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sharing in governance of extractive industries

GHOSTS OF THE 2011 OIL DEBATE: OIL LAWS AND LACK OF POLITICAL WILL

Series 1

  

In late 2011, Parliament was called from recess following a petition by the Parliamentary Forum on Oil and Gas working with CSOs. This was at the back drop of the government’s refusal to disclose the oil agreements.  On the floorof parliament,a section of MPs including Hon. Gerald Karuhanga accused cabinet ministers of accepting bribes over oil deals this contributing to a hotter debate in Parliament.

 

With estimates of 1.8 to 2.2 billion barrels of oil recoverable according to Uganda’s governmentthis hapotential to overturn Uganda’s economic misfortune to middle income status by 2020 as largely promised by Politicians. President Museveni has for long claimed ownership of Ugandan oil where in 2011 directed MPs to stay out of oil dealings, debates and negotiations.

 

For some time, Parliament had been debating oil related matters and made remarkable resolutions for the oil industry. This effort by Parliament hit a snag when the cabinet mocked its efforts citing with negative policy reversals rendering parliament efforts toothless.

 

Scholars have scoffed at the arguments for and against the powers and credibility of resolutions raised by the Cabinet.

One of the key resolutions from the Oil Debate, was a moratorium imposed on all oil deals until necessary laws, regulations and policies in the oil and gas sector were passed. This was one of the nine resolutions.

 

The executive went ahead and ignored the above resolution of Parliament stating that such a resolution has“grave consequences” if enforced.

 

As Parliament, within its constitutional mandate resolved and tasked government to come up with necessary laws and table the same within 30 days and Cabinet found that tenable but no such bill was tabled in Parliament until February 8th, 2012.

 

Cabinet went on and trashed the resolution on moratorium on all oil deals on grounds that it would compromise the already existing bilateral treaties at the time. This left quite significant impact such as the collapse of the Memorandum of Understanding (MOU) with Uganda Revenue Authority (URA), government and Tullow Uganda operations on the March 15th, 2011 leaving hefty financial implications on either part.

 

As usual, Cabinet alluded that enforcing such a resolution would yield grave repercussion such as a delay in the construction of the oil refinery, pipelines and oil production.

 

 

During the farming down of Tullow Uganda to Total and CNOOC, a sum of approximately USD 434 million Had already been paid by the oil companies through taxes and other costs. About this same time, there was revenue of about USD 473 million that was unrealised on the same farm down transaction to Total and CNOOC. This was on the excuse that the taxes collected had been earmarked as part of the Energy Fund to finance the Karuma Hydropower project development whose procurement had already been ongoing. It was further stated that these oil companies had already started recruiting its staff.

 

The Memorandum of Understanding (MOU)that cabinet had earlier cited that would be complicated collapsed and no oil revenues werenotrealizeduntil a protracted court battle ensued in 2011 lasting 2 years. In 2013, a settlement of approximately USD 313 million was reached and Tullow paid to the government of Uganda on behalf of Heritage in lieu of it (unpaid) Capital Gains tax(es).

 

During the tax dispute between Uganda and Tullow, approximately USD 283 million was withheld. In a highly secured transaction, a sum of USD 121 million had been placed in Escrow to Uganda by Heritage.

 

The government of Uganda had the powers to approve Tullow’s farm down and it would benefit with a sum of USD 472 million which would not be subjected to any temporary freeze on executions of any of these agreements despite instituting the necessary laws in place. This was not any form of emergency but was handled within the 30 days in which the executive had to table the oil related bills.

 

The Karuma Hydro-Electricity power project tender was awarded by President Museveni and the oil revenues (Energy Fund) was quickly issued for this project.

 

The excuse that Tullow, Total, CNOOC had started mobilization and recruitment of staff to undertake exploration would in the normal and a sober government not be put forward. It is too weak. The operations of the oil companies would not be affected if the legislation was a priority and was fast tracked. Still the law on national content needed to guide their staff recruitment.

 

Tullow wouldcontinue todo business as usual.  With CNOOCand Total,no farm down would have happened without government approval, legislation would have served the nation better.

 

The oil refinery and oil production to-date are in auto delay moodHeritage and Tullow are out of Uganda, a clear indicator that having laws first and following them boosts investors’ confidence to invest. 

 

The urgency, speedy handling and passing of constitutional amendment bills only confirm that there was no political will to put out oil legislation by government.

 

Reasons as to why?  The answer is blowing in the wind. The Uganda Governmenthad an intentional false start in oil transactions.

 

Bwowe Ivan

LLB(Hons)MAK’ Dip LP(LDC)

New Generational Leaders Fellow

Great Lakes Institute For Strategic Studies (Gliss

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