Uganda has one of the toughest commercial terms for oil production in Africa, according to Tullow Oil officials.
Tullow, one of the oil companies with the largest exploration licenses in 15 African countries, says terms in other countries like Kenya are more attractive compared to Uganda.
Appearing before the parliamentary ad hoc committee on oil on Wednesday, Graham Martins, the Executive Director Tullow Oil admitted that the conditions in Uganda are tough and can put off an oil company.
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The production sharing agreements provide a contractual mechanism for cost recovery and sharing of profits for production between government and oil companies. This means Uganda stands a better chance of benefiting from the oil compared to the companies.
In a recent address to Parliament, President Yoweri Museveni outlined how Uganda would benefit more from the oil venture compared to the oil companies. He observed that before the recovery of costs, the companies will be taking 74 barrels out of every 100 barrels produced while Uganda would get 26.
But after the recovery of costs, this amount would reduce to 42 barrels out of every 100 barrels while Uganda’s benefit increases to 58 barrels. This amount does not include taxes which are 30% of barrels and royalties which are 5% up to 12.5% of the gross production. Museveni placed the equity by the company at 15% of shares.
Martins notes that with these terms, government seats with two hats—one as a regulator and another as a tax authority.
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Martins confirmed that Tullow has paid US$550,000 in signature bonus for the recent fresh oil agreement. Signature bonus is the payment made upfront to the host country for the right to develop a block commercially before work begins. It is a system that is legally accepted for an oil company to secure the right to explore a certain field.
In February, government signed two Production Sharing Agreements—PSA with Tullow Oil Uganda Limited regarding the development of petroleum resources discovered in exploration areas 1, 2 and 3A.The agreements grant new licenses for the Kanywataba prospect area for six months and Exploration Area 1 for one year.
