Friday, February 6th, 2015

YOUTH CALL FOR TRANSPARENCY IN UGANDA’S OIL PRODUCTION DEVELOPMENT PROCESSES 29TH JANUARY 2015

                  communique by the youth, 29th january 2015.

In the months of November and December 2014 and, January 2015, AFIEGO and youth leaders from different parts of Uganda organized five workshops in the districts of Buliisa, Hoima, Kampala and the Universities of Makerere and Kyambogo. They also held various meetings with guild presidents and their officials from 8 universities. In total, over 877 people participated from 13 universities, 21 local governments, 6 religious and 3 cultural institutions, 9 youth associations and other groups. The workshops focused on the ongoing oil production development processes in the country. Our core objective was to help the participants especially the youth leaders to appreciate the critical areas of decision making regarding the oil production processes as a means to empower them mobilize the rest of the public to demand for transparency in the oil development processes.

The workshops were in response tothe delays surrounding the production of Uganda’s oil. It should be noted that since the discovery of oil in 2006, several promises have been made by the government and companies on the time when Ugandans should expect to start enjoying the oil revenues and other related opportunities that come with production. Unfortunately, to date, the citizens are still waiting and no one is coming out to explain why. For example, the Early Production Scheme (EPS) that was promised in 2008 did not materialise and some Ugandans are still waiting. Then, in 2011, a promise for a full refinery was made; again, we haven’t seen anything. All these are making Ugandans anxious. They are waiting for oil to address their problems. Amidst the delays, unemployment, quality of education and school dropouts, health and other services are worsening. So, the workshops and meetings were intended to enable the youth to discuss and make recommendations for action.

The discussion
At all the workshops, presentations were made on 3 key questions;
• First, why is Uganda taking too long to commence oil production?
• Second, who is responsible for the delays and who benefits or loses as a result of the delays?
• Third, why is the government not mobilizing and working with the citizens to maximize the oil benefits for the common good?

The presentations and discussions of the above questions helped the participants especially the youth to recognize with gratitude the positive progress made in Uganda’s oil sector including the confirmation of over 6.5 billion barrels of oil reserves, the formulation of the 2008 Oil and Gas policy, the enactment of the Upstream, Midstream and Downstream oil laws, the appointment of the officials of the National Oil Company and Oil Authority of Uganda, the establishment of Kigumba Petroleum Institute and teaching of oil related courses in other Ugandan tertiary institutions as well as training of others in Universities abroad, the progress on the acquisition of land for the refinery, progress on putting in place a national local content policy, progress on looking for the refinery investor and many other developments. However, theyobserved that while there are many good things happening in the sector, there are also others going in the negative direction especially regarding lack of transparency regarding on oil production processes, use of oil revenues that were generated as Capital Gains Tax, land acquisition for the refinery and other ol activitiesas well as other human rights violations and environmental challenges.

Based on the above presentations and discussions, the participants made the following observations:

2. Observations by the participants
a. They observed that the connivance of the Government and Tullow Oil to disregard the Parliamentary resolutions of 2011 that led to the signing of the MoU between Tullow Oil, Total and CNOOC in 2012, is the reason why the government and companies are taking long to agree on how to manage the oil sector. They ignored the resolutions with the argument that it would delay the production but later, they were caught in their own game. Unfortunately, while the leaders and the companies are also affected by the costs of such impunity, the biggest victims are the citizens (the owners of the resources).
b. That the available evidence shows that in 2012 when Tullow Oil entered into a Memorandum of Understanding (MoU) with Total and CNOOC, Tullow committed to certain conditions and was sure that every decision by the companies and government would be happening within 6 months as per normal industrial practices. It was this confidence that made Tullow Oil to book all the farm down funds in its accounts as income. Unfortunately, the disagreements between the government and the companies regarding whether the best development option was a refinery or a pipeline or both lasted for over two years and nothing could move before settling the disagreement.
c. They further observed that while a consensus to build both a refinery and a pipeline was reached by the parties, it stills remains too costly for Uganda to produce her oil using two expensive options. That under the MoU between Tullow, CNOOC and Total, Tullow Oil had a Special Responsibility to ensure that everything happens as per the MoU. But when the delays continued as a result of the disagreements regarding the best development option, Total and CNOOC decided not to pay the farm down balance to Tullow As a result, Tullow Oil has had to write down over $500 million as income not earned. This may scare away potential investors.

d. That both the companies and the government should appreciate that time is money and as such, they should do everything possible to follow industrial practice.

e. Further, that there is need for the government and companies to agree on the Production Licenses (PL) in order to move forward. Companies do not have the PLs for Blocks 1 and 2 at the moment. Only CNOOC has a PL for Kingfisher
f. That without production licenses for all the blocks, it may be difficult to make a Final Investment Decision (FID), a decision that must in place before the commencement of oil production. That while the introduction of a number of taxes on the ongoing oil transactions by the government is good and has already increased our revenue collections to fund over 80% of our budget, most of the said taxes such as VAT, the import tax, the withholding tax and others are taxes on oil investments rather than profits. That while such taxes are good for a poor country like Uganda, they have the potential to delay production and increase the recoverable amounts because they make the sector operations too expensive.

g. That while it is okay to build a refinery and an export pipeline or an export pipeline alone, the oil market realties cannot allow Uganda to rely on a refinery alone. And now that the crude oil prices are below a $60 mark, it even makes things more complicated for the country.

h. That in the event that the companies such as Total and CNOOC refuse to fund a refinery, the government may be compelled to give guarantees to private companies to secure funds for building of a refinery and if the refinery fails to make profits, it will be Ugandans to lose through taxes

i. They further observed that the whole production infrastructure will require around $15 billion and this is almost ¾ of Uganda’s current GDP. And they wondered which International Financial Institutions (IFIs) will be willing to invest in such a project when there is no transparency and some things such as the final investment decision are not yet in place?

j. That unlike Ghana which has access to the ocean and her oil is off shore, Uganda is a land locked country and her oil is on land, and, as such, it must contend with all the challenges of land acquisition and community issues which make the production process even more costly in terms of money to invest and time to settle issues with communities.

k. It was further observed that the evidence available indicates that to date, the oil companies in Uganda still do not believe the refinery as the best development option for Uganda. It appears that the government has failed to convince the companies about the value for money regarding the need for a refinery. These disagreements may continue to undermine the country’s capacity to maximize the oil benefits.

l. They were concerned that the government is not doing much to create effective create public awareness on the recently passed revenue management Act that shades light on the sharing of oil revenues between the central government, local governments and the communities.

m. There is still a lot of endemic poverty and unemployment which dis-empowers the youth and all the citizens from effectively influencing the oil sector development processes effectively. This is a big challenge as it increases mistrust and suspicion between the government and the people.

n. It was further observed that the local communities have continued to lose their land to oil investors and land grabbers. Instead of the government to protect the affected communities, it is in the process of presenting a proposal to parliament to amend Article 26 of the Constitution to the effect that Government has powers to compulsorily acquire someone’s property before payment of a fair and adequate compensation. The participants warned that if such proposal is effected, it will be the beginning of the oil curse in Uganda. Many Ugandans will become landless and may fight back, hence conflict.

o. That there are no indications that the decisions regarding the refinery or a pipeline are taking into account the challenges of climate change and its impact on ecosystems. To date, Ugandans do not know the environmental and human rights trade-offs they must prepare to make if a refinery is built compared to a pipeline. Government is not providing such information to the citizens. For example, the government displaced over 7000 people from the 29sq km of land in Kabaale Hoima before conducting a Social and Environmental Impact Assessment. As a result, for close to three years, the government is still failing to resettle all the affected households.

p. That generally, the oil sector is suffering from lack of transparency and this is the reason why mistrust and suspicion in the country is worsening. Indeed, other than the executive, all other institutions including the parliament, in real sense, remain stakeholders of facade.

In view of the above presentations, discussions and observations, the participants from all the workshops and meetings made the following recommendations for action:
3. Workshop Recommendations

i. Do not amend Article 26 of the Constitution: While the existence of Article 26 of the Constitution that provides for the right to property and protection against property deprivation has not been very successful in shielding Ugandans especially the local communities from the injustice of unfair, inadequate and delayed compensation and, land grabbing, the proposed amendment whose net effect is to legalize the injustice, will worsen the situation. We call upon the government to avoid such draconian laws for the good of our country.

ii. Organize a national stakeholder conference on the best development option for Uganda: In order to reduce the expectations and anxiety amongUgandans, the government should urgently organize a meeting of all relevant stakeholders and present evidence supporting the decisions of building both a refinery and a pipeline. They should also use the same meeting to explain why there are endless delays in the oil development processes. What are the social, economic and environmental gains or tradeoffs of each development option that Ugandans should prepare for?

iii. Transparency: The government should ensure that there is maximum transparency in the entire production process including decisions regarding assessing the field development plans, issuance of production licenses, making of the final investment decisions and others. Transparency will build confidence and trust in all actors and most importantly, allow government institutions to operate with efficiency.
iv. Respect the Parliament: No oil producing country has ever succeeded without an effective parliament that is strong enough to make laws and use its oversight powers to ensure that such laws are implemented and enforced by the executive based on the principles of a free and democratic society. The parliament in Uganda is lacking in great detail. It is driven by the executive and this is costing the country heavily. The dignity and sanctity of our parliament should be restored to enable it play her legislative and oversight roles.

v. Build civic competence of the citizens: A country is as strong as its own citizens. Since independence, Ugandans have gone through decades of torture and repression to the extent that they perceive every government as too dangerous to question or even engage. Further, most Ugandans still live in poverty with many immediate problems such as lack of food, paraffin, soap and others .These immediate problems have continued to make it hard for them to participate in public affairs. However, it will be in the best interest of the country for the government to strengthen and empower the citizens to overcome the obstacles that hinder them from participating in public affairs, especially, issues of oil.
vi. Empower the youth to benefit from the oil sector: In the last 7 years or so, the youth in Africa have continued to grow in numbers amidst decreasing opportunities. As a result of their numbers, they have been key in influencing governance processes across the continent. For example, in countries such as Tunisia, Egypt, Libya and others, the youth played a big role in the overthrow of governments because they felt that those governments were denying them opportunities. We therefore recommend that the government of Uganda should urgently empower the youth and ensure that they benefit from the oil sector. This will ensure peace and stability in the country now and in the years to come
vii. Disclose how the oil revenues are being collected and spent: While oil production has not commenced, we know the government has so far received oil revenues of over $800 million in Capital Gains Tax and licenses. But to date, Ugandans do not do know how that money was used. Failure to disclose such information regarding the little revenues so far collected clearly indicates that upon production, the huge revenues may be misused at the expense of the citizens.

4. Conclusion: The oil sector in Uganda is at a critical stage. We have confirmed reserves of 6.5 billion and the production of these reserves can generate national revenues of over $3 billion per year for the next 30 to 40 years. If we add the above $3 billion on the current $4 billion revenue collections per year that we get from other sector, then, you have a total of $7 billion per year. While this is not a lot of money considering Uganda’s population of over 33 million, it is a significant increase that if we invest it in productive areas, its impact can be huge. We can create more jobs, strengthen the education and healthy sectors, provide clean water to every Ugandan, improve agriculture and make many other developments. But if we don’t manage the sector well, the negative impacts can undermine even what we already have. It happened in Nigeria, Sudan and many others and, it can happen in Uganda.
For God and Our Country