The True Oil And Gas Narrative

Oil Revenues: Here Are The Frequently Asked Questions

What revenues is The Government of Uganda expecting from oil?

The revenues from oil and gas include royalties, profit oil share, state participation and taxes. These revenues are expected to increase over the years as the company’s recoverable costs reduce.

The Production Sharing Agreements (PSAs) signed between Governments and the Oil companies provide for the sharing of petroleum during production. The International Oil Company (IOC) invests capital (along with the National Oil Company) in some cases.

Investment costs are deducted from production revenues in the form of cost oil. The share of the revenues from the produced oil less cost oil is profit oil, which is shared between Government and the licensee.

Government also receives other payments such as bonuses, royalties, duties, or taxes which are calculated on the basis of the amount of oil produced; Government and the IOC will share profit oil throughout the entire duration of production. Government also receives corporate tax on the IOC’s share of profit oil.

How does Government determine the recoverable costs?

The Production Sharing Agreement (PSAs) provides that the financing risk for petroleum operations is borne by oil companies. When commercial production starts, the company receives a proportion of oil/gas production for the recovery of their costs and a share of the profits.

The PSAs set out the criterion under which these costs are determined basing on the annual work programmes and budgets undertaken by the oil companies.

These work programs and budgets are presented to the Advisory Committee comprised of representatives of Government and the Oil Companies for consideration and approval.

The Auditor General audits the annual books of account of the oil companies and indicates approval of the recoverable costs for petroleum activities for the period under review.

Who monitors the field operations of the oil companies?

The Petroleum Authority of Uganda is required to monitor and regulate all operations of the oil companies.

Prior to its creation, the Ministry of Energy and Mineral Development deployed on-site field monitors during all company operations to among other things ensure that the executed work programs and budgets are in-line with those approved and follow-up to ensure that work is undertaken in line with the provisions of the Laws, PSAs and Regulations.

The Companies submit daily reports regarding operations, including the costs for these operations. Other institutions such as NEMA and UWA also have field based monitors who work with the District Environment Officers and District Community Development Officers to monitor the Environmental, biodiversity and social aspects.

How will Petroleum revenues be absorbed into the economy to benefit Ugandans?

The goal of the National Oil and Gas Policy is to use the country’s oil and gas resources to contribute to early
achievement of poverty eradication and create lasting value to society.

The Oil and Gas Revenue Management Policy emphasizes the need for Petroleum revenues to be used to develop infrastructure and enhance the other productive sectors of the economy such as agriculture, tourism, manufacturing,
education, among others.

This will enable the benefits of oil revenues to be shared with the entire population and its impact is felt even after the resources are depleted.

The Public Finance Management Act 2015, Part VIII Section 55-75 provides for among others, the management of revenues received from petroleum resources, specifically how these revenues will be monitored, invested, audited and dispersed to support development.

The Act also provides for sharing of revenues between Central Government, Local Governments and Cultural Institutions. Local Governments will receive 6% of royalties and Cultural institutions will receive 1% of royalties.

Source: Directorate Of Petroleum