Museveni fell down on windfall tax By JAINDI KISERO Posted Monday, March 1 2010 at 00:00 THE EAST AFRICAN Was Ugandas President Yoweri Museveni duped into giving away the countrys national treasure in his governments negotiations with the oil exploration companies? Until November 2009, no one could answer that question conclusively as the Production Sharing Agreements (PSA) signed by the parties remained a closely guarded secret. But this question ignited such a strong local and international debate that it spawned a cottage industry driven by civil society that recently led to the leaking of the PSA on the Internet. The Civil Society Coalition on Oil in Uganda says Museveni gave way too much to Tullow Oil and Heritage, the prospectors who have struck oil in the country. The EastAfrican this week asked several players who are involved in the regional oil scene to look at parts of the contracts that have been released into the public domain. These people say that the biggest omission in Ugandas oil contracts is the fact that it does not provide for a windfall tax. The windfall tax allows a country to earn more revenues from oil contracts by levying new and high taxes depending on changes in crude prices in the international markets. This is a key issue as trends in international oil prices have revealed in this decade, with prices fluctuating from as low as $15 a barrel to over $140. According to the experts, Ugandas contracts were signed at a time when crude prices were hovering between $30 and $40 per barrel. With the average prices now at around $70, a windfall tax would allow Uganda to earn revenue from the difference between the current prices and the prevailing prices at the time the contract was signed. This means Uganda could potentially lose billions of dollars in oil revenues should prices skyrocket, leaving the money on the table to foreign interests. Windfall taxes have become standard in most production sharing contracts, including Kenya, Rwanda and Nigeria. On the other hand, Museveni seems to have struck a good deal on other parts of the contract with the signing bonus, which a company pays immediately the agreement is signed. These bonuses have also become standard feature on most contracts. Ugandas deal, at $300,000, appears to be high by regional standards. Kenyan exploration companies pay a signing bonus of $100,000. However, Uganda loses in other parts. In addition, the Kenyan production sharing contracts include surface fees and training fees which are not provided for in the Ugandan contract. With regard to the sharing of what is known in oil mining jargon as profit oil, the agreement would appear to be unfair to Uganda because it is drafted in such away that the country begins to get adequate revenues only at very high production levels. Uganda starts getting a fair share (80 per cent of the profits) only at the stage where the company starts producing 100,000 barrels a day.