Uganda’s new oil contracts: Issues of transparency and the environment

Uganda is on the verge of making some big decisions for its economy, its environment and its people.

On July 1, the government published a list of 19 companies that have expressed an interest in bidding for its oil blocks. Some of the companies will sign deals worth billions of dollars in highly sensitive areas, including national parks and along the DR Congo border.

Based on years of investigating oil operations in developing countries, Global Witness has serious concerns about the potential environmental and security consequences of allowing oil extraction to take place in fragile areas like Murchison and Queen Elizabeth National Parks and nearby areas.

The publication of the names of companies and the map of new oil blocks is a welcome step towards transparency in a sector long characterised by secrecy. In theory, this should help the government to select the best companies to partner with.

The contracts handed out are a marriage of sorts once entered into, these deals can last 30 years or more. So, who are these companies, and what should be considered given the problems that other oil-rich developing countries have faced in the past?

The current licensing round has not attracted the biggest oil companies. Of the oil companies already operating in Uganda, only Tullow appears to have come forward, while the remaining applicants are a mix of small and medium-sized outfits.

Low oil prices and lack of capital, coupled with difficulties that companies have experienced in Uganda over tax and production licences, appear to have deterred the oil majors from exploring fields in Uganda. So the list of applicants includes a number of companies without long histories, making informed selection more difficult.

There are three important things that any government should consider as it goes about selecting from the companies it invites to bid.

First, the government must assure itself that the companies have the technical and financial capacity to explore for oil, and it needs to know where the financing will come from.

A problem on the international oil scene is the phenomena of companies that sign deals with no intention of exploring for oil, then sell them on at a profit. As such, governments do not maximise their profits.

It is also important for governments to select companies with no history of corrupt practices. One company on Uganda’s list is Oranto Petroleum from Nigeria.

In 2007, the company’s chairman authorised a payment to Liberian parliamentary officials, deemed a bribe by the auditor-general, in order to secure oil contracts.

Second, protecting Uganda’s highly sensitive and bio-diverse Albertine Graben, where the majority of exploration is taking place, should be paramount. If these areas are to be opened up, the government should select companies with strong environmental track records, technical capacity and public reputations to protect to ensure that the risk of environmental and social harm is minimised.

Global Witness is particularly concerned by the decision to open up the Ngaji block in Queen Elizabeth National Park adjacent to Congo’s iconic Virunga National Park.

Virunga has been the subject of a major international campaign exposing the activities of British oil company Soco International and calling for the park, a Unesco biosphere and home to some of the last remaining mountain gorillas, to be protected from oil extraction.

True owners

Third, the government should collect and publish the names of the true owners of all companies bidding. That is to say, they should name the actual human being who will profit if a deal is signed.

Companies do not always have to name their shareholders in secrecy jurisdictions like the British Virgin Islands or the Caymans. This can obscure the real owners of a company, making it difficult to determine whether there is a conflict of interest. Collecting and publishing the true owners will help to avoid impropriety in the awarding of contracts.

So far, the government has acted transparently by publishing the list of interested companies. This transparency must be maintained as the process continues.

The government should explain why it has shortlisted those companies and how it gauged them. It should also publish the contracts so that people can see the deals.

Uganda suffers from chronic corruption. It is vital that corruption does not seep into the oil sector too.

While Ugandans must trust educated government technocrats to make complex decisions on their behalf, they should be able to scrutinise the decisions that they make. Oil could be a blessing or a curse for Uganda transparency is a vital part of making sure it doesn’t become the latter.

George Boden leads the Global Witness Uganda campaign, looking at oil sector development and transparency