Oil Production Licences Issued, What Next?

The government of Uganda has so far issued three production licences to oil companies. The oil companies that have been issued with production licences are Total, Tullow and CNOOC oil companies. On 30th August 2016, the Ugandan government allotted Tullow Oil Company with five production licences while Total was given three. This brings the number of production licences issued to nine after Uganda had offered one to the Chinese National Offshore oil company (CNOOC). Before, the government and oil companies have been pulling ropes and perhaps this was because of disagreements on certain areas that guide the issuance of production licences.

With the signing of production sharing agreement (PSAs) between the Ugandan government, one Australian firm (Armour Energy Limited) and three Nigerian firms (Oranto Petroleum International, Niger Delta Petroleum Resources and WalterSmithPetroman Oil Limited), efforts to explore more hydrocarbons have been enhanced.

Large sums of revenues from oil and gas are expected soon since oil companies have been permitted to begin production. This certainly gives hope to Ugandans who have been unemployed due to halted oil production activities. Uganda’s GDP currently stands at $ 26.37 billion with GDP value representing 0.04% of the world economy (World Bank report 2015) and as a country we predict GDP enhancement since oil revenues will greatly contribute to the economy.

Legal documents and development polices have been put in place to guide on how oil and gas revenues will be managed to benefit the entire public. Take an example; the finance minister must table estimates of petroleum revenues before the parliament annually. This will create transparency towards the management of oil revenues.

During the past budget readings at the beginning of every financial year, the minister of finance has always pointed out that some of the financing will come from aid/ donors. Given the expected oil and gas revenues, hope has been bestowed with revenues assisting in financing the government expenditures i.e. if the revenues are well managed. Monies transferred from the petroleum holding account into the consolidated fund is expected to be used in financing of infrastructure, health system, agriculture sector (where majority Ugandans are involved) and the education sector. This puts into consideration real long term benefits for the generations ahead. Oil can potentially enhance the economy of Uganda which automatically will push the country to greater development levels. This however, can only happen if consolidated fund is well invested in non-oil sectors like education.

Oil resource management shouldn’t be viewed only through the prism of revenue management, other glitches can emerge, take an example, poor management of oil spills is a serious hazard to the populace, wild life and water bodies. Spills can displace both wild life and people hence seeking refuge in other areas. A study conducted by Agency for Transformation recommended that oil companies should protect the environment out of beauty obligation and conscience. They should not secretly dump waste, flare or vent off gases beyond safe limits (Farmers’ in Uganda’s Oil Economy: Deal or no Deal!).

It is difficult to estimate how much oil revenues the Ugandan government will collect given the uncertainty in production and future prices. During the ten years of peak production, Uganda expects between $2 and $ 3.5 billion however the amount collected could be higher or lower depending on oil prices, whether certain fields come online, fiscal rules and the government’s capacity to collect. Whether high or low oil revenue collected, its impact will immensely depend on how these revenues are managed. There are areas the government should benchmark for the benefit of the public and these are as follows; the key government agencies in the oil industry, like ministry of energy, Petroleum Authority of Uganda, Uganda revenue authority and Uganda Oil Company limited must benchmark best practices of oil management from countries that have prudently and effectively managed the oil resources like Ghana, Trinidad and Tobago and Norway. The government should work on the time line to pass the national local content policy for the broad benefit of the populace and particularly for the people in the Albertine graben. The government should also assist key private players who largely through borrowing had made a wide array of investment in billions of money to help in production that was expected in 2015 but never commenced. The already put in place legal documents and development policies must be operationalized to guide on how oil and gas revenues will be managed to benefit the entire public.

If the above can be put into practise, I believe Uganda and her citizens will benefit from oil resources.

Brian K Katabazi, [email protected]

Research Associate, Agency for Transformation

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