Wednesday, February 17, 2010

Tullow Oil in Uganda...

The contracts between British/Irish company Tullow Oil and the Ugandan government have been leaked, and they are not pretty. The UK-based NGO Platform has released a report on the contracts, detailing:

  • How the structure of the deals guarantees huge profits for the companies while placing risks and responsibilities on the Ugandan government (p.6)
  • The lack of transparency over bonus payments to the Ugandan government (p.7)
  • The complete absence of penalties for environmental damage caused by the companies (p.22),
  • The legal rights granted to the companies to flare natural gas (p.19)
  • The 'stabilisation clause', whose breadth has been confirmed by access to a confidential Ernst&Young audit report (see note 3), which will restrict Uganda's ability to improve its environmental protection and human rights standards in the future (p.27)
Oil-watchers will be aware that Tullow Oil is now opening up in Ghana. Let's hope that the same type of exploitative and ecologically damaging contracts (the 'legal right to flare gas' etc.) will not also happen there.

For now, Tullow Oil should face international condemnation for what it is doing in Uganda.


Anonymous,  3:24 pm  

Good that the NGO Platform has raised the issue, however, what does this infer? That Ugandans are not clever? or that Ugandan government officials are interested in short term personal gain at the expense of their country's future? Yet again it takes a foreign NGO to show an interest in the welfare of Africa & Africans. The African elite needs to be less selfish and look further than buying designer clothes and driving cool cars. "The lunatics are in charge of the asylum"

Anonymous,  8:46 am  

It took two parties to cut this deal.
One is a government, which is primarily responsible for its citizens.
The other is a private company which is primarily responsible for its shareholders.
If one of these parties had a bigger responsibility to ensure fairness or to look after their people it was by far the Ugandan government.
If this deal does not benefit Uganda as a whole, as you seem to say, then the responsibility lies wholly with the Ugandan government itself - and by extension the Ugandan people who owe it to themselves to demand better protection by their leaders.
It's odd you only choose to condemn Tullow Oil - almost as if there is so little hope for the people of Uganda that it's not worth the effort to appeal to their own collective conscience.
If you are correct about this deal then perhaps the time is right for Ugandans to unite in demanding the type of true leadership that is required to keep them afloat within a complex and powerful international economic system.
Begging a bully to play nice is not a solution, it's indicative of a defeatist approach.
Strong intelligent leadership is what is required here - as much as we all daydream about embarrassing the boogymen to the point where they finally just slink away. But that daydream is just that - a daydream. It's not a real response to a problem.

Anonymous,  4:22 pm  

I am writing from the perspective of one of those "worker-exploiting-the-oppressed-masses-capitalistic-neo-colonialist-imperialist-racist-enemies-of freedom-and-the-poor" bourgeoise who like Tullow oil invested in Africa. I too had a profit sharing agreement, not in writing, this was imposed after I made a success of my business and it was imposed at the point of a gun and it did not run to the length of this agreement, it was very simple: nice business, we'll take it, goodbye. I too remember the government of Tanzania nationalizing all commercial buildings, the compensation was the exorbitant rent they claim were collected in the past. Included in this nationalization and compensation scheme was a newly built office block where the first tenants had not yet moved in. At about the same time this same president nationalized the "guaranteed foreign investment" of a cement factory when he was invited to the opening ceremony.

I could write a book on these and a hundred other examples but suffice to say, if a company doing business in these countries does not nail down every full stop and comma in the original contract it is going to be stolen. It is known as self-preservation and covering your ass, otherwise it is going to be kicked. All business is a risk, the return on risk is always proportionate on the risk involved.Investing in treasury bonds is a very nominal risk which is why it only pays a return of 2%, investing in roulette has a return of 3500% because it has a failure rate of 98%. Investing in Uganda, in an area which still has an ongoing insurrection is a risky business.

Looking at the points raised in this heinous Machiavellian deal with the devil that Uganda signed, I can well see the NGO's concern.
Firstly, bonus. $300,000 cash when they sign the deal and $5 million when they actually give the license that is promised in the deal. From that point alone I must assume the company has had dealings in Africa before. Participation, that is a good one. Over and above the royalties, the government can buy 20% of the company if it decides. The fact that the government has not decided to upfront is only because the company insists that this participation be paid for, true, out of the income, but paid for nevertheless. The next point is even more draconian, they want their money back and in this respect they make Shylock look like and amateur. Half, yes all of half the first oil that flows goes to pay for the cost of exploration. Have they no heart, are there not any Samaritans in Canada who would forgo their investment in the company for the poor and oppressed in Africa? No, those moguls on Bay street want their pound of flesh. The last item they raised, royalties, sees the four horseman of the apocalypse galloping full tilt across the oil fields of Uganda. A lousy fifty percent if they only find a flow of 5,000 barrels. A little less niggardly if they find the hoped for 100,000 barrels, but still only 80%. A small consolation, they will not say, here's you oil, they will pay that in cash, but even there they put a catch. They are working in Uganda, but will they pay in Uganda.
No way, they have to make it difficult. They will pay in US dollars and does anyone have an idea how far Washington is from Kampala.

There is really only one solution. Let that NGO take their platform and go dig that oil, give it to the poor and oppressed of Uganda and everybody can sit around the campfire and sing kumbaya.

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