Oil – a Year of Court Battles, Slow Progress [opinion]

In assessing Uganda’s energy industry, the year kicked off on a positive note.

In February, the government and the oil companies -Tullow, Total and Cnooc – signed a memorandum of understanding (MOU) that ended months of protracted negotiations, and finally opened a new phase in the development of petroleum resources in Uganda.

The MOU laid out a route-to-market framework for oil resources and set Uganda on a journey to becoming one of Africa’s oil producers. The route-to-market framework included refining, crude export pipeline and using crude to generate electricity.

The oil companies said they would export the oil through a pipeline via a Kenyan coast, probably Lamu. The companies said exporting the oil was a viable option as the regional demand was lower than what could be extracted from the ground.

The signing of the MOU was a victory for the oil companies which had long campaigned for exporting the oil but had met resistance from government.

In April, Tullow Oil published accounts of how much money it spent in the countries in which it operated, receiving rounds of applause of campaigners of transparency.

The Irish firm reported that it paid Uganda’s government Shs 10bn in 2013 in income taxes and license fees. Transparency campaigners praised the move as a step in the right direction.

The disclosure came ahead of a new European Union rule that required companies in the extractives industry to publish their payments.

No production licence

For Tullow and Total, it has been a long year of waiting for a production license. In December 2013, Irene Muloni, the minister of Energy and Mineral Development, pledged that Tullow and Total would get production licenses before the end of March 2014.

The promise to award Tullow and Total production licences was reiterated after the signing of the MOU. However, government kept on backtracking throughout the year. The contentious issue surrounded the approval of the field development plans before the licences could be given out.

This year, government also announced that the country’s petroleum reserves increased to 6.5 billion barrels of oil from 3.5 billion after appraisals by Total in Murchison Falls National park in Nwoya and some parts of Buliisa.

However, although the resource almost doubled, the country’s recoverable oil increased by a small margin – from 1.2 billion barrels to 1.4 billion barrels.

Uganda’s gas reserves also increased to 500 billion cubic feet of gas from 14 million cubic feet in 2007. At least two companies have applied for licences to produce electricity from the gas reserves.

Wrangles

Compensation wrangles among the people that were affected in order to pave way for the construction of a refinery dominated headlines in 2014. This prompted a group of aggrieved persons, with the help of African Institute for Energy Governance (AFIEGO), a local civil society organisation, to sue the Attorney general.

Government also identified a piece of land it said it was going to resettle the 93 refinery affected people that had opted for relocation. Also, in August, more than 200 families in Rwamutonga village, in Hoima district, were controversially evicted from their land. McAlester Energy Resources Ltd, an American company from Texas, wanted to set up an oil waste treatment plant on the disputed land.

The families now live in an internally displaced people’s camp on a two-acre piece of land that was donated to them by one of the local occupants. The families have since challenged their eviction in court.

Also, a farmer in Nwoya district sued Total for failure to clean up the waste irregularly dumped on his piece of land by Total’s predecessor, Heritage Oil, in 2009.

Tax disputes from the previous year came to a head in 2014, where, in July, Tullow lost a capital gains tax case against Uganda Revenue Authority (URA) in the Tax Appeals Tribunal. The tribunal ordered Tullow to pay $407 million to Uganda Revenue Authority (URA) as capital gains tax from the sale of two thirds of its assets to Cnooc and Total for $2.9bn in 2012.

Although Tullow relied on a tax waiver granted to it by the then minister of Energy and Mineral Development, Syda Bbumba, the tribunal ruled that the Energy Minister had no power to grant such an exemption. However, Tullow, through, Kampala Associated Aocates, has since appealed against the tribunal’s decision in the commercial court.

Boards, authority

In August, the president appointed board members of the National Oil Company and the Petroleum Authority. The president appointed Emmanuel Katongole as board chairperson of the National Oil Company and Geoffrey Andama, Francis Nagimesi, Biwagi Stella Marie, Tubwita Grace, Irene Batebe and Francis Twinamatsiko as board members.

The president also appointed Immaculate Ssemanda Nakimera as board chairperson of the National Petroleum Authority and Reuben Kashambuzi, Doreen Kabasindi Wandera, Kiryowa Kiwanuka, Prof Sande Stevens Tickodri Tagboa as members to the board. The two institutions are, however, yet to be established.

In November, the governments of Uganda, Rwanda and Kenya signed a contract with Toyota Tsusho, a Japanese company, to conduct a feasibility study for the 1,300-kilometre crude oil export pipeline.

Joseph Njoroge, Kenya’s principal secretary in the ministry of Energy and Petroleum, said Toyota Tsusho won the tender competitively. The study is expected to show how the crude pipeline will join another pipeline from South Sudan at Lokichar in northern Kenya. The feasibility study is expected to be completed early next year.

Looking ahead

Next year, according to Petroleum Exploration and Production Department (PEPD), government is expected to announce the lead investor for the oil refinery, with some saying the announcement could come as early as February.

The refinery deal is expected to either be taken by South Korea’ SK Group or Russia’s RT Global Resources, the only two remaining bidders.

Source : The Observer

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