Tuesday, February 24th, 2015

AFIEGO AND PARTNERS CALL ON GOVERNMENT TO STOP SECRECY IN THE OIL PRODUCTION PROCESSES

 communique on government’s selection of Rt global resources to build a refinery, 18th february 2015

1. Introduction

Yesterday 18th February 2015, AFIEGO convened a meeting of partners at its offices in Kampala to discuss concerns surrounding the selection by the Government of the company to build the oil refinery in Hoima district. Ugandans will painfully recall that on 10th and 11th October 2011, the national Parliament was recalled from recess and spent two full days discussing the mismanagement in the country’s oil sector. Among other things, the Parliament pointed out that the sector was being run based on outdated laws, the Production Sharing Agreements (PSAs) had unfair stabilization clauses, that there were no competent institutions to regulate the sector and manage oil business on behalf of the government and that some government ministers had engaged in bribery to favour some oil companies against others.

After the above discussions with determination to restore transparency in the sector, the Parliament made a number of recommendations for proper governance of the sector including resolutions stopping all oil transactions until new oil laws were put in place and for three ministers (the then Prime minister, the minister for Foreign Affairs and the Minister for Internal Affairs) to step aside to allow investigations.

Unfortunately, the government ignored the resolutions. As a result, in 2012, the government entered into an MoU with Tullow Oil effectively authorizing the sale of two thirds of oil assets in Uganda to CNOOC and Total at a price of $2.9 billion. In effect, the executive connived with the Companies against the Parliament.

The reasons given then by the executive to reject the recommendations of the Parliament were among others (1) that the Parliament had no powers over the executive, (2) that their resolutions were based on speculation and in bad faith and most importantly (3) that implementing the resolutions would delay oil production and in turn, increase the costs for oil operations in the country. Then, many Ugandans innocently believed the government. They did not know that these were acts of impunity and would continue to haunt the sector. It should be noted that nowhere in the world has any country succeeded in managing the oil sector for the common good through undermining institutions such as a Parliament.

Indeed, since the firm down in 2012, a process that was meant to commence oil production, Ugandans have been waiting for the oil production to commence in vain. Instead, they are being fed on endless deadline promises. We are waiting to see how a government that ignored the parliament will implement the upstream and the midstream laws that were put in place in 2013 for the benefit of the citizens. More so, the meeting noted that since 2006 to date, over $800 million dollars have been paid to the government by the oil companies in Signature Bonuses and Capital Gains Tax but there is no information in the public domain on how such revenues are being used. Why is that oil money?

After discussing the current state of affairs in the sector, the meeting made the following observations:

2. Observations
• That using terms such as “preferred” bidder versus “alternate” bidder means that at the moment, there is no absolute winner or loser. The net effect of such terms is to confuse Ugandans. The meeting noted that the selection of an investor for the refinery was long overdue. It is an important step in our struggle to commence production of our oil. Unfortunately, the long time taken was never used to ensure openness and transparency in the process. The partners further observed that the statement by the Permanent Secretary MEMD that if the government fails to agree with the RT Global Resources (preferred bidder) on the final details, they would exercise a second option of going back to discuss with the alternate bidder (SK Engineering and Construction) is a fertile ground for corruption. It means that at the moment, both companies still stand a chance to win. This may encourage them to pay bribes to the usual middle men in order to out-compete each other for the project.

• Lack of production licenses: Today, Ugandans know that it is only CNOOC that has a production license. Total and Tullow Oil have no licenses for their two thirds stake. It is also clear that the government and companies haven’t made a Final Investment Decision (FID) due to the absence of licenses and failure to reach a consensus on key issues including the final details regarding a refinery. And practically, there is no way the government can commence the building of a refinery without or without the RT Global Resources in absence of a FID. So, don’t fool Ugandans. Perhaps, this is the reason why the government chose to use vague terms such as “preferred vs alternate bidders” which means that they also know that there is no final agreement yet. Indeed, the government cannot announce an absolute winner of a refinery at a time when it is still failing to conclude decisions with the companies that have invested heavily in the discovery of oil. Ugandans as owners of this country deserve to know why the government is taking long to issue licenses and how it expects to build a refinery without a FID. Remember, in 2011, the same government rejected Parliamentary resolutions allegedly to avoid delays but now they are caught in their own game. Ugandans want the truth. Otherwise, deceit will continue to endanger our oil and our country and we may not survive the oil curse.

• The meeting also noted that whether we build a refinery and an export pipeline, or one of the two, without transparency, Ugandans will not benefit.

• That the government should disclose to Ugandans the selection criteria and the capacity of RT Global Resources to mobilize the required over $3 billion to build the refinery or indicate whether the government will take responsibility to borrow the funds for the company through guarantees. This is information is key to facilitate the citizens to participate, demand and monitor the oil sector.

• The meeting further observed that today, Russia is a in a financial crisis due to sanctions imposed on it by the European Union and USA for her alleged support of rebels in Ukraine. That such a country and her companies may find it difficult to successfully borrow from International Financial Institutions such as the World Bank and others to invest in a refinery. So, the government should assure Ugandans that the selection of the RT Global Resources did take into account all the necessary factors, national, regional and global that may affect our choices.

• They also observed that the information from the government to date, indicates that the production infrastructure in the country will require over $15 billion, an equivalent of three quarters of Uganda’s GDP. The refinery is among the components of the production that may require the biggest part of the investment. Where is the evidence that the RT Global Resources has the capacity and credibility to mobilize such funds? We hope, it is will not be a case where you have the pigmies from which to choose the tallest person. It doesn’t make sense.

• Further, that civil Society in Uganda are not pushing the government to ensure that all oil development decisions are done in the open and with maximum transparency. Slowly, they are accepting to be intimidated by the government. For the citizens, the majority are being preoccupied with the daily struggles of survival virtually with no time or stamina to demand and hold the government accountable. This is the greatest danger of our time. It is unfortunate that most of our fellow citizens have been reduced to begging due to corruption in government that deny them good services.

• They further noted that if China does not build the refinery, it may actually fail to take off for ever due to lack of consensus on the best development option. The decision to build a refinery and pipeline just for purposes of reaching a compromise between the oil companies and the government may in the short term allow the production to commence but it is a big risk. The truth is that, to date, both the government and the oil companies have failed to tell Ugandans with concrete evidence the best development option of the two choices. They want us to believe that a refinery and a pipeline can deliver the same social and economic benefits and tradeoffs. That can never be true. This could be the reason why only CNOOC –a Chinese company was given a license while the rest of the joint companies are still waiting to know their fate. Unfortunately, such approaches may end up creating unnecessary monopolies in our sector with all the associated risks. While we need investors, it should be noted that currently, many of the Chinese companies in Uganda are involved in several project scandals including the $8 billion Standard Gauge Railway. So, allowing such companies to build a monopoly in our oil sector is a big risk.

• More so, the meeting observed that it is possible that companies such as Total E & P, Tullow Oil and others are not interested in a refinery and are not willing to contribute any investment capital and expertise in the refinery project processes. That their position may be the reason why the government is delaying for years to issue them with production licenses. The strategy may be to compel them to accept to participate in the refinery. Unfortunately, running a project such as a refinery based on dishonest tactics rather than consensus cannot guarantee maximum benefits for the citizens.

In view of the above observations, the meeting made the following recommendations for action by the government and other stakeholders in order to maximize the oil benefits for the citizens:

3. Recommendations

i. Conduct the bidding and all contractual processes for the refinery, pipeline and other oil projects in the open to show the citizens that you are committed to effective transparency.
ii. Make public the criteria and results for the selection and determination of the preferred bidder for the building of the refinery.
iii. Conduct a feasibility study to determine the value for money for investing in two development options as compared to using one option of a refinery or an export pipeline. This should be done before the commencement of any of the projects.
iv. Prepare and put in place a comprehensive medium and long term oil development master plan indicating the total land required for all the oil and other related projects. The master plan should also include how many people are likely to be affected, the routes for all pipelines, how much money is required to compensate the affected people and identify the safe areas to relocate vulnerable communities. This will help the government to plan for land acquisitions in time to reduce negative impacts on the affected communities.
v. The Parliament should use her oversight powers to review and monitor all the oil development processes by the executive before they are signed as contracts to avoid unfair transactions that have continued to undermine all Uganda’s big projects.
vi. Urgently, establish and operationalize the Oil Authority of Uganda (OAU) and the National Oil Company (NOC) to ensure effective oil regulation and oil business management in the country.
vii. Urgently, put in place the upstream and midstream regulations for effective implementation and enforcement of the 2013 new oil laws.
viii. Amend the oil laws to legally constitute a national multi-stakeholder group comprised of eminent persons from the government, cultural institutions, religious institutions, elders, civil society and other relevant groups to monitor the operations in the oil sector including contracts, collection and use of oil revenues.
ix. To Ugandans, the Constitution gives you the powers; use it to participate and hold the government and all other actors accountable in the management of the oil sector as a means to shield the sector from current rampant corruption for the benefit of all citizens.
x. To the youth, you are the most energetic segment of the population and most educated, use your numbers, skills and energy to ensure that there is transparency in the management of the oil sector. This way, the oil will generate the necessary revenues to create opportunities such as jobs, quality education, health, clean water, affordable and reliable electricity, roads and others which will reduce your current misery.
xi. To NEMA, urgently, complete the review of the environmental laws to ensure effective environmental conservation amidst oil production activities.
xii. To UWA, urgently, work with the government to put in place strict guidelines for oil operations in the protected areas.
xiii. Lastly but most importantly, urgently, compensate and resettle all the refinery project affected people of Kabaale as a measure to secure the land for the commencement of oil production.

Thank you.
For God and My Country.
Signed by: Africa Institute for Energy Governance (AFIEGO), Centre for Constitutional Governance (CCG), National Association for Professional Environmentalists (NAPE), Ecological Christian Organisation (ECO), Pro – biodiversity Conservationists in Uganda (PROBICOU), Lake Albert Children and Women Advocacy and Development Association, BIRUDA, BUCAWA, Kakindo Orphans, KWATANISA, Women and Youth Associations of Butimba, Kidoma, Kinogozi, Kabaale, Mbiko, Komamboga, Makerere, Mukono, Kyambogo, Nkumba, Bugema and Kigumba.

Contact :Patience Akumu,
Communications Officer-AFIEGO