Sunday January 29 2012

Stabilisation clauses in oil deals are bad

Reference is made to the article in the Daily Monitor, Monday, January 23, 2012, ‘Tullow Oil Agreement hits snag’, wherein it was reported that at the NRM caucus meeting in Kyankwanzi, President Museveni informed the MPs that the British oil firm had declined to sign a farm down deal insisting that the ‘stabilisation clause’ (Clause 33) that had previously been removed from the Oil Agreements is restored.

As explained by the article, the stabilisation clause in an oil/petroleum contract shields exploration companies from changes in taxation policies and political chaos making it hard for companies to raise capital in case of any risks, and further insures the investors from future changes in both fiscal terms and legislation.

All Ugandans must be informed that these clauses if maintained in any contract/agreement, have a negative impact on the legislative powers of Parliament and the negotiating power of government as party to the contract. These clauses commit the government to costs every time that Parliament makes laws that affect the economic interests/ benefits of the companies.

It is under this pretext that such doubtful contracts and clauses that hinder the nation from fully benefiting from the sector placing all risk and responsibility on the government in favour of the foreign companies that place themselves in a better bargaining position and making huge profits.

Presently, Uganda boasts of estimated confirmed oil reserves of over two billion barrels of oil. Out of these total reserves, experts have indicated that the country can make the actual recovery of 800m barrels of oil.

If Uganda commences production anticipated by 2013, the country shall see this oil accruing revenues of over $2 billion per year for the next 20 to 30 years.
This amount is more than the $1.7b that Uganda gets as official development assistance from donors every financial year.

So, the oil revenues would be enough to help our country avoid dependence on donors which is still seen by the government as the single biggest obstacle to development. This would, however, depend on the management of the sector.

An upgrade of the existing regulatory framework and revising the terms in the contracts that the government is privy to, with the interest of the citizens of Uganda would be tools that would highly favour the development in the sector and of the country.

Belinda Kasemiire
Global Rights Alert

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