After over two months, Uganda’s publicly contested upstream oil bill is not law. The law is not even on the President’s desk. According to sources in the Ugandan parliament, after the bill was passed in December last year, a final text for the President’s signature run into a snag after disagreements on its wording.
MP Abdu Katuntu [Bugweri] said there was a risk that amendments agreed to would be altered in the final document.
“ We have told the team of lawyers working on the document that they will face a legal challenge for even the slightest deviations,” he said. Katuntu and a group of Mps known as the Parliamentary Forum on Oil and Gas are currently meeting over the 3rd of the oil bills, the Public Finance Bill.
However the delays in signing the very first bill passed reflect the continual contest over every chapter and verse of arguably the most fought over law in recent years. The first draft of the bill appeared in mid 2010. Almost 3 years later despite the rhetoric from government officials that the law was key to unlocking the sector, there is no law.
To be fair oil itself was discovered in 2007. One industry watcher likened decision making in the Ugandan system to the sitcom “Generations”, popular on the beleaguered UTV/UBC. ” Just when you think you have figured it out, a new twist develops, until the next episode”.
Some sources say the Presidency as well as Ministry of Energy technocrats who felt they lost out to politicians during the highly charged “oil debate” and have expressed reservations about specific clauses after the bill made it out of the House.
“ There is a local content provision for example that says 48% of industry be reserved for indigenes. This is causing discomfort for investors and is a concern of the President” said an industry insider. The delay over the bill presents legal minds with additional headaches.
Under the Ugandan constitution a bill passed by the House should be assented to within two months by a sitting President. In the case of the petroleum law the lull has been created after the bill passed the house but never made it to the Presidency. While there is no legal vacuum in Uganda which has a 1985 law for the sector, the Petroleum Exploration and Production Act of 2012 was meant to give a legal facelift to a sector which has drawn international interests from such global giants as France’s Total and China’s CNOOC.
The two companies together with their partner, UK listed Tullow oil are preparing fields for production, licenses which lawmakers and the industry expect will be issued under the new and not the old law. The legal limbo over the bill also adds to the Ugandan reputation now of procrastination and delays traced to political arrangements that stifle decision-making.
Prior to the claims over corruption in awarding of exploration licenses, a process that led to the “oil debate” of 2011, decisions in the sector were limited to a small but growing technical elite, which also advised the President. Since then however decisions across the sector have been stymied by the fear of political backlash- led by the Presidency which has sought to rekindle public confidence by investing in a political process of consultation through the ruling party’s parliamentary caucus as well as regular press conferences.
It has not helped that tax disagreements have also slowed down what companies like Tullow refer to as a “final investment decision” on how production will proceed.
Uganda is expected by the end of this month to issue a tender for a refinery- a key plank of its policy but disagreements with the oil companies over tax as well as whether a refinery will make investment sense has cast a pall over the process. The midstream (refinery bill) itself was passed but it’s unclear if it can be signed into law before the primary bill. In fact it’s unlikely. Meanwhile Uganda is engaged in legal battles over tax in 3 different tribunals. Its case with Heritage Oil awaits a ruling in a London arbitration court while Tullow oil begins a London hearing this week of its dispute with Heritage Oil in which Uganda has an interest. The company has also instituted arbitration in Washington over Valued Added Tax concerns and reportedly filed a case against Uganda in London in a latest escalation of legal disagreements. The tax issues loom large for the companies especially since no production is taking place to leverage against present tax liabilities. Its unclear what Uganda owes in past tax receipts for VAT but estimates put it at some 40M USd money the government, which is struggling to pay public servants, does not have.
‘It’s unclear what Uganda owes in past tax receipts for VAT but estimates put it at some 40M USd money the government, which is struggling to pay public servants, does not have.’
Uganda would have plenty of money if it had not squandered it on buying a fleet of fighter jets last year. Also, the country would be earning real money from oil today if it had not put barriers in the way of developing its oil resources. Look at Ghana (where Tullow also operates) which discovered its first oil long after Uganda and is now producing over 100,000 barrels per day heading for 200,000 with new discoveries coming on stream – real money at over US$100/barrel. The debacle of trying to impose ENI as Tullow’s partner a few years back is just one example of how politicians in Uganda delayed the whole process. I for one, believe the allegations of corruption that were aired around that event by Wikileaks were well founded. Otherwise why would Ugandan politicians try to bring ENI into the frame?
Uganda has not dealt honestly with Tullow Oil and Heritage who invested in good faith to discover oil to Uganda’s benefit. The current tax litigation in Uganda, Washington and London is evidence of that. Now the politicians are getting in on the act to try to prise more back on that oil has been discovered. The discoveries made under the current Production Sharing Agreements (PSAs) should be treated under current laws and the current PSAs should be honored. Introducing legislation that alters or diminishes the current PSAs should be challenged in international courts and will not succeed. New licenses covering new areas can be issued under new legislation and investors can decide if the terms are worthwhile then but you cannot change the terms of existing agreements retrospectively without incurring international litigation and unnecessary additional expense.
Investors will be aware of the corruption and delays that characterises doing business in Uganda and that will diminish their interest in investing there. It’s time to clean up your act Uganda!
I’m a small private investor in Tullow Oil through the LSE. I have watched the situation in Uganda stagnate over the last 4 or 5 years. I believe Tullow has made every effort to be a good corporate citizen in Uganda. I have grown frustrated at the lack of progress there. I was happy to see CNOOC and Total come on board as partners a few years ago. I fear that they too will become disenchanted with Uganda and its corrupt politicians. I do believe that there are good quality politicians in Uganda who can make a great success of the oil resource that is being developed for the people of Uganda with a fair return to the exploration companies.
These are my own views and not those of the company.
I’m Pecunius
Its so unfortunate that to this date we are still stagnated with the fact that oil production is at a stand still as a result of corrupt officials who see this as another source of ‘eating’ quick and huge amounts of money reading through your views and that of Pecunius i have this strong belief that the problem is ours as Ugandans who have failed yet again to honestly decide and also selflessly plan and develop our future with a strong foundation.
Trillions were wasted in purchase of planes that can easily fade away in an instant an example are those that didn’t make it to Somalia, the narrow thinking of most of our politicians who thought that with this discovery even before production we need to protect the oil resource which was still underground and guess what? protecting it with missiles!!! who was going to steal the unprocessed oil?. i do believe the oil companies would not after all their integrity is there reputation in many countries take Ghana for example that has made them leading producers of oil.
Ever since then the public service has gone into shambles with poor service delivery coupled with the on going unearthing of the corrupt officials in the various ministries. Who is to blame? wont solve anything the fact that the oil resource is looked at as the only relief that can help solve our deeply indebted and poverty stricken nation my worries have grown increasingly with the levels of corruption in the country it even cripples my heart to see that the would be genuine investors in the country are shoved away to bring in the unscrupulous ones that only aim at making profits and leave shoddy and sub standard work upon our country. For heavens sake where did ENI come from when u have issues with the initiators of the oil discovery Tullow and with mega contracts still with them why do u bring in another party that is not even assuring you of success