Leaked documents & PLATFORM report reveal extent of oil threat to Uganda

Impacts of British Oil Corporations' Secret Oil Contracts in Uganda Finally Revealed

Leaked Company Audits Confirm Concerns Over Revenues & Environmental Damage

Confidential Oil Contracts and Audit Reports for British/Irish companies Tullow Oil and Heritage Oil's operations in Uganda on the Lake Albert border with Congo have been revealed today. These are accompanied by a legal analysis published by PLATFORM in partnership with the Civil Society Coalition for Oil in Uganda.

The report ''Cursed contracts: Uganda's oil agreements place profit before people'' raises serious economic and environmental concerns about how oil will be extracted at Lake Albert. [NOTE 1]

The terms of Uganda's Production Sharing Agreements, which the oil companies and Ugandan government continue to refuse to release, are now available online. [NOTE 2]

Two confidential audit reports carried out by Ernst &Young in 2009 have also been made publically available. These confirm a number of PSA clauses, raise concerns over environmental damage and warn of the companies inflating their costs. [NOTE 3]

In the report released today, PLATFORM has investigated the contract terms relating to economics, sovereignty, human rights and the environment, examining clauses in relation to current oil company practice in Uganda and in comparison to terms in other countries.

The analysis works article-by-article through the Production Sharing Agreement and, in particular, raising questions about:

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)

The report recommends that: ''Urgent changes should be made to the contracts, legislation and regulatory regime covering oil, to achieve some level of environmental protection, to ensure accountability for military forces enforcing security, to protect a degree of Ugandan sovereignty, to minimize economic distortion through revenue flows, to capture a more appropriate share of the revenues and to re-apportion the economic risks.''

Tullow has repeatedly stated that they are committed to ensuring they operate according to ''good international and industry practice'' – but PLATFORM's report reveals how this is meaningless when there is no such agreed standard and no contractual enforcement mechanisms for the host country.

Uganda is heading towards oil production in 2010/11 with no oil legislation yet in place, no revenue management system, and is locked into contracts that undermine the country's sovereign control over its own natural resource.

QUOTES:

AFIEGO Chief Executive Dickens Kamugisha, the Chief Executive of the African Institute for Energy Governance (AFIEGO) in Uganda, said ''One of the fudamental things we have been struggling for is the information in the contracts, and this report helps us to understand what we are going to be dealing with and what the companies will be taking. The companies know there are some things in the contract6s that are not good for U gandans and that's why they did not want them disclosed to the public. Because when Ugandans see these details, they will be asking questions and communities will rise up to challenge them. The government must respond and i'm sure that if Ugandans tell them they have signed bad deals then they will have to respond and change them.''

PLATFORM Campaigner Mika Minio said, ''The reality is that extracting Ugandan crude is most likely to exacerbate poverty, distort the Ugandan economy, exacerbate human rights violations, entrench the power of military forces, escalate tensions across the border with Congo, create new health problems for local communities, increase both intentional corruption and revenue mismanagement, reduce Uganda’s wildlife stocks and pollute the land, water and air.''

PLATFORM researcher Taimour Lay in Kampala, Uganda said, "Tullow's statements demonstrate strength in corporate responsibility rhetoric. Yet their practice here on Lake Albert tells a different story - one of arrogance, environmental damage, collusion in secrecy and indifference to human rights abuses."

Taimour Lay added, "The confidential documents we have published make clear that the corporations and the government cannot be trusted to protect the Ugandan people from the negative impacts of oil extraction. It is up to social movements and civil society to create the pressure to defend rights, livelihoods and Uganda's rich environment."

DOWNLOAD REPORTS & LEAKED DOCUMENTS

''Cursed contracts: Uganda's oil agreements place profit before people'' - Analysis of Uganda's PSAs published by PLATFORM in partnership with the Civil Society Coalition for Oil in Uganda.

Heritage's Production Sharing Agreement for Block 3A signed in 2004: Part 1 Part 2

Ernst & Young Audit Report on Tullow / Hardman - April 2009

Ernst & Young Audit Report on Heritage Oil - April 2009

Dominion Block 4B PSA (pages different from Block3A PSA): Cover (Page 1) Bonus Payments (Page 30) State Participation (Page 32) Cost Recovery (Page 34) Production Sharing (Page 35)

Loose Minute - Ugandan government analysis of Block 3A PSA re-negotiation- signed by Permanent Secretary A Kabagambe-Kaliisa: Page 1 Page 2

"A Bad Deal Made Worse - How the PSAs are ripping off Uganda" - PLATFORM's preliminary economic assessment of the contracts - published in November 2009

CONTACT:
Taimour Lay in Kampala, Uganda (GMT+3): ++256 7911 24738

Mika Minio-Paluello in San Francisco, USA (GMT- 8) : ++1 925 234 0910

PLATFORM Office in London, England: +44 207 4033738

NOTES FOR EDITORS

NOTE 1:

The analysis was carried out by PLATFORM and published in partnership with the Civil Society Coalition on Oil (CSCO) in Uganda, with financial support provided by the Advocates Coalition for Development and Environment (ACODE), Africa Institute for Energy Governance (AFIEGO) and Human Rights Network (HURINET).

The views expressed are not necessarily those of all of CSCO or its partners. The CSCO members that have formally supported the content are those whose logos are included in the report; the coalition is publishing the report in the interests of promoting meaningful dialogue and awareness among stakeholders.

NOTE 2:

Until November 2009, the content of the Production Sharing Agreements remained a closely guarded secret, with both the Ugandan government and the oil companies opportunistically only releasing decontextualised snippets.

PLATFORM obtained and released draft copies of Heritage’s 2004 Block 3A PSA (containing a comparison with PSA terms for Block 1 and Block 2), Dominion’s 2007 Block 4B PSA, and a draft of the Tullow Block 2 PSA, available at www.carbonweb.org/uganda

A number of sources, including off-the-record government responses, a signed statement from the Ministry of Energy, confidential audit reports and investment bank analyses, have confirmed that these draft versions of the contracts are indeed very close, if not identical, to the signed PSAs. This report is based primarily on clauses from the Block 3A contract.

The new report incorporates the data from our November analysis (available at www.carbonweb.org/uganda), ''Not such a rosy deal after all'', which showed how Tullow and other companies are set to gain excessive profits though skewed contracts.

NOTE 3:

PLATFORM obtained two confidential audit reports carried out by Ernst&Young for the Ugandan government. The auditor's role was to check what costs Heritage and Tullow had incurred in carrying out oil exploration in a set period. The companies then claim that money back once oil revenues are generated after production under the 'cost recoverability' provisions of the PSAs. The reports were delivered to the Ministry of Energy in April 2009 and confirm the wording of a number of PSA articles, including the 'stabilisation clause' contained in Article 33. Available at www.carbonweb.org/uganda

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