Thursday August 19 2010

Oil: Museveni takes over

By Walter Wafula

President Museveni has ordered Energy Minister Hilary Onek to stop endorsing deals between oil and gas mining companies on behalf of the government.

In a July 19 directive, Mr Museveni cites excitement for “easy money and quick profits” through hurried approvals by government officials which might lead to “mistakes,” as his concern.

“In order to avoid mistakes, the fact that ministers normally sign on behalf of the government after advice from the Attorney General notwithstanding, in the case of petroleum and gas, I direct that no agreement should ever be signed without my express written approval of that agreement,” Mr Museveni wrote.

His letter was copied to the vice president, the prime minister, the minister of finance and the minister in charge of presidency.
Mr Onek did not return calls by press time. Finance Minister Syda Bbumba said she had been out of the country and has not read the letter.

In the letter, the President questioned “the excitement and stampede” that his ministers are showcasing in the wake of a multi-billion dollar deal between Tullow Oil and Heritage Gas and Oil. The letter was written less than two weeks to the conclusion of a deal between the two oil exploration companies with operations in Uganda.

On July 27, Tullow Uganda Limited a subsidiary of Tullow Plc, announced that it had paid up to $1.5 billion (Shs3.3 trillion) to acquire a 50 per cent interest of Heritage in oil Blocks 1 and 3A in the Albertine Graben of Uganda.

But the government has since reversed the conditional government approval given on July 6 by Mr Onek, after Mr Museveni insisted that Heritage should first pay about $405 million (Shs911 billion) in taxes.

Revenue impact
In his July 19 letter, Mr Museveni also asked his ministers to restrain from the stampede, arguing that the revenues that Uganda will generate from its oil and gas in the next 20 years, will have an inferior impact on the country than the earnings from sectors like; agriculture, tourism, industry and remittances from Ugandans working abroad.

Based on the world oil price at the time of writing the letter, the President estimated that Uganda will earn about $31.5 billion (Shs70 trillion) in revenue from the oil. That money is enough to finance Uganda’s current budget for the next 10 years.

But this in comparison with the $3.1 billion (about 7 trillion) that the economy is already earning from its exports alone per year. This means that the current earnings from exports can more than double the anticipated oil revenues in the current state and expand by a factor of 10 with value addition – according to the President’s maths.

In a move aimed at gaining the right share from the proceeds of oil and gas related transactions in the country, the government on Monday unveiled an amended Income tax law –the Income Tax Bill.

The law introduces new requirements aimed at imposing taxes on oil deals and specifies penalties for defrauding and defaulting companies to a tune of Shs1 billion. The Bill, which was signed by the minister of finance, was tabled in Parliament on Tuesday by Fred Omach, the deputy finance minister.