The Government Must Disclose Oil Deal in Full [opinion]

Sep 29, 2009 (The Monitor/All Africa Global Media via COMTEX) -- TUOIF | Quote | Chart | News | PowerRating -- The full release of Uganda's Production Sharing Agreements (PSAs) with Tullow Oil and Heritage Oil & Gas is the fundamental first step towards forging a democratic, accountable and socially responsible extraction of oil in the Albertine rift.

Instead, Ugandans are being subjected to a disinformation campaign coordinated by the government and the oil companies, consisting of selected leaks to state-owned newspapers, off-the-record briefings to chosen NRM parliamentarians, and disingenuous public statements from ministers and company executives alike.

The latest stage in this deliberate attempt to throw Uganda's growing opposition off the scent came last weekend with Tullow Oil founder Aidan Heavey's "exclusive" interview with the New Vision ("Details of oil deal revealed", September 26), in which the chief executive claimed that "for every 10 barrels of oil the Ugandan government gets eight, which is 80 per cent."

Heavey, who earned $46m in the last financial year, also - astoundingly - asserted that "the [production sharing] deals have been published. There are IMF reports about it." The interviewees allowed this manifest untruth to go unchallenged. Given that the PSAs are still secret, why was Heavey able to "reveal" the 80 per cent figure so freely? Now that these details are being thrown to the public piecemeal through unofficial channels, it makes the government's current position - that it is bound by a strict confidentiality clause - increasingly untenable.

This isn't the first time parts of the contracts have supposedly been released at a politically sensitive juncture beneficial to the government. Now we have Heavey using a friendly newspaper to proclaim the 80 per cent profit-oil share. The reality is that the "80 per cent" figure - even if superficially true - confuses more than it clarifies. The PSAs will reveal the relative share of 'profit oil' between the government and the companies but these complex agreements cannot be reduced to a headline figure.

The profit oil percentage is merely one measure - and a misleading one at that - of whether the existing contracts are a good deal for the country. The devil is all in the detail: it is of the greatest urgency that Ugandans are informed of the PSA clauses over duration, cost recovery, economic risk, and where financial responsibility will lie in the event of economic delays and environmental problems.

Heavey is predicting two billion barrels of reserves on the Ugandan side of Lake Albert. In 5-10 years, the country could be producing 100,000-150,000 barrels a day. But before we can begin to assess what this means in dollar terms, the profit-oil split has to be viewed in the context of the 'cost recovery' provisions which will dramatically reduce Ugandan proceeds in the short to medium term. This means that in the first years of production, the company will be taking up to 60 per cent of the profits to recoup the capital it has invested over the exploration period.

Moreover, the 80-20 per cent split is designed on a sliding scale which reduces the government take as a whole. Using the draft PSA negotiated with Hardman Petroleum Africa (taken over by Tullow two years ago) for Block 2 in 2001, the highest government share of 65 per cent only kicks in for each barrel produced over the 40,000 mark. In other words, at potential production of 100,000 a day for that particular block, it is not simply a case of dividing total profit by 80 per cent to find the government share. Rather, Uganda's incremental proceeds will be levelled down as a whole.

If President Museveni has signed good deals, then he has nothing to lose by making them public - now, and in full, as opposed to the current, cynical drip-drip of leaked information. If, as many now fear, the government is simply desperate to conceal the terms of PSAs that are dangerously skewed in favour of international companies, maximum democratic engagement and participation must be brought to bear to ensure amendment before it is too late.

Taimour Lay is a Platform researcher based in Uganda

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