Baz Waiswa

Baz Waiswa

Uganda’s Oil And Gas Management Gets Stronger And Close To Delivery

Uganda's Albertine Graben is now a mature oil and gas province and where government issued nine petroleum production licenses to Total E&P Uganda, CNOOC (U) Ltd and Tullow Uganda Operations Pty Ltd.

According to Article 244 of the Constitution, all minerals and petroleum in, on or under, any land or waters in Uganda are vested in the Government on behalf of the Republic of Uganda.

Sustainable resource management requires an inclusive and comprehensive national strategy. In managing Uganda’s petroleum resources, The National Oil and Gas Policy for Uganda 2008 has been developed. This is the key document guiding the sector.

The  goal  of  the National Oil and Gas  Policy  for  Uganda is to “Use the Country’s Oil and Gas Resources  to  Contribute  to  Early  Achievement  of  Poverty Eradication  and  Create  Lasting Value to Society”. 

In 2013 following a consultative process Parliament and the executive enacted two laws. These are the Petroleum (Exploration, Development and Production) Act 2013 and the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Act 2013. Regulations have been made to operationalize these laws.

The Oil and Gas Revenue Management Policy 2012 was developed which details the management of expected petroleum revenues. The Public Finance Management Act 2015 was also enacted which establishes the Petroleum Fund into which all petroleum revenues received by government will be paid. 

The Government uses other laws such as The National Environment Act 1998, Income Tax Act, Land Act 1998 to regulate the petroleum sector.

Key development partners like Norway provided support to Uganda towards the formulation of policies and laws to enable Uganda escape the resource curse. The Government has put in place key institutions like The Uganda National Oil Company (UNOC) and the Petroleum Authority (PAU).

According to Eng. Irene Muloni, the minister for energy and mineral development government recognized that petroleum could be put into beneficial use for all Ugandans.

Muloni says the key institutions have been put into place to ensure a transparent and accountable use of natural resources. She added that the crude oil will undergo value addition refining, some of the crude will be exported, part of it used to generate power and gas will be used for cooking, lighting.

“We want our people to participate in the oil and gas industry and not just be observers. We are targeting first oil by 2020. We are working with all our partners on this. We want oil to enable Ugandans reach middle income status by 2020, which has become a magic year for Ugandans,” Muloni says.

UNOC is joining international oil companies in the production development of oil and gas in the King Fisher Development Oil Field located in Hoima district.

Peter Muliisa, chief legal and corporate affairs manager UNOC says the company is concluding the backing-in process to enable it manage the 15% State participation interest and other Government commercial interests in the Kingfisher Development Area (Hoima) and Tilenga Development Projects (Buliisa & Nwoya) on behalf of the State.

UNOC plans to embark on exploration and new ventures to optimise product ion sustainability and is in the process of analyzing data acquired from the PAU for identified prospects in the Albertine Graben. UNOC intends to proceed with exploration in partnership with a potential joint venture partner or a consortium of them as soon as data analysis is concluded.

Journey to First Oil

Muliisa says UNOC is keen to have first oil by 2020 and is doing everything within its mandate and means to contribute to having this plan attained. “UNOC is closely working with stakeholders at all levels, across all critical areas such as Infrastructure and logistics, land acquisition, Environmental and Social Impact Assessments, water extraction and excess gas utilisation to ensure this important government target is achieved,” Muliisa explains.

UNOC intends to develop, build and operate the multi-user petroleum refined products storage terminal at Namwambula village, near Kampala through a joint venture. UNOC has been managing the Jinja Storage Terminal since end of May 2017 and plans to include use of barge transport over Lake Victoria to ease transportation of petroleum products to the terminal.

UNOC is working on a local content incubator program with key stakeholders to ensure individuals and local companies are trained, equipped and empowered to access business opportunities in the oil and gas industry.

The mandates of UNOC are: Handle the state’s commercial interests in the petroleum sub-sector; manage State participation in petroleum activities; manage the marketing of the country’s share of petroleum received in kind; manage the business aspects of state participation; develop in depth expertise in the oil and gas sector.

Others are to optimise value to its shareholders; participate in joint venture in which it holds an interest on behalf of the State; participate in meetings of the operating committees in furtherance of its participation in the respective Joint Operating Agreements; and investigate and propose new upstream, midstream and downstream ventures initially locally but later internationally

“The overall function of UNOC is to handle the State’s Commercial interest in the Oil and Gas industry and ensure that the resource is exploited in a sustainable manner,” Muliisa observed.

The PAU is a statutory body established under Section 9 of the Petroleum (Exploration, Development and Production) Act 2013, and in line with the National Oil and Gas Policy for Uganda which was approved in 2008.

The PAU’s mandate is to monitor and regulate the exploration, development and production, together with the refining, gas conversion, transportation and storage of petroleum in Uganda. 

These include ensuring that petroleum operations in Uganda are carried out in accordance with the relevant laws, regulations, guidelines, statutes and in line with international best practice for the petroleum industry.

According to Ernest Rubondo, the executive director PAU some of the roles of the organization include; review of submission from the licensed oil companies including reports on geoscience, engineering studies, annual resource reports, annual audit and procurement reports.

PAU advises the minister of energy on the grant of production licenses, these have included the eight production licenses which were awarded to the oil companies at the end of August 2016.

PAU reviews and approves budgets and work programmes submitted by the licensed oil companies. They monitor field activities carried out by the licensed oil companies in the fields, carry out stakeholder consultations for land to be acquired and used during the development of infrastructure and production phases of the petroleum v

The authority participates in developing the legal frameworks like the Inter-Governmental Agreement and the design aspects of the East African Crude Oil Pipeline.

Regulating the implementation of national content development including aspects like the employment, training of Ugandans and the provision of goods and services by Ugandan enterprises.

“PAU will work with all stakeholders to professionally, effectively regulate the sector in a manner that achieves the goal of using the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society,” Rubondo says.

 

How 2018/19 National Budget Will Fund Oil & Gas Sector Alongside Private Sector Financiers

Finance Minister, Matia Kasaija, will in June read the National Budget for the FY2018/19. All eyes are on what key priority areas that his budget will focus on, in a bid to achieve government’s ambitious target of a lower middle income status by 2020.

One of the sectors to watch is the oil and gas sector that is expected to contribute tangibly to the attainment of this development agenda.

Government already approved the new budget whose resource envelop is Shs 30.9trillion. A bulk of which would be mobilized internally as domestic revenue –by Uganda Revenue Authority –projected to be Shs16.4trillion (over 53% of the total resource envelope). The rest will be through internal, external borrowing and donations. 

The Energy and Mineral Development sector – where oil and gas belong – is expected to get Shs 2.5 trillion in FY2018/19 (11.5%) up from Shs 2.3 trillion (10.5%) in the ending financial year, according to estimates in the Budget Framework Paper (BFP) for FY2018/19. 

The BFP represents the would-be face of the new budget. 

Government’s goal for the oil sector is to ensure reliable, cost effective and safe supply of petroleum products to the rural and urban markets for social and economic development. In addition, government is hoping to use the oil and gas resources to meet the targets in the National Development Plan II which is partly to meet the energy needs of Uganda’s population for social and economic development in an environmentally friendly sustainable manner.

Government also hopes to use oil and gas resources to contribute to early achievement of poverty eradication and increase lasting value to the society. 

Government officials say the sector will focus on the implementation of the refinery and other development activities including the oil pipelines, aerodrones, and the implementation of the oil and gas policy.  The others are the development of the Kabaale (Hoima) Airport, the refinery, oil roads to enable delivery of first oil by 2020. 

Regarding the Oil Pipeline and Refinery, the Inter- Governmental Agreement (IGA) between the GOU and the Republic of Tanzania was signed on 26th May, 2017 to pave way for the implementation of the East African Crude Oil Pipeline (EACOP) and the foundation stones between the two countries were laid.

The negotiations for the Host Governmental Agreements have commenced and this is expected to end by June, 2018. The Final Investment Decision for the pipeline will be taken by of June, 2018. 

Government also expects to use some of the money from the Petroleum Fund to partly fund oil roads. The rest of the funds will come from government coffers and other sources. 

The good news is that, in April, government signed the contract for the construction of the $4 billion oil refinery with the Albertine Graben Refinery Consortium. Meanwhile, the Front End Engineering, Design phase, and the Environmental Social Impact Assessment (EIA) are expected to end by March, 2019 and the Final Investment Decision is expected to be taken by June, 2019.

Other sources of financing

William Ssekabembe, the Head of Business and Executive Director at DFCU Bank said they are heavily capitalized and ready to fund different products for the oil and gas sector. He said their operational capital is just under a US$ 1bn, one of the highest in the banking industry in Uganda. 

Speaking at the Oil and Gas Business Opportunities Conference organized by the Association of Uganda Oil and Gas Service Providers (Uganda) together with the Association of Tanzania Oil and Gas Service Providers (Tanzania) in Kampala from March 28-29, Ssekabembe said that they have several products around trade finance. He said they have got some counter guarantees with some partners across Africa and Europe. 

“As you look to bid for these products, we will be able to offer you bonds, discount some invoices, do advance payment guarantees and will also do modular financing without having security,” Ssekabembe said. He added that they were going to launch their incubator specifically for skilling suppliers in the areas of financing or credit uptake, book keeping, financial literacy and related services. 

Similarly, the Stanbic Bank Chief Executive Officer, Patrick Mweheire said they are working on linkages with small and medium enterprises to digitize technology and reduce their cost of service. He said they are working on mechanisms to link the SMEs to mentors, working space and more. 

Mweheire said, the bank is doing this in response to challenges that SMEs face – lack business plans and entrepreneurial skills, insufficient financial resources, poor record keeping and low corporate governance. He said that these challenges make the SMEs become less competitive at the international landscape.

In addition, he said, the bank has put in place an incubator to train SMEs on finance related skills like procurement to survive for longer periods in business. He said Stanbic is looking for partners to support SMEs on these training skills.

He said entities like USAID, Financial Sector Deepening Uganda, Enterprise Uganda and Universities are helping to provide financial and technical support for SMEs eying oil and gas deals. In addition to these areas, Mwehire said the bank is well capitalized to extend financial services to the SMEs and other oil and gas suppliers at negotiable rates for different products and services. 

Big numbers

Funding and any form of support for sector players is important given that the country confirmed around 6.5 billion barrels of oil in about 20% of the potential area of which about 1.5 billion barrels is recoverable. Government says about US$15 -US$20bn will be invested in the sector in the next 3-5 years for the various projects. 

Elly Karuhanga, the Chairman of Uganda Chamber of Mines and Petroleum (UCMP) said at the recently concluded 4th Oil and Gas Convention in Kampala, in which over 500 players from Uganda and abroad attended, said the government and sector players need to pick lessons from countries like Nigeria which have created a local content fund and lends money to oil sector players.

Karuhanga said the Fund is capitalized by contributions from various players engaged in the oil and gas industry. It also lends money out to institutions, which in the long term earns it interest. As at early this year, the Fund had over US$400 million as its capital base.

As the country eyes first oil in two years from now, one big question will remain: Can the banks, government and other supporting agencies offer affordable financing and related services to sector players especially suppliers who are critical in getting first oil? Time will tell.

 

Auditor General Faults Government On Oil Deals

On April 26, at the 4th Oil and Gas Convention, organized by the Ministry of Energy and Mineral Development in conjunction with the Uganda Chamber of Mines and Petroleum, the Prime Minister of Uganda, Ruhakana Rugunda spoke with a lot of optimism about Uganda’s eye for first oil by around 2020.

First, he said, big steps had been made after government signing the contract for the construction of the $4 billion oil refinery with the Albertine Graben Refinery Consortium after more than one year of negotiations. He said efforts to get other key projects like oil roads, the pipeline, the Airport were in high gear.  

He also said that government had put in place a sound legal and policy framework that paved way for the formation of key institutions of government and the private sector to take part in the oil and gas sector.

He also said that government remains committed to working with the private sector, the people of Uganda in ensuring that the country gains from the oil and gas sector.  

As Rugunda spoke all this, earlier reports from institutions of government, researchers, civil society had indicated several gaps that needed urgent attention from mainly government so as not to compromise the ambitious target of getting first oil.  

Key among the entities raising a red card was the Office of the Auditor General that also cared to give recommendations in its latest annual report for 2017. His recommendations were not different from those that had been raised by other key sector players at several fora.

Unclear funding of Oil Company

One of the institutions that Rugunda was referring to in his speech at the oil convention was the Uganda National Oil Company. This was brought to life by Article 49 of the Petroleum (Exploration, Development and Production) Act, 2013. The role of the company is to manage Uganda’s commercial aspects with regard to petroleum activities and the participating interests of the state in the petroleum agreements. 

Its role further includes the management of the business aspects of the state with regard to petroleum, proposing new upstream, midstream and downstream ventures, both locally and internationally and developing expertise in the oil and gas sector. 

However, according to the AG report (2017), it is not specifically stated how the company will be financed. 

For the company to duly undertake its daily operations and its obligation, as a participant in the joint ventures and production sharing agreements and government representative in the refinery and pipeline projects, it needs an established source of income. This was a big worry to sector players when the report was released early this year. 

Many said, including the AG that failure to provide funding would hamper the company from undertaking its obligation thereby affecting the timely completion of projects and would eventually make it default on any joint ventures with other International Oil Companies. 

In his recommendations, the AG advised management to engage the Ministry of Finance Planning and Economic Development to ensure that funds are provided to the company to enable it manage the country’s commercial aspects with regard to petroleum activities and the participating interests of the state in the petroleum agreements. 

In addition, the report indicates that, the share capital of UNOC was Shs10 billion, comprising 10,000 ordinary shares each with a share value of Shs 1 million each. The Ministry of Energy and Mineral Development (MEMD) had a shareholding of 51% while the Ministry of Finance, Planning and Economic Development had 49%. However, by the time of audit, the report notes that none of the shareholders had paid for the shares of the Company. 

Meanwhile, for the company to operate in the initial period, a total of Shs 1.3 billion was disbursed to UNOC by the Ministry of Energy to meet company operational expenses. The failure by the shareholders to pay up for the share capital greatly hindered the company’s operations. 

“I advised that the company to engage the shareholders with a view to ensuring that they meet their obligations so that the entity can undertake its activities geared towards fulfilling its mandate,” the AG notes in the report. 

Compensation queries  

Following the commercial oil discoveries in the Albertine Graben and the decision by the government to construct an oil refinery in Kabaale, Buseruka sub-county, Hoima district, a Resettlement Action Plan (RAP) was developed by the Ministry of Energy to guide compensation and or resettlement of an estimated 7,118 Project Affected Persons (PAPs) in this area. The PAPs comprised 1,221 households and 2,473 directly affected land owners and licensees. 

Despite the social sensitivity of the exercise and the substantial investment in the project of Shs64 billion, there are concerns that the eight months compensation project which began on  June 13, 2013 and was expected to have ended by  February 13, 2014 is still far from completion with significant delays in compensation of over four years. 

As such, the Office of the Auditor General conducted a Value for Money audit covering six financial years [2011/12-2016/2017] with the objective of assessing whether the ministry of energy adequately compensated the people in a timely manner. 

In their findings, they say the project experienced significant delays in the implementation of major Resettlement Action Plan (RAP) activities, ranging from 20 months to over four years. 

It was noted that whereas the monitoring and evaluation activities were supposed to be continuous from inception, the consultant was procured in June 2017. Similarly, the livelihood restoration programme which was scheduled to be implemented by September 2013 commenced in August 2017. 

Additionally, the procurement of an NGO to carry out compliance audits on the implementation of the RAP had not started by the time of audit (November 2017). Delayed implementation of the RAP necessitated extending the contract of Strategic Friends International (SFI), a consultant engaged to manage the RAP five times and increased the cost of the consultancy services by a hooping Shs 1.2bn. 

In terms of adequacy and cash compensation, the AG report notes that out of the 2,680 persons who were eligible for cash compensation, 2,657 had been paid by the time of audit (November, 2017) representing 99%. It was however noted that out of the 2,657 PAPs, only 104 (representing 4%) were paid within the prescribed timeframe. 

There were significant delays ranging from less than six months to over two years to compensate the remaining 2,553 (96%) of PAPs. Consequently, by the time they received their money, the price of land in neighboring villages had risen, making it difficult for them to acquire land of equivalent size. 

Sadly, the report notes that whereas the Chief Government Valuer (CGV) approved the valuation methodology submitted by Strategic Friends International (SFI) showing the procedures to be used for valuation of property permanent in nature, the methodology was not followed during valuation of customary land in the five villages of Nyamasoga and Nyahaira, Bukoona A, Katooke and Kayera. 

The value of customary land was overvalued in two villages and undervalued in three. These anomalies resulted in a loss of Shs 295 million to government and Shs 16 million to the project affected persons. Unapproved rates were used for compensation of almost all the persons affected. 

The report indicates that 43.2% of sampled PAPs had their crops valued at rates different from the recommended rates by the district land board. And that although the cash compensation was done over several years, the ministry of energy did not adjust the compensation values to cater for the market price adjustments in the various years of payment. 

In 2016/17 when updated rates for properties were approved by the government valuer, only two PAPs had their rates revalued. Consequently, their total payments increased from Shs1.029 billion and Shs74 million to Shs2.2 billion and Shs189 million respectively. This violated the principle of fairness in compensation and left some PAPs dissatisfied. 

As all that was going on, the construction of the houses for the PAPs and other resettlement infrastructure such as schools and health centres which was supposed to commence in October/November 2013 was delayed by two years. 

The residential houses and Buseruka Health centre III were completed in 2017 while the construction of the schools was not yet complete by the time of audit in November 2017. 

However, forty six resettlement houses were constructed in accordance with contract specifications. However, the report notes that, there were instances of poor workmanship, mainly on the schools. For example, the concrete tank bases had failed, cracks were noted on some floors, tie beams for the trusses were failing, and precast slabs were poorly aligned. 

Whereas the PAPs were consulted during land acquisition, their concerns were not considered during implementation by SFI.

In addition, it was noted that whereas the resettlement plan registered 7,118 project affected persons, in total, there was no documentation of how this number of persons was identified and neither was there an explicit list to show all the persons due to absence of primary data. 

There was also a variance between the number of persons reported during the census and those that were actually paid. Around 2,473 persons were identified during the resettlement action plan while 2,657 were paid. 

General recommendations

In his report, the AG recommended that; the ministry of energy should ensure that key planned project activities are prioritised, closely supervised and monitored to ensure that the expected deliverables are achieved as planned. 

In addition the AG recommended that going forward; the ministry should ensure that comprehensive planning is done, including sensitization of the project affected persons, and the involvement of NGOs, so as to quicken the disclosure exercise. It also recommends that the resettlement action plan consultant adheres to compensation guidelines for purposes of fairness. Also project affected persons should be profiled so as to ensure timely payment to avoid speculation. 

That the government valuer closely supervises and monitors the valuation exercise for future compensation projects and ensure that the approved valuation methodology is adhered to by the implementing entity or consultant. 

Overall for the oil and gas sector, the report says, there were notable achievements in the compensation of project affected persons in the refinery project and that the ministry of energy successfully compensated 99% of the persons who were eligible for compensation.

Some infrastructure works such as construction of 46 residential houses and improvement and expansion of Buseruka Health centre had been completed and handed over to the ministry. On a positive note, the quality of the infrastructure was to a great extent assessed as satisfactory. 

That said, however, significant delays were noted in the overall implementation of the project particularly in payment of affected persons and construction of resettlement infrastructure. Key activities of the resettlement plan such as procurement of a consultant to undertake monitoring and evaluation of the project, construction of schools and places of worship, as well as implementation of the livelihood restoration programme were delayed as well. 

The use of unapproved or obsolete valuation rates was noted in almost all the years of compensation, and rates were not applied uniformly thereby causing grievances and delays in the compensation process. Failure to adhere to the project affected person’s proposals during construction of resettlement houses also affected acceptance. 

“It is hoped that the proposed recommendations will go a long way in improving the management of future compensation projects,” the AG report reads in part. 

Quick oil sector facts  

  • Uganda confirmed 6.5 billion barrels of oil in about 20% of the potential area of which about 1.5 billion barrels is recoverable
  • Uganda expects a total investment of about US$15 -US$20bn in the sub-sector in the next 3-5 years. These include about US$8 bn in the upstream development, US$4bn in building the crude oil export pipeline, US$3.5bn in building a refinery and other investments in support of infrastructure like the airport, roads and more.

PHOTOS: Goat Races In Perfect Return At Speke Resort

The Royal Ascot Goat Races returned on Saturday at Speke Resort Munyonyo, six years after taking a sabbatical. By midday, Speke Resort lakeside was buzzing with the arrival of revelers who wore colorful and artistic fabrics representing a myriad of cultures and style.

 

The guests at this years Royal Ascot Goat Races were composed of people from different backgrounds. These included corporates, entrepreneurs, socialites, cultural leaders, media personalities and children. The plan was to have as much fun as the day could provide.

 

Many revelers used the event as a family day out. Many could be seen with their children having a good time. The kids play area with bouncing castles, swings was equally busy. 

The days’ MCs Patrick Salvado Idrigi and Malaika Nyanzi kept the crowd engaged through the day and offered commentary as the goats raced with the help of a cart pusher.

In total seven races were on card. Each goat that won a race, its owner took home a prize from the organizers and sponsors of the event, Tusker Malt Lager.

 

The day also saw prizes for Best Dressed Couple; Best Dressed man; Best Hat; Best Dressed Lady; Best Dressed Child, Best Goat Name, Best selfie; Best couple Selfie; Best Goat Impression and cute Group Selfie being given out.

The event under the hashtag #GoatRacesKla trended on social media for much of the day.The hospitality tents were equally active as guests were treated to sumptuous meals and silky drinks.

The owners tent, hosted by Dr. Sudhir Ruparelia, was the most active. It was spacious, with free drinks and food. It was flocked by some of this city’s big celebrities and business tycoons.

 

Bebe Cool and Fik Fameica performed for the happy revelers who through the day had made use of the various alcohol selling points. Acrobats and various dance troupes had earlier entertained revelers during goat racing breaks.

 

The biggest prize was a return ticket for the best dressed couple to Dubai courtesy of Emirates Airlines. The best dressed man and best dressed lady won accommodation for two for one night at Speke Resort Munyonyo and Protea Entebbe respectively.

The best dressed child won a free pony camp treat at Speke Resort Munyonyo and the person with the best hat won a free outfit from Halo collections.

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