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Tuesday, September 12, 2006
Uganda Oil Production: New Day or Bloody Dawn
Senior Researcher, GLCSS
Recent discoveries of oil in Uganda raised concerns over their proper use and revenue sharing agreements between the government and Bunyoro Kingdom. When fully developed, the oil industry is projected to employ about 500 people in the medium term, but it also presents the possibility for additional regional or tribal conflict.
The Ministry of Energy and Minerals says Hardman plans to present an oil development program to the government by 2008 so as to secure a petroleum production license. For its part, the government says it is working hard to provide a peaceful environment to ensure that the oil exploration and mining companies carry out operations without any disruption.
‘’This year is a turning point in Uganda's oil exploration and development industry,” President Museveni said, while emphasizing that heavy investment in manpower development and institutional capacity building have brought about most of Uganda’s success.
However, the President also emphasized, ‘’ There is now need to address challenges which are being brought up by the new opportunity.’’
President Museveni recognizes the regional reality that oil resources have been the source of conflict. In Nigeria, misunderstandings over sharing of oil revenue led to the execution of activist Ken Saro Wiwa. Indeed, the issue of how indigenous communities in oil localities especially the Bunyoro kingdom benefit from oil wealth should be carefully examined.
"I plan to use my office to lobby the government to give Banyoro [people from Bunyoro kingdom] a desired share from profits accruing from oil exploitation," emphasized Tomson Abwooli Kyahurwenda, the Buhaguzi County Member of Parliament (MP) in The Monitor.
However, the Energy Ministry has been quoted as saying there were no provisions for the sharing of petroleum revenues with cultural institutions and, therefore, there are no specific provisions for the Bunyoro Kingdom.
As reported in GLCSS Weekly News and Analysis 14 July 2006, there has been discussion on the exact terms of the Hardman revenue sharing contract. GLCSS and the Ugandan local press reported that the government had negotiated for only a 30 percent share; however, the government owned New Vision on 6 August reported that the Government stood to earn greater revenues from oil.
‘‘Government will get a royalty, then the company will recover their costs up to 50 to 60 percent and what is not recovered is carried forward to subsequent years,’’ reported the New Vision, quoting an Energy Ministry statement. “The remaining oil (profit) is shared between the Government and the company. All these sharing ratios and royalty percentages are negotiated and contained in the production sharing agreement.”
Also explained in the ministry statement is that a national oil and gas policy is being formulated and it will include a provision on payment, use and management of petroleum revenues. In addition, ‘‘environmental concerns should not cause alarm because no exploration program can take off before the companies carries out extensive environmental impact assessments,’’ which according to the statement are to be approved by the state-run watchdog, the National Environmental Management Authority (NEMA).
In the beginning of this month Ugandan Members of Parliament (MPs) asked the government to provide details of the oil cost sharing production agreements it signed with oil exploration companies. This was following reports that the government would receive only 30 per cent of the oil proceeds and the exploration companies would take 70 per cent.
Harry Kasigwa, MP for Jinja Municipality West who is also the shadow minister for energy and mineral development was opposed to the issue of confidentiality in what he considered matters of national interest.
“We need transparency even if it calls for a closed session. Parliament must have a look at these contracts to analyze what Uganda as a country ought to benefit when the exploration begins," Kasigwa said, while presenting the opposition statement to Parliament.
While appearing before the Natural Resources committee, Permanent Secretary in the Ministry of Energy and Mineral Development Fred Kabagambe defended the authenticity of the agreements saying the government would get 70 percent of the oil proceeds and oil companies would get 30 per cent. Indeed, devising an optimal model and policy for oil production in Uganda will be formidable.
The chairman of the Natural Resources Committee and MP for Bunyole, Emmanuel Dombo maintained that there was no proof to ascertain Kabagambe's arguments until contracts were tabled to Parliament for approval.
"We cannot rely on hearsay to contract national matters. We're talking about billions of dollars here involved in the procurement of our oil and we don't want to realize mistakes when it’s too late," said Dombo.
GLCSS maintains that the broader the political cooperation and public consensus, and the greater the transparency in the management of Uganda’s young oil industry, the greater the chance that the country will stabilize and prosper.
GLCSS also fears a scenario in which oil might derail Uganda’s recent multi-party democratic development by causing civil strife and unrest especially in Bunyoro-Kitara region. Other possible scenarios such as graft and influence peddling that regularly accompany oil exploration and exploitation cannot be ruled out if abuses and misallocations of oil revenues prevailed.
More still, according to Transparency International's Corruption Perceptions Index 2004, oil-rich countries surveyed showed have extremely low scores. Oil wealth could thus be a breeding ground for increased corruption in Uganda despite the efforts to fight it.
The Great Lakes Centre for Strategic Studies is a London-based think tank.
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posted by GLCSS at 3:32 AM
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