One of the recurrent myths about the recent signing of new Production Sharing Agreements (P.S.A’s) between Uganda and UK based Tullow Oil is that President Yoweri Museveni “by-passed” Parliament and unilaterally ordered the Minister of Energy Irene Muloni to complete the deal. Mr. Museveni made claim to as much while addressing officers and men of the Uganda People’s Defense Forces during the Tarehe Sita celebrations inKasese. According to published accounts of what transpired he claimed he had ordered the Energy Minister to sign the agreements to forestall a legal challenge, which would have occasioned further delays. It later transpired that the President had also reportedly telephoned the Speaker of Parliament Rebecca Kadaga on matters related to upcoming legislation in the sector. Some suggest that he engaged the leadership of Parliament with one hand and took with the other in a show of skilled political maneuvering.
For the record I opposed the moratorium that Parliament imposed on the government signing the Tullow PSA’s from the start and will explain why later. However it is curious that the informed public, pundits and even the Presidency should nurture this myth that the legislature had been overstepped on the way to the signing of the PSA’s.
This is a complete fallacy.
When the “Oil Debate” of last year produced the famous Parliamentary resolutions it did generate debate as to whether the House could prevent the signing of the new oil deals. However it soon became clear that short of repealing the present law ( the 1985 Petroleum Act) Parliament could only offer reasoned objection to any decision that President Museveni could lawfully make to take the deal to completion.
This amounted to non-binding advise (depending on the political relationship between the sitting government and the House).
In fact objectors to this deal may have been aware that it had already dragged on for months for reasons that had nothing to do with oil bribery allegations that formed the main thrust of Mps concerns. Amongst the “non-political” reasons was the insistence by the Uganda government on stronger language on protection clauses or their elimination from the agreements in general. There were also commercial issues including tax and royalties that bear commenting on as I will shortly.
Following the “Oil Debate”, additional political pressure rained on the deal. Besides it’s public profile, Ministerial statements were made by the Front Bench, as a political war begun whose focus; the decapitating ministers over graft took off. Several Ministers have fallen. The government meanwhile also begun a charm offensive on the House. Meetings of Mps in general and in particular of the ruling party caucus were held.
At the main meeting in Kyankwanzi ( once known as the institute for political education) several civil servants were served up to explain the oil sector. They included the chief technocrat at the Ministry of Energy Kabagambe Kaliisa and his counterpart the Commissioner for Petroleum Exploration and Development Mr. Ernest Rubondo. Others were officials from the Ministries of Finance and the Revenue Authority. In effect, and for those who know the cluster of decision making within Uganda’s petroleum program Mps were met by the folks concerned directly with the deal.
Subsequently at least 3 other meetings, by my count, were held to procure the cooperation of the ruling party caucus whose members formed the spine of resistance against further government deals in the oil sector. This effort included detailed consultation on such issues as the wording of the stabilization clauses themselves. There is also evidence that retail politics on this issue was at its most intense with Mps fielding calls from the President, his Prime Minister Amama Mbabazi and a host of other officials. Once the caucus had given the nod- the deal was ready to be signed.
This route , of consensus seeking, is in stark contrast to the claims made about the deal by critics of the transaction and commentators ever since. Sure there remains disagreement about whether the deal should have gone ahead but the notion that Mps were ignored is clearly untrue. To the contrary Mps had their most involvement with the oil sector in its entire history thus far. That is factual. What is also fact is that many disagreed with the deal and did so for reasons that are also debatable.
One of the reasons I objected to the moratorium was that besides the considerable political risk it carried was that Mps chose a blockade instead of judging the merits of the deal itself which would have included examining the PSA’s.
As for the President and his team, the display of machismo over this deal also contrasts strongly to their rolling of sleeves to persuade Mps and persistent efforts to win over objecting voices. If indeed an order were all it would take to see the deal through, why bother with consensus? Some suggest the arrangement of a US$ 45,000 a piece “car” allowance for every Mp was the sweetener for the deal. But the fact that the President returned to Parliament to give a “conciliatory”speech about his decision reinforces that it was not a transaction achieved by instructions barked at on the phone to the energy minister.
At the end one can only conclude that while agreement was sought, no complete consensus had been arrived at not that a party to the agreement ( Parliament) had been cast aside in the process.
That said the politicking about the agreements (including the incessant false claims about how Parliament was cast aside like a rubber doll) has left little room to examine the transaction itself. Firstly, the PSA’s are not in possession of Mps which at the height of executive vulnerability on the subject ( around Christmas) they may have obtained. However following the signing and subsequent farmdown by Tullow to CNOOC and Total some worms are crawling out of the woodwork.
For example we now know that Tullow will not pay the full amount of the Capital Gains Tax ( CGT) and that its claims against the amount ( as opposed to the validity of the tax) are based on tax exemptions embedded in the PSA’s. It would be interesting to hear how these exemptions were arrived at. My own reading is that some clever deal making is responsible and here is why. Facing a potential liability in the parent transaction when it took over Heritage Oils assets and paid over US$400 million, Tullow was in a tricky commercial position. It can only redeem those funds if it wins a case against Heritage Oil in London while Heritage’s own arbitration with Uganda also in London could go either way. Both cases are weak. Had Tullow been required to pay the full CGT it’s costs on the same transaction would amount to close to a billion dollars, almost half the value of the deal. It probably sought and obtained these exemptions to reduce its exposure. I do not know how the exemptions were rationalized on the Ugandan side but its worth some insights which Parliament has now by-passed by failing to seek the agreements instead and opting for a political blockade of all deals in the oil sector.
Indeed this episode of the CGT and Tullow’s decision to pay Heritage’s share (described by Heritage in its legal case as a political payment or bribe (my emphasis) in street language) has set a questionable tone to the relationship between the companies and Ugandan officials. The precedent being that where difficulties arise- some accommodation even one outside the rules can be arrived at. This is something we can return to.
Tullow has now reportedly also claimed it has spent 1bn in exploration costs that its entitled to recover once production starts. Some of these costs were occasioned by delays but others are likely contestable claims. When I first read the audit reports on these deals it was clear that the oil companies were engaged in some questionable spending including on such things as golf balls and recreational equipment. Oil company employees I have spoken to also speak of wanton spending on cars, entertainment and personal expenses. Mps would do themselves a favor and respond to some of the specific issues that will now arise from the deal moving forward like the quality of monitoring.
Finally but not least, if there was indeed a rush to sign those deals despite the circumstances preceding them especially the consultation above, the details are buried in the PSA’s. I suspect the exemptions as well as the language on tax and environmental protection. As the legislative cycle opens with the debate on the oil new oil legislation we shall see how the relationship between Parliament and the Executive aught be less about the politics of the checks and balances rather than the quality of those checks. Most importantly on how transparency in the extractives sector can be achieved.
Read here the New York City Bar’s letters to the three companies on the subject of contract transparency. New York City Bar letters to the Oil Companies