Buyuma Weekly Uganda Energy Roundup(Wk 14)
Hello There,
Welcome to this week's?Buyuma Ugandan oil and gas weekly update?covering?the latest energy?news that made waves in Uganda.
The new airport which is?still under construction as Uganda prepares to develop its promising petroleum industry, Kabale International Airport, will be renamed Kabalega International Airport.
When completed, it will be Uganda's only second international airport after Entebbe International Airport.
The airport is expected to facilitate the mobilization of equipment for the construction of the Uganda Oil Refinery and assist in the development of agriculture and tourism in Uganda's Western region.
Below are?updates that made the headlines in Uganda's Oil and Gas sector
Hoima airport 'to be renamed Kabalega International Airport'
?As Bunyoro plans to commemorate a century since the death of Omukama Kabalega this month, the region will also be blessed to have the airport in Hoima renamed after the late king.
Omukama Kabalega's rule spanned nearly three decades — from 1870 to 1899. He died later in 1923.
In a tweet Tuesday, State Public Service Minister Grace Mary Mugasa thanked President Yoweri Museveni for choosing to rename the airport.
"This comes at a time when we are celebrating 100 years of Omukama Kabalega. Kabalega was an inventor and leadership genius who united Bunyoyo and inspired Africa to fight for independence," she added.
The airport is expected to facilitate the mobilization of equipment for the construction of the Uganda Oil Refinery and assist in the development of agriculture and tourism in Uganda's Western region.
Why Kabalega's name?
Kabalega is described as one of the most powerful Ugandan kings and a war genius who resisted British control in the 1890s.
He turned Bunyoro kingdom into one of the most powerful kingdoms in Central and East Africa at the time.
Long before the arrival of the European missionary doctors, Bunyoro performed a highly developed surgical procedure, a caesarean section, which saved mother and child in prehospital days.
That was during the reign of Kabalega, who led several reforms that transformed Bunyoro. Kabalega is a king who has inspired many young patriots.
Uganda is prioritizing those displaced by oil exploration according to the Petroleum Authority of Uganda
During the next five years, the Petroleum Authority of Uganda (PAU) expects that Uganda's land acquisition procedure for oil and gas infrastructure will be a model for best practices in megaprojects both within and outside of Uganda.
The PAU director of legal and corporate affairs, Mr. Ali Ssekatawa, stressed via an article the necessity of a well-organized compensation and resettlement scheme for those impacted by any large infrastructure project to succeed.
This subject has been a bone of contention between the Ugandan administration and several environmentalist groups, some foreign and some indigenous.
While Uganda’s push to legitimize its oil reserves seems like a step in the right direction for the country’s economic growth, these environmentalist groups are weary that the areas containing said oil fields are inhabited by people, and any oil exploration in the area would lead to the displacement of said people and the destruction of the environment.
According to a report by The Monitor, some of the local populations in Uganda have been significantly impacted by the country's oil and gas operations, and managing this sizeable population of project-affected individuals is essential to the projects' success.
Mr. Ssekatawa pointed out that the main goal of Uganda's resettlement action plans for oil projects was to leave project-affected people in a better condition than before found.
He also added that as of February, resettlement and compensation of project-affected persons stood at 99.5% for Kingfisher, 94% for Tilenga, and 65 percent for East African Crude Oil Pipeline (EACOP).
The report further discloses that more than 111 resettlement homes have been completed, 93 of which have already been given to project-affected individuals. Another 242 are being built, and 154 plots have been given to contractors so they may start work.
Oil and gas projects are extensive with the Kingfisher Development Area requiring 1,258 acres of land, while the Tilenga Field Development Area, which has an estimated total of 5,551 project-affected persons, requires 2,901.4 acres.
EACOP requires 2,740 acres of land and is expected to impact a cross-section of people in different locations, many of whom have variances in their compensation needs.
EACOP requires a 30-meter-wide ‘Right-of-Way’ along the entire pipeline length in order to construct the pipeline, together with land for the ‘Above Ground Facilities’ such as the pumping stations and the Marine Terminal.
Uganda: Three Oil Blocks To Bounce Back In Third Licensing Round
At least three oil blocks will be part of Uganda’s third licensing round, which is scheduled to be announced in May. The Ministry of Energy says it will announce the third licensing round during the East African Petroleum Conference and Exhibition that will take place in Kampala, in May this year.
The three blocks – Ngaji, Avivi, and Omuka – are expected to bounce back in the third licensing round after none of the interested companies took them up during the second licensing round nearly three years ago.
There has not been any public announcement of the oil blocks that will be on offer in the third licensing round, but we can reveal that the three will be on offer.
Of the known three, the Ngaji still strikes a raw nerve among environmentalists, who say that its location in the pristine Virunga area is a threat to the ecosystem there.
Investors who show interest in the Ngaji might have to consider the environmental backlash that this block has attracted over the years.
The Avivi is a block in the West Nile region of Uganda, which was once operated by Neptume Petroleum. Neptume failed to find commercial quantities of oil.
No substantial work has been undertaken at the Omuka oil block.
Uganda’s oil industry boasts of high-profile companies such as TotalEnergies and CNOOC, which should attract other players in the market.
PetroAfrik Energy Resources East Africa Limited and Total E &P, Activites Petroliniers were shortlisted for the second licensing round but chose to opt out of pursuing the other blocks. The availability of new blocks could change this perspective, however.
Uganda says less than half of the prospective Lake Albertine basin has been explored for oil. The country is confident there are more resources out there to add to the 6.5 billion barrels that have been discovered so far.
Queries over Shs58b pay for botched thermal plant
Energy minister Ruth Nankabirwa appeared before the parliamentary Natural Resources Committee to defend a Shs155.6b supplementary expenditure that includes $16m (Shs57.6b) payment to a Spanish firm, Albatross Uganda Limited.
The company entered into an implementation agreement with the government through the Energy Ministry during the Financial Year 2014-2014 to establish a 50MegaWatts (MW) thermal generation plant in Itara Village, Bugahya County in Hoima District. The venture, however, never materialised.
Ms Nankabirwa told MPs the company raised a claim to the government and after studying it, opted for an out-of-court settlement because it feared the high costs that it would incur in courts of law.
领英推荐
“Subsequently, the government represented by the Ministry of Finance, Planning and Economic Development, Ministry of Energy and Mineral Development, and Attorney General, signed a settlement agreement on August 5, 2021, to reimburse and purchase costs and assets respectively,” she said, adding that the company had strong grounds for the claims and if it went to court, the government would lose more of tax payers’ money.?
Albatross Uganda Ltd ventured in Uganda in 2010. The company registration files from the Uganda Registration Services Bureau (URSB) detail that it is a subsidiary of Fomento Energy S.L, and was registered in 2010 with businesswoman Aminah Hersi listed as a minority shareholder. In 2022, Ms Hersi relinquished her shareholding to Fomento.
The company first planned on establishing a thermal plant in Tororo District, industry sources intimated, where Ms Hersi owns the land. The plans were revised to establish a plant on Hoima on the backdrop of existing plans at the time to develop thermal power from crude oil and associated gas to only oil companies.
Commercial oil production was primed to start in 2020 and so it was assumed there would be a steady supply of crude oil and gas. In an ideal reservoir, there are two types of gas reserves; associated (located within the oil fields) and non-associated gas (independent from the fields). Most of Uganda’s gas discoveries are located within oil fields.?
In January 2015, the electricity regulator, Electricity Regulatory Authority (ERA) had even ring-fenced the plans by issuing a moratorium issued and gazetted by the Ministry of Energy, restricting the proposed thermal power from crude oil and associated gas generation to only oil companies—then as Anglo Irish Tullow Oil, Cnooc, and Total E&P.
“However, due to the delayed production of the first oil and development of the oil refinery, the Albatros project was unable to commence as envisaged. The government found it costly and unsustainable to provide an annual subsidy ($74.5M) for the investor to use imported oil,” reads in part one brief seen by this publication.
Subsequently, the government and Albatross mutually agreed to discontinue the project and reimburse the developer for expenses incurred in the development of the project process, retaining the land and other assets of the project.?
The brief indicates that the company presented claims amounting to $16m (Shs58b) incurred on the asset acquisition and other operational expenses, of which $4.768m (Shs17b) was agreed upon as a partial settlement by both parties and has so far been paid.?
While the ministry describes the $16m pay as “an out of court settlement”, this one is specifically peculiar owing to the fact that the circumstances that led to the delay in starting commercial oil production—now primed to start in the last quarter of 2025—were beyond government’s control.?
For instance, in February 2014, the government and oil companies agreed to a commercialisation plan for Uganda’s oil projection, which included the development of a crude oil export pipeline, refinery, and development of oil fields. The oil pipeline is purely an undertaking by the oil companies while the refinery was a long shot from day one.
Mr Patrick Obalim Okot, who is listed in URSB files as a company secretary, described as “shocking” the planned payout to the company.
“There was really very little work done so one wonders what exactly the government is paying for. As far as I know, there were some operational expenses incurred, but not substantial as the money we are paying them,” he said, adding, “If we spent a lot of money, and which I think is fair settlement is about $2.5m (Shs9.3b).”
Among the major costs the company incurred, Mr Obalim detailed the land in Hoima acquired at about $250,000 (approximately Shs930m), undertaking an Environment Impact Assessment (EIA), and legal fees for drawing among others a Power Purchase Agreement (PPA).
“Most of the other work was done by consultants. On what basis is Albatros claiming $16m when the money was picked by the parent company in Spain? I also plan to write a protest letter to the Attorney General’s office. As far as I know, there is no court case,” he said.
Another source familiar with the matter intimated that some of the company’s directors have good contacts at State House, where the reimbursement deal was sealed.
Gazetted?
In January 2015, the electricity regulator, Electricity Regulatory Authority (ERA) had even ring-fenced the plans by issuing a moratorium issued and gazetted by the Ministry of Energy, restricting the proposed thermal power from crude oil and associated gas generation to only oil companies—then as Anglo-Irish Tullow Oil, Cnooc, and Total E&P.
Tax exemptions under oil?and gas sector
The country had waited for almost five years. There was that on-and-off tempo until when it was certain with the signing of the Final Investment Decision (FID).
FID means that Ugandans are expected to harvest hugely from oil investments amounting to at least $10b as the country awaits its first oil by 2025.
In all this, a lot of equipment is expected to be imported. Therefore, as with any other business, there are related costs, among them taxes.??
Veronica Magembe, is the manager of tax PricewaterhouseCoopers with a speciality in oil and gas and she points out, the oil and gas sector, has been marked out for the development stage, with some of the imported equipment and inputs exempted from import duty.
All equipment and inputs, apart from motor vehicles, imported by a licensed company for direct and exclusive use in oil or gas exploration, development and distribution under the East African Community Customs Management Act, 2004, she says, are tax exempted.
“For import of goods relating to the pipeline project, the EACOP Bill, 2021 provides for an exemption from customs or import duties imposed on equipment and inputs, engineering plant, capital goods and the temporary importation of any motor vehicles (subject to fulfilment of specific conditions) for direct and exclusive use in the EACOP project,” Magembe says.
The exemption, she says, applies to export or excise duties or other taxes of a similar nature such as customs processing fees, African Union levy, and infrastructure levy, except for motor vehicle registration fees, and is not specifically restricted to the project company, contractors and subcontractors.
However, Magembe notes that before importing in any related equipment, the importer will be required to obtain approval from Uganda Revenue Authority before applying for import and customs duty exemption.
“This is a good policy as it allows importation of equipment for infrastructure projects in the sector at no import duty rates,” she says.
In the absence of exemptions, Magembe notes, the equipment would be subjected to import duties ranging from 0 percent to 25 percent depending on the nature of the equipment.
They would also pay a value-added tax of 18 percent, a Withholding Tax of 6 percent, an Excise Duty for excisable goods and an Infrastructure Levy.
However, for oil equipment relating to upstream projects such as the rig, there is no requirement to obtain approval from URA but the company can obtain pre-clearance of the equipment prior to reaching Uganda.
In all this, Magembe also notes, the target is to significantly bring down the costs involved in developing the pipeline and upstream projects.
Ibrahim Bbosa, the URA assistant commissioner public and corporate affairs, says the government has been deliberate in putting in place value-added tax, excise duty, import duty and infrastructure levy on imported oil equipment but notes it is only registered companies that can benefit.
The exemptions are also provided under the East African Management Act.
Part B of the fifth Schedule of the East African Customs Management Act under the Oil and Gas Operations - Clearance Guidelines 2022 provides that provided the main contractors or subcontractors is licensed, they will benefit from different exemptions, among them import duty.?
“Machinery and inputs, but not including motor vehicles, imported by a licensed company for direct and exclusive use in oil, gas or geothermal exploration, development and distribution [are exempted] upon recommendation by a competent authority of a partner state,” the guidelines read in part.
The guidelines also indicate that in the event that a tier one contracted company imports plant and machinery, the company can apply for value-added tax deferment.
“Temporary importation – Section 117 of the East African Community Customs Management Act allows the commissioner of customs to permit the importation of specified goods, machinery, and equipment to be imported into the country temporarily for a specified period of time,” Bbosa notes.
Oil imports and exemptions?
Machinery, spares and inputs for direct use in oil, gas and geothermal exploration, development and distribution
Under the East African Community Customs Management, machinery and inputs, but not including motor vehicles, imported by a licensed company for direct and exclusive use in oil, gas or geothermal exploration, development and distribution upon recommendation by a competent authority of a partner state, shall be exempted from 25 percent import duty, value added tax of 18 percent, withholding tax of 6 percent, excise duty and infrastructure levy.?
The exemptions seek to support the growth of the oil industry and mining in East Africa and particularly in Uganda.
Uganda is currently in the oil development stage which is expected to lead to the first oil in about 2025.