UGANDA HAS SET TOUGH INVESTMENT CONDITIONS TO OIL COMPANIES INTERESTED IN EXPLORATION AND PRODUCTIONS IN THE COUNTRY’S OIL FIELDS.
Mineral and Exploration News By Leo Odera Omolo.
The government of Uganda has set tough conditions for new foreign companies intending to invest in the production of oil and gas in the country.
Briefing members of the Parliamentary Committee on Natural Resources, the Permanent Secretary in the Ministry of Energy, Kabagambe Kaliisa, said one of the conditions set for a company to be approved by the government, it must have a capital base of at least USD 24 billion {Ushs 48 trillion}.
“Since the investment required in the short and long term{2010-2020} is estimated at USD 8 billion, a company with a market capitalization of three time the size of the required investment would be credible”, the PS said.
The PS told the committee meeting in Kampala on Wednesday that the oil and gas operatives are moving into the development and production phases, “Therefore, the type of companies required to carry these activities forward need to have the necessary risk capital and access to project finance for both the short and long term investment.”
“These companies”, he said, “ must have good operator experience, not only in exploration and production of gas and oil, but also in refinery, pipeline development and operations”.
“There was also need for licensing and maintaining several oil companies to avoid monopoly”, Kabagambe said.
In addition, the companies must be agreeable to the government’s current development strategies, which include early commercialization of the resources, value addition, training of Ugandans and paying taxes.
“In order to approve the transactions, the Ugandan government ought to consider the best interest to propel the people in the industry further”, the PS added.
The Permanent Secretary was appearing before the committee to explain the current transactions between the oil companies operating in the country. He also disclosed that 15 oil and gas fields have been explored since the year 2006, with an exceptionally high drilling success of 94 per cent. A reserve of two billion barrels of crude oil worth USD 50 billion has been discovered to be in place.
Kabagambe further explained that the oil reservoirs have to be tested and appraised. He gave the breakdown of the estimated total production costs as follows; “ Power generation and transmission facilities may cost USD 300 million, oil processing and transportation equipment another USD 1.5 billion, refinery development USD 2 billion, further drilling USD 20 million and expanded storage and pipeline infrastructure USD 4 billion.
He said it is therefore beneficial to the country that a bigger player who expresses interest in joining the petroleum industryis given preference.
Kabagambe informed the committee members that Tullow, the Irish firm that has been actively exploring oil and gas in Western Uganda does not have the required capacity and has decided to invite partners. French Total and the Chinese state-owned CNOOC are currently being evaluated to partner with Tullows.
“In recognizing the need to avoid a monopoly, Tullow has presented their plans to partner with both Total and CNOOC”, the PS told the MPs who were attentively listening with a lot of interests.
Kabagambe said, however, that the government has asked Tullow to reconsider its proposal of operating two out of the three exploration areas instead of each partner operating an exploration area. “Tullow has also been asked to submit joint operating and sales agreement with Total and CNOOC”, he added.
The government recently announced that it has approved the deal for Tullow to take over the 50 per cent share of its partner Heritage, in two blocks in the Lake Albert region at USD 1.5 billion. The decision ended a bid by the Italian company Eni to buy Heritage stake.
The PS further disclosed that the transaction between Tullow and Heritage will be subject to a capital gains tax of USD 300 million {Ushs 6 billion} to USD 400 million {Ushs 8 billion}.
The committee members, however, expressed anger over the fact that the oil production sharing agreement had not been made public.
“Our hands are tied. All these issues need to be discussed after when we have read the oil agreement”, MP Beatrice Anywor said.
Another legislator, Aniuta Kawoyo said the government should not delay the production process, adding that billions were being lost as a result.
The state-owned NEWVISION reported that the Ministry of Energy’s principal geologist had declined to comment on the issue as to when the production will commence, but told the MPs that Tullow plans to start selling crude oil in the middle of this year, especially to cement industries.
It was announced during the meeting that a national oil company would soon be established to increase the national participation and accelerate the knowledge and transfer.
Ends
leooderaomolo@yahoo.com