UPDATE: Uganda Will Curb Gains Of Foreign Oil Firms-Lawmaker
By Nicholas Bariyo, Special to DOW JONES NEWSWIRES
(Rewrites throughout following lawmmaker and official's comment, background)
KAMPALA -(Dow Jones)- Uganda will continue to update its legislation to make
sure the country benefits from its soon-to-be commercially exploited oil
reserves and reduce the financial bias toward foreign companies, a lawmaker said
Monday.
Steven Birahwa, who heads the parliamentary national economy committee, said
parliament will set laws to amend the current oil production agreements which
favor foreign companies so that money flows into the government for the benefit
of Ugandans.
"Parliament will address these shortfalls. We are now in the process of
putting in new legislation to govern the petroleum sector," he said.
Birahwa was responding to a report by a U.K.-based advocacy group, Platform,
which warned that the PSAs with U.K.-based Tullow Oil Ltd. (TLW.LN), Heritage
PLC (HOIL.LN) and Dominium Resources are bias toward the companies and will
enable them to reap huge profits once production starts.
"Overall, the PSAs contain clauses that, over the 20-year course of the
contracts, will first and foremost serve to protect the companies' interests,
while the terms of arbitration constitute a dangerous diminution of Ugandan
sovereignty and control over its natural resource."
The group said: "In particular, the deals fail to capture economic rent from
high oil prices and allow the companies to earn excessive profits--even using
conservative projected oil prices, Tullow and Heritage are set to receive a 31-
35% internal rate of return on their investment, almost three times what's
internationally recognized as a fair profit."
Platform said under the deals, when global oil prices increase the companies
are entitled to a larger proportion of the extra rent. The profits of companies
go up faster than the government's proportion of intake if there is an increase
in field size and the number of discovered barrels.
Defending the original contracts, an official with Uganda's Ministry of Energy
and Minerals said Monday that at the time they were negotiated the government
did not expect huge oil discoveries and because of the high capital requirements
the deals had to be in favor of the companies.
He said most of the provisions cited by Platform are actually contained in the
deals but added that they are necessary to attract investments and offer
security of tenure.
The government has declined to officially release the contents of the oil
agreements citing confidentiality clauses. However, activists have warned that
secret dealings with companies could cause unrest in the oil regions when
production starts.
Tullow Oil operates block 1 and 2 while Heritage oil operates block 3A, both
located in the Albertine rift. Dominium is licensed to operate block 4B, near
Lake Edward. Company officials couldn't comment immediately.
Spurred by recent exploration success, interest in Uganda's oil sector
continues to rise, Italy-based Eni SpA (E) has reached a deal to acquire assets
of Heritage Oil in Uganda at $1.5 billion, other companies like Total SA (TOT).
Exxon Mobil Corp. (XOM) and CNOOC have also expressed interest in taking over
Tullow Oil's assets in Uganda.
-By Nicholas Bariyo, contributing to Dow Jones Newswires; +256 75-262 4615;
bariyonic@yahoo.co.uk
(END) Dow Jones Newswires
11-23-091004ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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