the challenges that remain for the country even after publishing 7 petroleum contracts.

One of the participating discussants was a representative from Tullow Oil who echoed Mr. Mohammed Amin Adam from the Civil Society Platform on Oil & Gas on how it is in the interest of all stakeholder to make oil contracts publicly available. Tullow Oil began oil production last year in Ghana and said in Thursday's presentation that "as long as a country wants to disclose their agreements we must not stand in their way".

Governments should provide a legal framework that makes the disclosure of the terms of the agreements between the governments and the oil and gas companies mandatory. This will be the only way that civil society, media and investors can access this type of information to monitor these contracts and hold governments accountable.  It can also provide the necessary legal mechanisms in place to follow up when there are disputes, such as the one you are sharing here with us.  Implementing these types of laws can help close some of the gaps that persist in some of these countries where corruption is present, and instead assure that  that the wealth obtained is invested in benefit of the country's citizens such as in the education, health and agriculture sectors.

The question is how can we jointly increase our efforts in advocating for governments to legislate in favor of making it mandatory to disclose mining, oil & gas agreements and strengthen their system to assure conditions that benefit citizens. 

Don please come to my office at Makerere University I can get you a copy call my mobile +256782 909816/+256700297045.

 

But also to add my comment I think having watched the a crude wakening for the last 3 years every day I go back to it there is  a new think I learn, I suggest those who have a copy to re-watch it because there could some significant level of being misconstrued. However, to my view there is a need of the new world order to deal with petroleum not one deciding for all of us. If not not these things that you watch in the documentary may come to your country if you discover hydrocarbons.

 

I was surprised to understand that the trade of oil ought to remain business of the business by the business for the business and that it has to remain tallying with the dollar. What if we decide that this be tallied with the Euro! shall we get a course. I am not be being clear here but some of you will get clearly what I mean

Raymond - Thank you for your comment. Please post it here: http://goxi.org/page/goxi-film-festival-a-crude-awakening-the-oil-c...

 

Bwesigye,  I don' agree with your analysis. Uganda's petroleum exploration and production is govered by: The Petroleum (Exploration and Production) act, Cap 150, Laws of Uganda 2000, Petroleum (Exploration and Production) (Conduct of Exploration Operations) Regulatations, 1993, Production Sharing Agreements, Other relevant statutes and guidelines such as Environment, Wildlife, Water and Forestry. Previously used the Energy Policy, 2002 to guid promotion of Petroleum Exploration, capacity buiolding and monitoring of activities of licensed companeis. The National Oil and Gas 2008 was formulated to address the issues in the eemergin sector after confirmation of commercial oil and gas. Maybe the laws are are old and needs update. Therefore it is not correct to say that Uganda petroleum exploration in taking place in vacuum.

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