Production sharing agreements signed by Uganda with oil explorers give the firms too many protections against possible legislative changes, a pressure group said.
East Africa’s third largest economy struck oil in its western region in 2006 and has since seen a surge in investor interest in its nascent petroleum industry.
According to the report by Platform, a London-based social justice and environmental advocacy group which has also produced reports critical of oil deals signed by countries such as Iraq, a clause in the agreements (PSAs) that seeks to protect companies from risks associated with government policy changes severely curtails Uganda’s legislative independence.
“If Uganda develops new and improved regulations that increase costs for the oil companies, the government must cover these costs. Such a stabilisation clause reduces Uganda’s legislative sovereignty,” the report said.
“(If) Uganda changes its environmental regulations, laws governing workers’ rights or any other standards that reduce the economic benefit to the oil companies, these must be compensated … even if the companies have been profiting from overly low levels of regulation or high pollution levels.”
Production sharing agreements are common across the world and usually contain clauses which protect companies from future changes in taxes or other laws.
Uganda’s reserves are estimated at 2 billion barrels and production is expected to start later this year.
The country has five PSAs and Tullow Oil, which has made the most discoveries, is in the process of acquiring Heritage Oil’s assets in Uganda in Blocks 1 and 3A.
There was no immediate response from the government of Uganda. Tullow’s Uganda country manager declined to comment.
The report criticised the government for allowing the use of a broad and unclear definition of recoverable costs in the PSAs, leaving the provision open to abuse.
Neither the companies nor the government have made the PSAs public, although this is not unusual internationally.
Opposition politicians have called for more transparency and parliament is due to being inquiries into PSAs this month.
Platform also said Uganda’s PSAs carry weak environmental safeguards, exposing the communities around oil fields to a host of health and economic hazards.
If a company violates environmental laws, the report said, the government’s only recourse is to take action to ensure compliance and recover costs incurred.
“There are no fines at all for causing environmental destruction. Deterrent fines are widely recognised as crucial to preventing regular and large oil spills,” the report said.