Deal tilted in favour of oil companies.
Contract could make Uganda poorer

Insights into the tightly guarded oil production and sharing agreements signed by the government and international companies have finally leaked.

The 40-page report titled: Contracts Curse: Uganda’s Oil Agreements Place Profit Before People, that extensively quotes the agreements the government has kept under wraps, reveals that oil firms will reap extra-ordinary profits.

The report by PLATFORM, a London-based organization, says that as a result of this, extraction of millions of barrels of crude oil on Block 3A is most likely going to exacerbate poverty, increase human rights violations, entrench the power of military forces and distort the Ugandan economy.

The drilling on Block 3A is being undertaken by Tullow Oil which is seeking to acquire the entire stake by buying out Heritage Oil’s shares in a deal reported to be worth $1.35 billion.

In coming up with the report, PLATFORM says it reviewed the agreements and spoke to several people in Uganda and abroad, who are knowledgeable about the agreements. Last week court dismissed a petition filed by two journalists of The Daily Monitor seeking to access the oil production, prospecting and exploitation agreements. The case was brought under the Access to Information Act, the law that allows citizens free access to information.

Dismissing the case, the Nakawa Court Chief Magistrate, Deo Ssejjemba, said certain documents need to be kept confidential for proper functioning of the public service. The report that analyses clauses of the entire agreements concludes that the oil firms stand to reap more from the oil than the government or its citizens when oil production starts late this year.


Government will receive $300,000 (Shs 570 million) as signature bonus for signing the agreement. But the report notes that even if this represents hard cash paid up front, this money is little. “The Congo (DRC) government received a $3.5 million bonus upon signing Production and Sharing Agreements (PSA) for Block 1 in 2008,” the report notes.


According to the agreement, the government and oil firms will share the revenue according to the barrels of oil produced. According to the report, Uganda has come out with two models that cover two different scenarios.

Under the first model, government will take 68% of the revenue, leaving 32% to the firm if an oil field can generate a total of 800 million barrels of oil. Where a field can generate 1,500 million barrels, government’s share of the revenue will rise to 73%. The revenue could fall if the price of a barrel of oil drops and the reverse is true.

Such agreements, PLATFORM says, are highly profitable for the participating oil companies. In the most likely scenarios, Tullow Oil could make a 30-35% return on its investment. “This represents a very high profit level for the oil industry, even for risky projects.”

In the report, Reuben Kashambuzi, Uganda’s Commissioner at the Petroleum Exploration and Production Department, is quoted as accepting that that the existing PSAs damage Uganda’s national interest. He says: “We agree that the PSAs were not structured to take advantage of runaway oil prices being experienced worldwide today. Several attempts [to renegotiate] have not succeeded because of the perception that Uganda’s PSAs are very tough.’’


As for royalty fees, which is a set amount of money that the oil firm must pay to government annually as a percentage of its gross sales, where the production does not exceed 2,500 barrels of oil per day, the oil firm will pay a royalty of 5% and where production exceeds 2,500 barrels but does not reach 5,000 barrels, government will be paid a royalty of 7%.

Interestingly, the agreements make no mention of what the Bunyoro Kitara Kingdom, where the oil wells are located, will get. This matter has long been contentious. According to the contract, the Ugandan government could choose to participate in the oil developments with a 15% stake, without providing upfront investment.

The benefits of this option are that Uganda receives a greater proportion of revenues, shares in the private company’s profitability while ensuring a more even sharing of the potential ‘upsides’ - the chance that the project succeeds. However, the report notes that it appears government will not exercise this right.

“By refusing this possibility, the government is effectively handing over a significant portion of revenues to the private companies,” the report notes.


The agreements give the oil companies the right to construct an export pipeline through Uganda and Kenya, to take crude oil to the port from where it can be collected by tanker. According to the report, while the contract explicitly states the oil companies’ rights to construct a pipeline and the government’s obligation to support such a plan, it does not include the opposite responsibilities.

That is, the contract does not state that the oil companies will conduct adequate impact assessments or strategic environmental plans or construct the pipeline to certain standards. Nor does it include a contractual right for the Ugandan government to investigate and oversee proposals prior to approval.

“Given the very high projected returns of 20-34% for the oil companies developing the fields along Lake Albert, there is a risk that the oil companies constructing the pipeline will aim for a similar return. The companies exploring for oil have consistently used the apparent need for a pipeline to justify their excessively favourable terms.

They have argued that because Uganda is a landlocked country, they are compelled to invest in oil transportation infrastructure and that this will affect their margins.”


This agreement sets out a responsibility for the oil companies to train Ugandan citizens to gradually replace expatriate staff and to train government personnel in oil operations. In many oil producing countries, contracts will set out strict percentage targets for local as opposed to expatriate employment, specifying necessary quotas for unskilled, semiskilled and skilled jobs.

However, Uganda’s contracts set no specific timetable or quota targets, merely stating “the Licensee will gradually replace its expatriate staff” (emphasis added). It appears that the government and the companies have created unrealistic expectations around the employment opportunities that will follow from oil extraction in Uganda.

While the oil exploration and production industry is capital intensive, it employs proportionately far lower workers than almost every other industry. While a number of unskilled workers will be needed during the development stages to construct roads, buildings and other infrastructure, these will mostly be short term, insecure and low-paid positions.


The report notes that the environmental impacts of oil and gas extraction are particularly serious along Lake Albert, as this is the most species-rich eco-region for vertebrates and one of the most bio-diverse areas on the African continent. However, Uganda’s Production Sharing Agreements reviewed by PLATFORM carry few specific or enforceable safeguards.

According to the agreement, where an oil company that causes environmental damage or fails to otherwise comply with these terms, the government’s sole resort is to “take action […] to ensure compliance” and “recover […] expenditure incurred in connection with such action”. This means that there are no fines at all for causing environmental destruction.

“Deterrent fines are widely recognized as crucial to preventing regular and large oil spills. A US academic study found that a fine increase from $1 to $2 per gallon for large spills decreased spillage by 50%. The 1990 Oil Pollution Act in the US laid out fines of up to $1,000 per barrel discharged.”

“That the contracts provide no basis for fines, while Uganda simultaneously lacks an effective regulatory regime for the oil industry, clearly represents worst practice.”


Disputes between the oil companies and the government shall be referred to arbitration in London, according to the rules of the UN Commission for International Trade. This means that a conflict between the Ugandan government and a private oil company operating on Ugandan soil will be resolved not in Ugandan courts, but by an international investment tribunal.

Moving the resolution of disputes to London undermines Ugandan sovereignty, treats the Ugandan state as a commercial entity of equal standing to a private corporation, removing concepts of public interest, responsibility or sovereignty.


The agreements, according to PLATFORM, are silent on the relationship between the oil companies and the military or police forces. Thus it is unclear what promises and guarantees the Ugandan government has made to ensure security and what rights the oil companies have been awarded.

This leaves open critical questions, including: Do oil company security or private military contractors have the right or authority to arrest, injure or kill those they perceive as a threat? Do oil companies’ security have the authority to deal with protest or opposition to oil extraction projects?

Do the contracts include indemnification of the company against liability for any human rights abuses arising? Do military contractors have the right or authority to interact with foreign forces? Has the Ugandan government promised to ensure security? Is the Ugandan government financially liable if there is a breach in security?

Is the Ugandan government incentivised to prioritise security interests over the human rights of local populations? At the moment, the report notes that a battalion of the elite Presidential Guard Brigade is responsible for Uganda’s oil region. The report also notes that a new military base will be constructed on ten square miles in Hoima District.


In conclusion, the report notes that oil contracts in Uganda do not provide enforceable protection standards regarding the environment or the human rights of Ugandan citizens, relying on the oil companies to operate reasonably and altruistically.

In this context, it is clear that extracting the oil discovered in the Albertine Graben is highly unlikely to bring overall benefits in terms of economic development, let alone environmental protection or human rights to the region. The Ugandan government and companies have repeatedly criticised comparisons with Nigeria, Angola, Ecuador or other oil producing countries in the global south, asking why the focus is on those countries with negative social & economic outcomes from oil. 

Yet despite their promises of corporate responsibility, the oil companies’ foremost legal responsibility is to maximize profits for their shareholders – other commitments can be sacrificed to achieve this. This is made explicit in Heritage’s 2008 Prospectus to potential shareholders.

The failure of the contracts to protect Uganda is compounded in that national law and oil policies do not currently provide “enough specific and enforceable obligations to promote responsible regulation of [the oil & gas] sector, especially with regard to protection of the environment.

While the government claims that it will present a “new oil law” to parliament imminently, there is as yet no sign of it. Current negotiations over development plans with the oil companies continue to place the cart before the horse.

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0 #21 MABO 2010-02-09 08:00
My dear Cecilia,thanx for your commment to me! As you say am a leech,then what are you? If others sing kisanja or spt some govt progs causes you tht much rage & anger its regretable.

Like it or not wht ever govt tht exists world over has pro & anti gps. If you are in the later gp,swallow the pain & wait for the one you will spt. Even among your families or friends,not all believe like you. Hence accept the the LEECHES are quite many.

If the govt you spt comes to power may be you will be graced to be a LEECH also. As we say in buganda tht if one is in great anger then "licking ash" does some soothing,I suggest you try it becoz am not abt tow your line in near future.

If you are believer of freedom of expression,then leave me talk my mind.So try to keep your adrenaline levels at bay.Am a fully conscious liberated & a patriotic freed from shackles serfdom & parochiasm.

My way foward is tht as ugandans we can salvage the situation to make uganda better,arm chair lamenting & name calling & "fire spitting" will not work.Unless if you expect God to send "angels" to lead us!!For God &my country.
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0 #22 OJA 2010-02-09 09:37
In reading the above article, one gets extremely angry, agitated, hopeless and asks endless questions. One time I wrote that Uganda, as a country, has no oil.

Instead individuals own the touted "oil" within the territory of a certain land called Uganda, particularly in a part called Bunyoro. The article confirms my belief whereby it states that: (a)Uganda's interest, as a nation, is not properly considered; (b) Bunyoro (later Amuru, Arua, etc) is forgotten; secrecy is maintained (because it is a private business); human rights not considered; environment not taken into account; in case of legal action Ugandans must spend money (lose more) to travel to England to argue their case because they've got no sovereignty and the PGB are guarding the installations.

When all these and many other factors are considered, one can logically conclude that "that oil" is meant for the benefit of few individuals in Uganda and naturally, the exploring & exploiting companies. So, Ugandans if you will see developments related with oil money in in your neighbourhood, it will be by God's grace. For my "Stomach and my Family"
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0 #23 Paul Lwanga 2010-02-09 13:55
This begs the question, just like other instances have, of whether we have a "functionable' government. I am hard-pressed to believe that we are being governed by a bunch of low-literates who cannot interpret a mere contractual and Obligation document. I believe that the government-runn ers are doing this country deliberate damage. Can someone guide me on how to file treason charges as a citizen?
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0 #24 Bazibu 2010-02-10 09:00
The bottom line is that M7 & co are treating Uganda as their personal property. This explains why the personal PGB army is in charge of the oil fields.

Since when does a contract of a country’s resource become a scared issue or something to be done in secrecy! They are out to reap whatever comes out of the oil proceedings. That is why they are in a hurry to sign the deal. Because on a personal level whatever they get is good enough.

It’s up to the citizens to decide whether oil belongs to Ugandans or to a few so called visionary leaders. You continue with your “sleep” & “no change” you get what you deserve. Ugandans must stop the no care attitude. These guys just take advantage of this docile attitude.

Even if you support a party in govt, you have to demand accountability & this is what is lacking in Ugandan society. when leaders you elected don’t perform you must change them. In Uganda it’s the reverse they continue voting them in office.

May be the majority don’t have a clue as to what is expected of leaders in terms of service delivery. Elections are merely fun where one is dished a piece of soap and some waragi!
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0 #25 Chris 2010-02-10 10:50
I would like to thank Observer for unearthing this report and making it public to us. I would like to pick a leaf from what most of us (the employed) go through every single day at work.

When ever you do a piece of work, say develop a concept for something or produce a document on some issue. Try sharing it out with your colleagues, they will always identify some gaps that if are addressed make the piece of work better.

That is exactly what PLATFORM has done, I think it is not too late, I think let the cabinet take discuss the PLATFORM report and use it as a basis of revising the terms of the Contract. It would also be nice to give Ugandans an opportunity to discuss Oil subject alittle more openly.

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0 #26 Tsaile Airen 2010-02-10 13:51
Hi Guys,
While looking at the Google Satellite Map of Entebbe, I have noticed a building marked "ENTEBBE GRADE A HOSPITAL".

The above information is wrong and misleading because I am 100% sure that building is not a hospital. The residents of that house never visit Entebbe Grade A Hospital for treatment, but Germany and South Africa hospitals.

Please tell the residents of that building to correct the mistake before an innocent sick person using a map is shot dead while looking for a genuine hospital. Most foreigners visiting Uganda pass through Entebbe and use maps for direction.

Tsaile Airen

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0 #27 Muzirango Mwanje Ishengoma 2010-02-10 22:31
Mabo said:

Am not denying that mistakes or exploitations could have happened

And I am asking:

*Isn't it likely that the mistakes and exploitations were tactically committed at the conviniency of the ruling elite?

* Why is it that the battalion of the elite "Presidential Guard Brigade" and the "Sarascen Securico company" belonging to Salim Saleh were especially assigned with securing the oil fields?

To me all these troubling developments bring me to wonder that may be "tukuuma lubugo nga lubaale mubbe!" There may be more wows to the oil exploration deals than the leaked secret deals can reveal.

And if there is, the entire blame should lie upon our shoulders since we were all responsible for the "kisanja" and "no change saga" Our future generations will live to regreat our short sighted judgement.

Ate gakyaali mabaga!
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0 #28 kizito chalie 2010-02-10 23:07
For the past 23 years some people in Uganda are still green of who owns this country?? I have two examples of the long two serving presidents our Country!!

1:-Late Iddi Amin Dada he was regarded as a dictator and un educated president,a killer etc!! But Amin was very tough on National interests eg.Sports,Secur ity,and he was no nosence on corruption.

In 1972 one of his wife was involved in a secrete deal of Custodian board,Amin was very furious and he even separated with this wife and she was arrested. Amin was behind Entebbe airport creation and our lovely Uganda airlines,he wanted the Ugandan farmers to enjoy through co-perative Unions.

He started Uganda co-perative Unions all over the country,He Started Uganda Railways and may more. He was very surpotive in sports and he was very keen to monitor each and every National sport.

2:- President Yoweri Museveni the Ugandan long serving president so far 23 years and he still need more!! He brought peace but he sold all what was started and left by un educated president!!

So many times you hear scandals involving the ministers including my old friend Amama Mbabazi, public funds are used for building shoping malls in Kampala and buying luxury cars and enjoy pretty women when the local man at my village can not afford medication.

Mr.Museveni will never defeat corruption because he is not trusted either. I dont think he knows where or who keeps the money which came from the National assets?? ie- UCB building,Uganda Airlines,Coffee Marketing Board,etc.

Take a look at Chogam Scandal?? Do you really think President Museveni would put Vice president Bukenya behind bars because of Chogam Scandal??

Would Mr.Museveni arrest Sam Kutesa because of dirty games?? how about his son inlaw?? I give you a million dollar if he does!!!

THe government corrupt officials they will contunue stealing public funds because they see their boss is not serious and he takes Uganda as his personal property.

I always feel sorry for my friend who say TWEBAKA KUTULO its good and continue sleeping till jesus comes back to Uganda!!! Some times you can judge some one according to his words,apearance or the body Language,but My President today he would say Bugerere you are part of Buganda,the next day he meet the king of Banyala!!

What should we take?? As I predicted last time,our President he will be in trouble very soon if he try to arrest the corrupt officials in his government because he eats with them every day,they know him in and out,and some of them they have guns.

Now its up to you to judge between our long serving presidents Iddi Amin Dada and Mzee Yoweri Kaguta Museveni.

Thank you so much observer For God and my pearl of Africa.
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0 #29 Muzirango Mwanje Ishengoma 2010-02-10 23:20
Ha! ha! ha!

Your reply to Cecilia chocked me with laughter. Mbu anuune ku vvu.

However I disagree with you calling upon us to put right what went wrong. How can we put right what went wrong in the absence of the secret agreement tightly protected by State House?

In the first place the whole process should have been openly discursed/debat ed in parliament prior to signing the stupid agreements. Its a bit ironic asking us now to partake in rectifying what went wrong.

The whole thing seemed dubious right from the word go. Anyway I do not know of any NRM govt project that hasn't been marred with controversy. You name one: Chogm? Mabira Forest? Privatisation? NSSF? The dudes are on a fleecing spree! Nothing can stop them.


There won't be a country left when we wake up.
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0 #30 kizito 2010-02-11 00:58
They can't see beyond their loot. The clauses in the contract benefit the guys in govt and for the rest they do not care!I will not be surprised when the oil fields are sold to the first family! The MPS will cheer on while waiting for the envelopes.
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