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Oil & Gas: Which project will bring what income
Ms Peninah Aheebwa argues that Uganda should be allowed to use its oil and gas resources to achieve economic takeoff just like other countries have done before it. Photo | file
What you need to know:
From the three main projects including the EACOP, refinery and upstream, government is expected to earn a total of $69.7b over the projects’ life and an average of $2.8b per annum
The East Africa Crude Oil Pipeline project (EACOP), which has met resistance from setups against fossil fuels, is one of the projects Uganda has planned to monetise its oil and gas assets, which are currently valued at $116b.
These assets are certainly among the country’s biggest economic assets in terms of value.
Some of the strategic reasons for choosing to export about 57 percent of crude oil include the need to enhance Uganda’s export base and the trade balance which is currently in deficit.
Beyond EACOP, the other project for monetizing the oil and gas assets include the refinery, with a strategic objective of meeting petroleum needs that are currently estimated at 36,000 barrels per day and growing at an annual rate of about 7 percent.
This would also save the country foreign exchange expenditure of over $1.23b per year given that Uganda will in addition to fuel products also produce Liquified Petroleum Gas (LPG), which is mainly used in households and would be a key replacement to charcoal and firewood.
At least more than 300,000 tonnes of LPG are expected to be produced per year at peak production, which is close to the total amount of LPG currently being consumed in the whole of East Africa.
The life cycle of the above projects is under 30 years, which is far below the target by the most radicle energy transition pledges.
The size of Uganda’s economy as reported by the Ministry of Finance is $ 45.7b, with expected domestic revenue of $6b (13 percent of GDP) in the 2022/23 financial year. The economy is dominated by the services sector at 41.5 percent, followed by industry at 26.8 percent and agriculture at 24.1 percent.
Uganda recorded a trade deficit of $413.8m in May 2022 yet it suffers chronic high levels of unemployment, which must be rebooted by massive capital investments.
Economies such as the UAE and Norway, among others, were not in a different situation from the above at the start of their oil and gas industry. They were able to leverage on their oil and gas resources to achieve economic take off, which therefore, means that Uganda can use its oil and gas resource to achieve economic takeoff.
This will be driven by the large magnitude of investments, estimated at between $15 and $20b, in a space of three and five years and reasonable in-country capacity to ensure a significant share of investments in form of employment and provision of goods and services is retained in the country.
Others drives will be a fair share of government from the expected oil revenues (close to an average of 70 percent) and institutional, regulatory and governance infrastructure to ensure government’s share in the oil revenues is secured and put to good use.
The frameworks Uganda’s oil and gas sector now in place together with the activities being implemented make it clear that the oil and gas industry is going to be transformational on Uganda’s economy and in improving the wellbeing of its citizens.
It is therefore only rational that this transformation is welcomed and supported. The benefits are coming in a number of forms such as revenue from the agreed fiscal regime, participation of Ugandans and Ugandan Enterprises through employment and provision of goods and services, local social and economic development, sectoral linkages to ensure broad based growth, and improved investment rating, among others.
Fiscal benefits: Pre-first oil tax and non-tax revenues
From 2017 to 2021, a total of Shs577.4m was paid by five oil companies licensed in the country. The revenue was in the form of Income Tax, PAYE, Stamp Duty, Value Added Tax and Withholding Tax.
During the same period, $7.66m was received from the sector in form of non-tax revenue in respect to application fees, bonuses, data sale, surface rentals and training fees.
Revenues through agreed fiscal regime after first oil
The fiscal regimes between the upstream (Tilenga and Kingfisher) and midstream (EACOP and refinery) projects differ and so are the expected returns to government from the same.
The upstream projects are run under a joint venture arrangement with TotalEnergies holding an interest of 56.66 percent in all projects, while CNOOC holds 28.33 percent and Uganda National Oil Company holding a 15 percent stake on behalf of government.
The pipeline project is managed through the EACOP Company with shareholding from the Uganda National Oil Company (15 percent), the Tanzania Petroleum Development Corporation (15 percent) and the two oil companies; TotalEnergies (62 percent) and CNOOC (8 percent). Government will hold a 40 percent share in the refinery project.
Using the prevailing assumptions, government is entitled to a net take of 75 percent from the upstream projects, which translates to $66b ($2.6b per year) with the 25 percent paying for the investors’ return on investment.
From EACOP, through dividends and applicable taxes government is expected to earn $400m while from the refinery, government is expected to earn $3.3b.
In this regard, from the three main projects as indicated, government expects to earn a total of $69.7b over the projects’ life and an average of $2.8b per annum. The expected average annual income is 47 percent of the projected domestic revenue collection for the 2022/2023 ($6b), which in accordance with the Public Finance Management Act 2015, will be invested in infrastructure development therefore, bridging the infrastructure financing gap estimated at $400m per year.
Ms Peninah Aheebwa is the Petroleum Authority of Uganda energy economist and director technical support services
