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The East African : July 21st 2014
The EastAfrican JULY 19-25, 2014 SPECIAL ADVERTISING SECTION Oil and Gas Special Report 15 Parliamentary team finds the basis for determining recoverable cost inadequate Ad hoc committee found varying conditions for costs recovery from one PSA to another By HALIMA ABDALLAH Special Correspondent ment that could lead to loss of ≥evenues once oil and gas p≥oduction begins, a ≥epo≥t by a pa≥liamenta≥y committee says. The committee, whose ≥e- T po≥t is yet to be tabled in pa≥liament, found that the≥e a≥e va≥ying conditions fo≥ costs ≥ecove≥y f≥om one P≥oduction Sha≥ing Ag≥eement (PSA) to anothe≥. “Recove≥able costs should be standa≥dised to p≥ovide mechanisms fo≥ dete≥mining ≥ecove≥able costs fo≥ all the licensees. This would be e≠ective fo≥ monito≥ing and evaluation of ≥ecove≥able costs,” the ≥epo≥t states. Pa≥liamenta≥y Speake≥ Rebecca Kadaga constituted the committee in late 2011 to investigate b≥ibe≥y allegations against th≥ee senio≥ ministe≥s and othe≥ matte≥s ≥elated to the oil and gas secto≥. Owing to the inability to THE CONCERNS OF CONCERN ARE THE LEGAL FEES AND SALARIES. THE SALARIES DO NOT HAVE A CAP, WITH EACH COMPANY PAYING ITS EMPLOYEES AS ITS DEEMS SUFFICIENT. he basis fo≥ establishing ≥ecove≥able cost in Uganda ≥emains inadequate, a develop- meet capital ≥equi≥ements fo≥ explo≥ation, the gove≥nment ente≥ed into the PSA with oil companies to explo≥e the ≥esou≥ces and ≥ecove≥ thei≥ moneys once p≥oduction begins. The unde≥standing in the PSA is that all the expenses that a≥e catego≥ised as explo≥ation expenditu≥es, development and p≥oduction expenditu≥es, ope≥ating expenses, se≥vice costs and gene≥al administ≥ative expenses, will be paid by the oil companies and ≥ecouped f≥om sale of oil. Of concern In addition to va≥iations in dete≥mining the ≥ecove≥able cost, the ad hoc committee said that the gove≥nment included expenditu≥es that should not, in no≥mal ci≥cumstacnes, be pa≥t of the ≥ecove≥able costs. Of conce≥n a≥e the legal fees and sala≥ies. The sala≥ies do not have a cap, with each company paying its employees as its deems su∞cient. The legal fees a≥e likely to ≥aise the ≥ecove≥able costs, given that the gove≥nment and the oil companies have been emb≥oiled in legal battles both locally and ab≥oad. Acco≥ding to the PSA be- tween Tullow and the gove≥nment, all the costs will be ≥ecove≥ed f≥om 60 pe≥ cent of oil and 70 pe≥ cent of gas. The costs will be ca≥≥ied fo≥wa≥d until full ≥ecove≥y. The same a≥≥angement applies to Total Explo≥ation and P≥oduction Uganda Ltd and CNOOC, which a≥e pa≥tne≥s with Tullow. Each pa≥tne≥ holds equal sha≥es of 33.3 pe≥ cent. Unde≥ the PSA, the compa- nies a≥e obliged to submit audited accounts showing details of cont≥act expenses and ≥evenues within 90 days of expi≥y of the calenda≥ yea≥. In addition, the PSA gives the gove≥nment autho≥ity to ≥eview licensees’ books of accounts. While appea≥ing befo≥e the pa≥liamenta≥y committee, the Audito≥-Gene≥al John F.S. Muwanga said cumulative costs as at Decembe≥ 2008 stood at $492.55 million. That figu≥e shot up to $1.4 billion by Feb≥ua≥y 2012. In June, Total E&P said it has invested $2 billion in its ope≥ations. Total is cu≥≥ently doing seismic and d≥illing app≥aisal wells. While explo≥ation activities a≥e expensive, the gove≥nment has been c≥iticised fo≥ its laxity in the monito≥ing of the oil companies activities, acco≥ding to the ≥epo≥t. “The committee obse≥ved that the≥e a≥e no standa≥d guidelines on the fo≥mat and minimum ≥equi≥ements fo≥ the wo≥k plans and budgets submitted by licensees to the Minist≥y of Ene≥gy as a basis fo≥ costs ≥ecove≥y. The≥e a≥e also no sanctions in case of deviations fo≥m app≥oved budgets and wo≥k plans,” ≥eads the ≥epo≥t. This development com- plicates the budget analysis, monito≥ing and evaluation of subsequent ≥ecove≥able costs. The pa≥liamenta≥ians ≥ecommend a ha≥monised wo≥k plan and budget which is followed by sanctions upon deviation. Tullow Oil workers at a rig in Buliisa in Uganda. Picture: File Supply and distribution costs continue to push up gas prices By HALIMA ABDALLAH Special Correspondent A t Ush150,000 ($56) fo≥ a 15kg cylinde≥, the p≥ice of cooking gas is high by any standa≥ds. This att≥ibuted to sho≥tages of liquefied pet≥oleum gas (LPG) on the ma≥ket, which indust≥y playe≥s att≥ibute to supply and dist≥ibution const≥aints. With the exception of Tanzania, whose ma≥ket is supplied th≥ough the Da≥ es Salaam po≥t — and the p≥oduct is untaxed — the ≥est of the East Af≥ican count≥ies ≥ely on supplies th≥ough the po≥t of Mombasa. The LPG is taxed, thus adding to the final consume≥ costs. Although the use of LPG is mo≥e among the u≥ban uppe≥ and middle income population, the demand is p≥ojected to ≥ise. Acco≥ding to the 2008 St≥ategy fo≥ the Development of Regional Refine≥y done by the East Af≥ican Com- a≥e suggestions that the gas could be used to p≥oduce elect≥icity to ≥un some indust≥ies, the P≥oduction Sha≥ing Ag≥eements (PSAs) that the gove≥nment signed with oil companies shows that the companies a≥e at libe≥ty to decide its usage. “When you p≥oduce oil, the≥e is al- ways some associated gas — a small quantity of gas. We a≥e investigating the ways to dispose of the gas comme≥cially… Ce≥tainly, one of the easiest ways to dispose of it is to supply powe≥ stations,” said Loic Lau≥andel, fo≥me≥ gene≥al manage≥ of Total E&P. Gas is used fo≥ pet≥ochemicals and A gas dealer for Total in Kampala. Picture: File munity Sec≥eta≥iat, gas demand in Kenya, Uganda, Tanzania, Rwanda, Bu≥undi and South Sudan is estimated to g≥adually g≥ow f≥om 107 tonnes in 2010 to 221 tonnes in 2020. Cu≥≥ently, 90 pe≥ cent of the population depends on biomass fuel. This development puts p≥essu≥e on the fo≥est ≥esou≥ces. Inc≥eased LPG use will help ≥educe p≥essu≥e on this natu≥al ≥esou≥ce. But the p≥oblem is that Uganda is still undecided on how best to make use of associated gas. While the≥e elect≥icity gene≥ation. It can also be used by smalle≥ indust≥ies like fe≥tilise≥ manufactu≥e≥s. Some indust≥ies can also pack LPG fo≥ cooking. Uganda’s PSA fu≥the≥ allows the companies to fla≥e the gas, but with gove≥nment consent. In Uganda, only one out of the 59 p≥oductive wells contains substantial gas. Gas estimates stand at 350 cubic feet. Expe≥ts say this is too little fo≥ investment. “Uganda’s type of sou≥ce ≥ock, f≥om which hyd≥oca≥bons a≥e gene≥ated, is mo≥e p≥one to oil than gas, because we do not have the tempe≥atu≥es (about 150°C ) that can cook oil into gas, but explo≥ation wo≥k is still ongoing,” said P≥oscovia Nabbanja, senio≥ geologist at the depa≥tment of pet≥oleum. Discove≥ies in Tanzania and Democ≥atic Republic Congo p≥esent an oppo≥tunity to establish a ≥efine≥y fo≥ the p≥ocessing of gas p≥oducts fo≥ the available local and expo≥t ma≥kets while c≥eating jobs fo≥ the people in the value addition chain. Geologists believe that the G≥aben ≥egion holds mo≥e ≥ese≥ves than ≥epo≥ted, but that will be established once the count≥y lifts the mo≥ato≥ium on licensing to allow explo≥ation activities in the ≥emaining 60 pe≥ cent of the a≥ea.
July 14th 2014
July 28th 2014