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Are Uganda’s Production Sharing Agreements with oil companies bad for Uganda?

Details of the Production Sharing Agreements have not been fully disclosed, despite the long-running efforts of civil society activists and some MPs to have them made public, so it is very hard to say.  Government officials have claimed all along that the terms of the agreements signed with various companies were good for Uganda.  In 2010, however, a UK-based NGO, PLATFORM, and Uganda’s Civil Society Coalition on Oil co-published a hard-hitting report (see our RESOURCES section for details), claiming that the deals allowed excessive profits for the oil companies and that the Government of Uganda was selling the country short.

Only full disclosure would allow any final judgment to be made.

Yet it is worth noting that the bargaining position of the government has improved considerably since it signed the first PSAs. In earlier years, when the government was struggling to attract companies to invest in exploration, it was in no position to drive a hard bargain.  But, with the commercial potential of the Graben proven beyond doubt, government became better placed to negotiate conditions for renewal of exploration and production licences.

It seems likely that when new PSAs were signed with Tullow Oil on February 3 2012, the government had used its increased bargaining power to re-negotiate and improve upon the terms of previous agreements.   According to international press reports, the agreement hinged on Tullow accepting revisions to ‘stabilisation clauses’ in the contracts, which are designed to protect companies from future losses if the government alters tax legislation. According to Uganda’s new Energy Ministry, Irene Muloni, Tullow has also agreed to the government’s long-cherished plan to establish an oil refinery in Uganda.  (For the oil companies, exporting crude oil via pipeline would have been preferable, although technically challenging, as it would enable them to get the oil out of the ground and onto international markets as quickly as fast as possible.)

The most PSAs may therefore represent a significantly better deal than those criticised by PLATFORM.

Because of the lack of transparency surrounding these deals, however, this interpretation is entirely speculative.