The Auditor General John Muwanga has called for adequate capitalization of the Uganda National Oil Company (UNOC) and its subsidiary companies to enable government’s commercial participation in the strategic oil and gas sector.
According to Muwanga’s new audit report for financial year 2020/2021, a total of 914.1 billion Shillings comprising Capital expenditure (304.08 billion) and Operating expenditure (129.1 billion) is required for the capitalization plan.
UNOC is charged with a mandate of representing Government of Uganda’s Commercial interests in Oil and Gas Sector. The Company is strategically positioned to participate in the down-stream, middle-stream and the upstream of the oil and gas value chain, thereby engaging in the exploration, production and commercialization activities.
“The Company is anticipated to fully participate in the exploration and production in the Albertine Graben; the oil refinery and the oil pipeline. As a result, UNOC has registered two flag ship Subsidiary Companies to champion its commercial interests. These include; the Uganda Refinery Holding Company for the refinery business, and the East African Crude Oil Pipeline Company – EACOP to lead in the pipeline business,” reads part of the audit report tabled before Parliament on Thursday.
Deputy Speaker, Anita Among referred the report to three accountability committees of parliament for consideration. These include the Public Accounts Committee- PAC Central Government, PAC- Local Government and the Committee on Commissions, Statutory Authorities and State Enterprises.
“I noted that despite the significant initial investment requirements by UNOC and its subsidiary companies, the government has not fully capitalized the companies to enable their full participation in the sector. The companies are consistently facing funding constraints,” reports Muwanga.
He reveals that in the financial year 2020/2021, out of the Budget of 76.38 billion for UNOC, only 34.4 billion was availed, resulting in a funding gap of 41.98 billion.
Muwanga says that after the Final Investment Decision (FID) for the Upstream and EACOP Project, there is going to be a rapid increase of oil and gas activities which will cause an exponential growth in the financing needs of the Companies.
The Auditor General says that UNOC has proposed a capitalization plan to the Ministry of Finance of 914.18 billion.
“The Accounting Officer explained that he was engaging Ministry of Finance and other stakeholders to secure finances to that magnitude, and a plan has been agreed with government on a phased approach towards capitalizing UNOC and its subsidiary companies. I advised the Accounting Officer to fast-track their discussions with Ministry of Finance to ensure adequate capitalization of the companies to enable government commercial participation in the strategic oil and gas sector,” Muwanga recommends.
Joint venture partners in Uganda’s Oil and Gas sector signed the Final Investment Decision (FID) on 1st February. The FID by TotalEnergies, China National Offshore Oil Corporation (CNOOC) and Uganda National Oil Company (UNOC) is expected to see money invested towards the development of the Kingfisher and Tilenga projects in the Albertine Graben and the construction of the East African Crude Oil Pipeline (EACOP) from Hoima to the Chongoleani peninsula near Tanga port in Tanzania.
The 1,440-kilometre pipeline, when complete, will transport crude oil from Hoima Western Uganda to the Tanzanian Indian Ocean Port of Tanga. The Completion of the pipeline, planned in 36 months’ time, will also give way for the commercial production of oil, which has been delayed 15 years since commercially viable deposits were first discovered.
The announcement of an FID ended a wave of negotiations between the governments of Uganda and Tanzania as well as the oil companies and the two governments. Late last year, Parliament passed the EACOP (Special Provisions) Act, The Public Finance Management (Amendment) Bill, and the Income Tax (Amendment) Bill, ending the legislative process necessary for the FIDs.
In total, the oil projects investments are expected to total 10 to 15 billion US Dollars, with at least 4.2 billion of the expenses going to Ugandans and Ugandan companies, according to projections in the contact frameworks.