KAMPALA, UGANDA, 4th OCTOBER 2019
The recent developments in Uganda’s oil and gas sector have created anxiety among the general public both within and outside the country.
On the 29th August 2019, Tullow Oil announced the expiry of the Sale and Purchase Agreement (SPA) by which Tullow Uganda Operations Pty Ltd was farming down 21.5% of its shares to Total E&P Uganda and CNOOC Uganda Ltd. This followed failure by the Joint Venture Partners (JVPs) and the Government of Uganda to agree on the tax treatment of the transaction.
Subsequently, Total indicated the suspension of activities on the East African Crude Oil Pipeline (EACOP) Project that is supposed to transport crude oil from the export hub in Hoima in Uganda to the port of Tanga in Tanzania. This also affects contractors and sub-contractors whose services are equally suspended. Total and CNOOC are also reported to have started laying off some staff.
The above developments affect the taking of the Final Investment Decision (FID) for the Tilenga and Kingfisher Projects (Upstream) and EACOP Project which was expected in the course of this year. The FID would give way to the Engineering Procurement and Construction (EPC) phase of the projects, that would be characterized by the award of contracts to providers of the required goods ad services for construction of the facilities. This therefore impacts, among others, the involvement of Ugandans and Ugandan businesses in the sector to benefit from the opportunities that government has facilitated through local content.
It is also important to appreciate that the JVPs have made significant progress in taking forward the technical aspects for the key projects leading up to first oil. The FEED, ESIA and Land Acquisition studies for all the projects have either been concluded or are in advanced stages; geotechnical surveys for the facilities have been concluded.
It is therefore important that the momentum that was generated by government’s issuance of petroleum production licenses to the oil companies in 2013 for Kingfisher Development Area (KFDA) and 2016 for Tilenga needs to be revived to facilitate the achievement of FID and development of the sector.
At the issuance of the PLs in 2016, Government and the IOCs agreed to several milestones to achieve FID. This included identification of areas that needed action from either side to achieve FID and First Oil.
Government committed to upgrade the identified roads, facilitate grant of certifications and approvals among others. In this regard, government is investing more than one billion United States dollars (USD 1 Billion) dollars to construct more than 700 kilometers of roads, constructing an international airport in Hoima which will not only support transportation of equipment for the oil and gas sector but also support agriculture and tourism in the region and country at large. Works for 4 out of 6 of the critical road packages are in progress, and the works at the airport are on target to have a usable runway by the end of 2020.
Government has also worked to ensure the conclusion of the Environmental and Social Impact Assessment (ESIA) for the Tilenga project and is finalizing that for the Kingfisher Development Area and EACOP Projects. This included holding Public Hearings for the Tilenga and Kingfisher projects in the project areas. Public Hearing for the EACOP is planned in the course of the year. The issuance of permits for water abstraction is pending finalization of additional feasibility studies.
The ongoing land acquisition for the Tilenga (over 90% for the priority areas) and KFDA (80% for the entire project area) projects is fully being supported by government. The Ministry of Lands, Housing and Urban Development has ensured the gazettement of the land for both projects, and that for the EACOP is ongoing, having concluded the mapping of the pipeline right of way and camp sites.
To concretize a shared understanding and harmonized approach to the project processes the government together with the oil companies established the FID Management Committee consisting of heads of the relevant government entities and Chief Executives of the Oil Companies. The Committee has identified some of the critical matters required to facilitate achievement of FID and these include completion of negotiation of the Host Government Agreement, negotiation of the Shareholders Agreement and Tariff and Transportation Agreement for the EACOP, Uganda National Oil Company backin in the licenses, agreement on excess gas utilization among others and work on most of the identified areas is progressing.
Regarding the EACOP project, the government is closely working with the government of the United Republic of Tanzania with which it facilitated the feasibility studies that enabled selection of the route and negotiation and signature of an Inter-Governmental Agreement (IGA) that provides an attractive package of incentives for the project, in 2017.The states are currently negotiating Host Government Agreements with the project sponsors and committed all the state entities responsible to facilitate conclusion of the process and to expedite any necessary approvals.
This clearly shows government’s commitment to seeing that the JVPs undertake FID and that the projects give a reasonable return on investment. This should be achieved while maintaining intergenerational value, and in line with the legal framework. Government will therefore continue to engage and support the oil companies to resume and continue with activities on all the projects together with all stakeholders to find optimal and lasting solutions to any bottlenecks to the progress of the sector.
Therefore, whereas the prolonged negotiations may push back oil production, as a country, our primary focus should be on ensuring that the journey towards first oil is one that brings in optimal value and benefit to the country and the investors. The projects that are to be sanctioned for close to three decades, and their impact should last beyond their lifecycle for current and future generations. This will enable the country to achieve its goal of using oil and gas to achieve early eradication of poverty and create lasting value to society.
MINISTRY OF ENERGY AND MINERAL DEVELOPMENT