Secret oil deals

By Haggai Matsiko

New rules to force CNOOC, Total, Tullow to reveal money paid

The U.S’s Securities and Exchange Commission has finally issued the long awaited new rules that outline how oil, gas and mining companies must comply with Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed into law in July 2010.

Civil society organisations opposed to the secrecy in Uganda’s oil sector have been anxiously awaiting this law.

The new rules require all companies listed on American stock exchanges and dealing in oil, gas and minerals report to the SEC all their payments to host governments.

France’s Total and China’s Offshore Oil Company (CNOOC) are listed on US stock exchanges meaning that Ugandan’s will now have a window into how much the government gets from these oil companies. Tullow oil is not listed on the US stock exchanges but calculating what it pays the government will be easy since it holds stakes in these oil companies.

Although Uganda should have earned trillions of shillings in licence fees, loyalties, signature bonuses and taxes considering several oil companies have been at work since the 1990s, it is only the tightly knit network of government officials and their oil partners that know how much the country has earned so far. For years now, transactions in Uganda’s oil industry have been a territory limited to only President Yoweri Museveni, his highly trusted technocrats and oil companies.

President Museveni and his technocrats at the energy ministry have ensured that from members of parliament down to locals under whose feet oil was discovered, no one knows what goes on in the industry apart from what is prepared in press releases.

While Museveni started by concealing the Production Sharing Agreements, to ensure a firm grip on the sector, he deployed the Special Forces under the command of the first son, Brig. Muhoozi  Kainerugaba  and Saracen, a private security firm linked to his brother,  Gen. Caleb Akandwanaho aka Salim Saleh, to secure the oil fields.  Several other security operatives comb the area regularly to sniff around for any “suspicious elements”.  The government in April formed a police Oil and Gas Directorate headed by former Anti-terrorism unit boss, Abbas Byakagaba and deployed it there.

These security operatives have closed civil society meetings with the local peoples, arrested journalists and civil society activists and interrogated those who speak to anyone about oil. To access the oil fields, one needs permission from the Energy ministry which sometimes never comes.

Section 1504 of the law passed on Aug. 22 will now require CNOOC and Total to disclose all monies paid to Uganda by them or entities under their control. Such payments range from host government’s production share, taxes, royalties, dividends, bonuses, license fees, rental fees, entry fees and other significant fees that host governments receive.

George Boden, a campaigner with Global Witness, an organisation that has for long called for such mandatory reporting, says that the Dodd-Frank legislation is a great stride forward in global efforts to make the extractive industries more transparent and to tackle corruption and mismanagement in the sector.

“This will allow Ugandan citizens to monitor incoming revenues from the petroleum sector and compare them with government records of incoming revenues to check that money is going where it should,” Boden said of the 1504 rules.

Winifred Ngabirwe of Publish What You Pay (PWYP) says that with these rules, the secrecy that has surrounded the sector with oil companies claiming that their hands are tied, is dealt a big blow.

“With these rules we will be able to get that information broken down as companies are required to submit their payments per country and per project,” Ngabirwe says, “now it will be our duty to engage the government and hold it accountable.”

Ordinary Ugandans first heard about oil money in taxes, when the government broke ranks with Heritage, which after selling its assets to Tullow oil at US$ 1.5 billion escaped town in 2009 without paying Capital Gains Tax worth US$435 million. The two are before a London tax tribunal with Heritage disputing the validity of such a tax.

As the two parties dispute the validity of the tax, civil society organizations have decried, as the latest example of secrecy, the fact that the dispute is taking place behind closed doors far away from Ugandans. Uganda’s team led by Attorney General Peter Nyombi and the Heritage team agreed that other parties including Ugandan MPs are locked out of the proceedings.

Boden says that Uganda’s Western donors “need to question the hypocrisy of a London arbitration process which deprives Ugandan civil society of the ability to hold their own government to account on vast public assets.”

Highlights of section 1504 of the Dodd-Frank Act

• The law mandates oil companies registered with the SEC to disclose  all payments of US$100,000 or more that are made to foreign governments

• The payments for the development of oil, gas and mining activities must be broken down on a project-by-project level, including taxes, royalties, fees, dividends, production entitlements, in-kind payments.

• It also mandates the companies to make a compilation of such information publicly accessible online.

• The law mandates companies to report all payment information on an annual basis.

• Two of Uganda’s oil companies Total and CNOOC are registered with the SEC and will have to submit that information

• Tullow oil is not registered with the SEC but tracking its payments to the government will be easy through its connections to Total and CNOOC

• With this information, civil society will be able to monitor incoming revenues from the petroleum sector and compare them with government records of incoming revenues and be able to push for accountability

• This previously unavailable data will start being published on the SEC website in October 2013

Corruption & secrecy

This is not the first time Uganda’s are locked out of such critical information. A few years ago, journalists sought access to the oil production, prospecting and exploitation agreements under the Access to Information Act which is designed to ensure that citizens have free access to information in possession of the state. But the courts ruled that “certain documents need to be kept confidential for the proper functioning of the public service”.

The group of CSOs, including Global Witness and the Civil Society Coalition on Oil, say that the private proceedings deny Ugandans the right to know how the country’s oil wealth is being managed.

“Ugandans do not understand why their Government is being forced to spend millions of pounds on a tax dispute thousands of miles away in London when it has already been decided by Uganda’s courts,” says Dickens Kamugisha, chair of the Oil Watch Coalition of NGOs. “They understand even less why the dispute is taking place behind closed doors and this secrecy is making them deeply mistrustful.”

Apart from the Heritage case, Tullow Oil is also in a dispute locally with the government of a tax assessment of US$ 472 million following the farm-down of 66 percent of its stake to France’s Total and China’s Offshore Oil Company (CNOOC).

Although Tullow paid 30 percent or (US$ 141 million) as a condition to the farm-down, the Parliamentary Forum on Oil and Gas expressed fury earlier last month that the Commissioner General of Uganda Revenue Authority (URA), Allen Kagina, was not forthcoming with information about the Tullow Tax.

Almost coinciding with the Heritage case, the rules have re-awakened the demand for more openness about how much government gets from oil, and how that money is used.

Tullow oil on its part earlier this year submitted to parliament and published on its website the details of its deals with CNOOC and Total E&P. The company was also seen to prove as its officials have repeated time and again that they have nothing to hide.

In an exclusive interview with The Independent, Eoin Mekie, General Manager & Director Tullow Uganda said that Tullow had no problem making public the PSAs but that the government had not permitted to that.

Indeed in other countries where Tullow operates like Ghana, the company is open to publication of such information, it publishes all its agreements with the government, environmental impact studies, and every penny it pays to the government. The company is also quick to point out that it is a signatory to the Extractive Industries Transparency Initiative (EITI).

This has left the government whose sole excuse for not making public the PSAs has been the confidentiality clause embedded in the oil contracts.

Ministry to maintain secrecy

Bukenya Matovu, the head of communications in the ministry of Energy and Mineral Development still insists that contracts are between two parties and can only be disclosed if it is stipulated that a third party can access them.

He says that oil companies can sue for breach of contract and loss of business if government publishes these agreements without informing them. He adds that publishing such contracts might jeopardize their interests since these international oil companies are always competing with each other.

What Matovu ignores is that by submitting to the SEC and publishing the tiniest of their payments to governments, these international oil companies will essentially be giving out this information.

Opponents of these new rules had made the same case but lost the argument. Others like the American Petroleum Institute (API) and Shell had also argued that complying  with such disclosures would be too costly and would in some cases tantamount to breaking laws of sovereign countries but the SEC backed by some of the world’s most influential people like Bill Gates has stood its ground.

Matovu says that the Dodd-Frank’s 1504 rules laws have no implications on the government since it is on the companies receiving end adding that it is the oil companies that must meet these conditions.

Asked whether the rules would not mean exposure of the information that the government has guarded heavily, Matovu said that the government was not hiding anything.

“How do you want information made public,” Matovu asks “it is the office of the auditor general that audits these reports, parliament which represents the public has the PSAs.” Matovu says that it is the NGOs that have blown out of propotion the transparency debate by firing-up people and creating suspision.

With the new rules, however, Transparency activists are counting a score—they are now encouraging the government to join the EITI.

“The government of Uganda should now join the EITI and make sure that the Public Finance Bill, which is currently before Parliament, ensures that information on all incoming revenue from the petroleum sector is available to the public,” Boden says.

Bukenya insists that joining the EITI should not be hurried since the government is working on laws that could have the same implications as the EITI.

Boden also adds that revenue transparency is only one part of the puzzle and that inorder to ensure good management of the petroleum sector in Uganda there should be transparency at every stage.

“That should include transparency in the allocation of rights to the countries oil,” he says, “publicly available contacts, budget transparency and a transparent national oil company. The current drafts of the Petroleum Bills which are before parliament do not guarantee this kind of transparency and Parliament must now make the necessary amendments to ensure that Ugandans have access to the information they need to hold their government to account over the management of their natural resources.”

With these rules coming into play, companies especially banks in Asia are trying to look out for ways of skirting around such transparency traps. Oil companies like Exxon Mobil have also argued that certain government might deny them contracts because of being too transparent. Do countries like Uganda have such options?

Tony Otoa, the coordinator, Civil Society Coalition on Oil says Uganda does not have that liberty.

“Of course many will say that the government will seek companies not registered on the SEC, but truth be told,  a great number of oil companies are in so many ways connected to the SEC. The UK is venturing into a similar law.” Otoa says, “Does this mean that the government will have to avoid British companies as well or companies registered in the UK, No.”

Otoa instead says that with “pressure from the companies’ side, the government might as well be forced into disclosing financial arrangements and records”.

He says that after all, the government already publishes some aggregated payment data from its extractive sectors in the annual reports of the Ministry of Energy and Mineral Development and that it should therefore should disclose much more to its citizens and cut down on the secrecy in the sector.

Government officials have scoffed at the idea of joining the EITI that would require the government to publish what it earns, as being driven by western powers, and refused to join it. The EITI boss, Clare Short was in the country to check on the progress of the country as far as joining the initiative is concerned, her efforts came to naught.

Unknown to Short was that more influential people in Uganda, precisely ministry of finance had tried and lost the battle on EITI. The Independent learnt that EITI had divided Ministry of Finance officials into two factions and that the pro-EITI faction lost the day.

With transparency calls meeting deaf ears and oil information tightly kept under lock, activists have concluded that from the boardrooms to the mudded oil fields, the oil industry is shrouded under secrecy causing suspicions and fear that President Museveni is treating oil as a personal resource. He likes to refer to it as “our oil”.