Have candidates handled policy on oil and gas?

As Ugandans go to the polls on January 14 to elect the president, it appears that the presidential candidates have lacked depth to articulate the oil and gas sector, writes Emmanuel Mutaizibwa and Francis Mugerwa.

The Albertine graben in Bunyoro Sub-region holds some of the 6 billion barrels of oil, part of which were discovered on the shores of Lake Albert that straddles the DRC-Uganda border. In the sub-region, communities have been evicted as firms dig the bowels of the earth to establish infrastructure projects. The sub-region contains some of the most bio diverse ecosystems, which could be exposed to the carbon footprint.

Human rights defenders in the Albertine have been at the forefront of advocating for the rights of communities and protecting fragile eco-systems against powerful power-brokers and corporations. But a recent report suggests that many human rights defenders in the area are shirking their responsibilities as a result of attacks from government. The recent clampdown on a number of NGOs and the detention of human rights lawyer Nicholas Opiyo suggests that there is narrowing civic space as the country heads towards the polls. 

Key concerns
Mr Dickens Amanya, the coordinator of Bunyoro Albertine Petroleum Network on Environmental Conservation, says there are concerns relating to intimidation and arbitrary detention of human rights defenders in the Albertine who have heeded the clarion call to defend locals.

Ms Jeniffer Baitwamasa, who works with Navigators for Development Association, an NGO, says: “There is a lot of intimidation towards locals and activists looking at human rights and fair compensation. At times you receive calls from security operatives stopping you from going to attend some meetings. Most of those who make threats are not in uniform and some oil firms go to communities and blackmail people into signing compensation agreements.”

The ActionAid International Uganda country director, Mr Xavier Ejoyi, says the issue of accountability remains outstanding as much of the civil society field work is premised on this aspect. 

“How is Uganda accounting for the exploration, the drilling and the revenue sharing of the oil? As we know, the production sharing agreements are not made public to Ugandans. As citizens, we deserve to know about the oil proceeds; have we put this question to the citizens whether the debt burden will be in tandem from the revenues that will accrue in future?” Mr Ejoyi argues.

Against this climate of fear and apprehension in the oil and gas, the presidential campaigns have not been any better. Earlier on in November, more than 50 people were shot dead during riots sparked by the arrest of presidential candidate Robert Kyagulanyi. 

Within such a toxic atmosphere, it has been difficult for presidential candidates to preach bread and butter issues including the oil and gas sector. The incumbent, President Museveni, has not said much about the oil and gas sector during his campaign trail. He has previously promised to use the funds accruing from the sector not to purchase luxurious items but to uplift the wellbeing of citizens. 

“We shall use the finite resources to build durable capacity for our economy,” Mr Museveni said. The oil revenues will also be used to finance the construction of a new railway and a “few” roads. They will also fund science and innovation, irrigation across the country, renewable energy resources, and high tech education,” he said during the Oil and Gas Summit held in Kampala in 2016. 

But going by the past record, there is ambivalence about the current government’s track record. There are accusations that the government has not been squeaky clean in the area of transparency and accountability.
For instance, after depleting the Petroleum Fund, government is now looking for other options to plug gaps in its pre-election year.

Between 2017 and 2019, with the blessing of Cabinet and Parliament, Finance minister Matia Kasaija withdrew a Shs770.3b from the Petroleum Fund and channelled the money to the Consolidated Fund. 

Section 59(3) of the Public Finance Management Act as amended (FMA), 2015, ring-fences oil revenues to financing infrastructure and development projects only. It is not clear yet whether the funds were spent on these specific items.

However, in August 2020, Uganda joined the Extractives Industries Transparency Initiative (EITI). The initiative is a global standard to promote the open and accountable management of the extractive industry. 

Requirements
Ms Sophie Kyagulanyi, the governance and accountability manager at Oxfam Uganda, says for the purpose of compliance with the EITI, “Uganda ought to publish the production sharing agreements (PSAs) and secrecy codes in PSAs [should be] removed; the other is to understand the revenue management regulations.

Currently we have the Public Finance Management Act but what we are looking at is that there is going to be largely need to separate the revenue management.” 

“Looking at public revenue management from taxation and petroleum revenue management should be different, it will be paramount in the next five years to ensure that we have regulations; [they] could be laws, [they] could be guidelines, [they] could be standards that allow us to manage petroleum revenues a bit differently from how we had planned. Given that today we don’t have regulations for the Public Finance Management Act, it leaves us in a vulnerable position in terms of revenue management going forward,” she says.

Of all manifestos, the NRM’s is the most elaborate on the oil and gas sector. It specifically speaks about the development of the East Africa Crude Oil Pipeline, the refinery and airport in Kabaale, Hoima District. It also provides for a roadmap to execute key agreements by the end of 2020 in time for the Final Investment Decision (FID). 

Several presidential candidates have also spoken out on the oil and gas sector. While campaigning in Bunyoro recently, the ANT presidential flag bearer, Maj Gen (Rtd) Mugisha Muntu, said the current regime cannot be trusted with oil money, and accused the incumbent President of erroneously claiming that the resource ‘is my oil. ‘

“This is not Gen Museveni’s oil; it is a national resource that must be utilised for the benefit of all Ugandans,” Gen Muntu said.

He also lashed out at government for the secrecy that shrouds the petroleum industry. 
Whereas various candidates have specifically addressed the issue in their manifestos, they have fallen short of articulating the oil and gas policy amid challenges such as the shift towards renewable energy.
The NUP manifesto is silent on the oil and gas sector but their candidate, Mr Kyagulanyi, has promised to ensure accountability in the sector and ensure that host communities benefit at his rallies.

Independent candidate Joseph Kabuleta, who hails from the Bunyoro Sub-region, says he will renegotiate the oil contracts government has made with international oil companies because they are not transparent. 

FDC manifestos
The FDC manifesto is not specific in addressing the oil and gas sector but takes a wider view of the country’s mineral potential that it says remains underdeveloped. 

“It is marred by corruption and is grossly under explored for commercial mining. There is rampant and deliberate under collection and under-declaration of royalties amounting to billions of Uganda shillings over several years for exports of gold, tantalum, and tungsten, among others,” partly reads the manifesto.
As part of the solution, the FDC plans to auction mineral exploration licences, rather than insider-dealing.  This will in its view, “increase competitiveness and ensure that the government gets maximum revenue from these licences.” 

Ms Sophie Kyagulanyi of Oxfam Uganda says there is a bit of disconnect between the manifestos and the campaign message by various presidential candidates.
“Most of the conversations that are happening on the trail are not conversations that are linked to the manifesto directly. It could be because of the limited time, spending less time given that they have a target to meet, it could be the kind of interaction, they can’t provide technical content to the rural electorate,” she says.
Ms Kyagulanyi argues that much of the campaign tropes are largely personal attacks and less to do with bread and butter issues. 

“If you look at, for instance, the mining sector, there are quite a number of aspects that are pinpointed by the Citizens Manifesto on Mining and Petroleum that need immediate and urgent action, a moment any political party comes into power, this is where the articulation comes in. The bigger intervention that politicians need to make at the moment would be to invest in the fiscal rule to manage the Petroleum Fund, and policy framework, so that even if investment allows us to recoup small costs or smaller revenues we are able to apply it frugally and even if the interests on the investment is getting low, we are able to apply it to our own advantage as a country,” she postulates.

Ms Caroline Amena, who works with ActionAid International, says Uganda reveals that the aspects of oil and gas and governance and management is largely concentrated at central government but not so much is known at the local level. 

“With the view that this sector has the potential to contribute to the development of this country in all facets, we as civil society organisations produced what we call the Citizens Manifesto through extensive consultations to be able to articulate the issues and the current challenges in the sector to and to be able to advocate for the inclusion of some of the things that we think should be able to support the development of the sector,” she says. 

Ms Amena says the presidential candidates have not ably articulated the issues in the Citizens Manifesto. “The question of effective citizens participation in decision making, in accessing opportunities, benefits, employment, to provide services and goods… what we want to see is the development of the sector. We want to see proper management of the revenues, Uganda is soon getting into the production phase upon the signing of the Final Investment Decision,” she says.

There is a greater threat that is premised on the fluctuating value of the country’s oil and gas amidst heavy borrowing reliant upon projections meant to accrue from the resource once crude is pumped out. 
According to a recently released study by the London-based Climate Policy Initiative Energy Finance,  first published in our sister paper, The East African, Uganda’s upstream oil reserves slumped by 70 per cent in value over the last five years, compromising the economic viability. 

According to a multidisciplinary team of economists, analysts, and financial and energy industry professionals that develops innovative finance and market solutions to accelerate the energy transition, these changes in global oil market have reduced the value of Albertine basin resource from $61b to $18b over the last five years 

According to the report, Uganda may have to renegotiate terms with foreign investors Total and China National Offshore Oil Company as their returns are now below commercially viable levels. Renegotiation could cost Uganda hundreds of millions of dollars and its plans for a new $4 billion oil refinery. 

Furthermore, if the global market adjusts to a low carbon transition consistent with keeping global warming to well below 2C, a further $10b could be “stranded”, meaning Uganda’s oil assets would be worth 88 per cent less than they were five years ago. Under a ‘business as usual’ scenario that assumes the transition does not take place, Uganda’s upstream oil reserves would be worth $18b with the first oil being produced in 2024 and the industry lasting between 25 and 40 years. 

In 2006, when commercially recoverable oil was confirmed in the Albertine Basin, Brent crude prices hit $78 a barrel, peaking two years later at $143. At that time, Uganda’s government had high expectations that this valuable export commodity would lift its economy, one of the poorest in the world, to middle income status within a decade. The 1.6 billion barrels of commercially recoverable reserves could have been worth (based on the net present value of future cashflows) $61 billion, based on CPI’s long-term oil price projection from time of the original planned Final Investment Decision (FID) of 2015. 

But by 2020, first oil has not yet flowed as decisions to invest continued to be delayed and global oil markets have changed after five years of turmoil and volatility. 

In the seven years since production licences were granted to Total and the China National Offshore Oil Company (CNOOC), the US shale boom and geopolitical shifts among the OPEC cartel have contributed to an oil price collapse over 2014 to 2016. Prices collapsed again in early 2020 as global oil demand plummeted due to the Covid-19 pandemic. 

The report from the Energy Finance team at Climate Policy Initiative in London uses commodity modelling to assess the value of Uganda’s oil resource across three main assets: the ‘greenfield’ development on the shores of Lake Albert; a 1,445km-long export pipeline heated to 50C that will transport the waxy oil across Tanzania before it reaches the port of Tanga (the East Africa Crude Oil Pipeline or “EACOP”); a refinery built in Hoima District to process the oil for domestic transportation fuel and to produce petrochemical products. Respectively, each of these assets will require investments over the next few years of $6b, $3.5b and $4b. 

Uganda’s role
Mr David Nelson, the executive director at CPI Energy Finance, says: “We hope that this analysis is helpful for Uganda and its partners in exploring the options available to them as the world decarbonises the global economy. The risks posed to countries, companies, and their creditors by a climate transition and global decarbonisation are not always obvious or expected.” 

Mr Ejoyi says upon the discovery of oil, Uganda ought to have put in place mechanisms to quickly harness the resource.

“In between the discoveries and to-date, in the neighbourhood in Kenya, they have discovered oil and started drilling. Ghana which came significantly behind Uganda is now drilling and exporting oil. There is something that is not happening right in Uganda; the delays in the processes, the procurement and of course you cannot rule out the cases of Uganda and the oil companies that were not willing to pay taxes [Heritage v URA dispute],” he says.

On the outskirts of Kabaale International airport, Hoima District is a sprawling piece of land that is partly owned by Motorcare Uganda, which sells Nissan vehicles. In 2011, when the first barrel of oil was expected to be pumped, Nissan had hopes of running a pristine show-room and well-manicured compound to offer comfort to its expatriate clients. 

But what lies in the space today is an overgrown savannah bush. Like Nissan, the prospects accruing from oil to the communities in the Albertine, shimmer like a distantly placed mirage in a desert.

Declining oil value
According to a multidisciplinary team of economists, analysts, and financial and energy industry professionals that develops innovative finance and market solutions to accelerate the energy transition, these changes in global oil market have reduced the value of Albertine basin resource from $61b to $18b over the last five years.
According to the report, Uganda may have to renegotiate terms with foreign investors Total and China National Offshore Oil Company as their returns are now below commercially viable levels. 

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