Uganda: oil royalties, taxes and the Petroleum Fund

Royalties under production sharing agreements

Production sharing agreements form the basis of Uganda's petroleum fiscal regime, according to the 5th UGEITI report. Its main parts are royalties, cost recovery oil, profit oil and income tax ³.

The duty to pay royalty comes from section 154 of the Petroleum (Exploration, Development and Production) Act. The rate schedule sits in each PSA, according to a 2015 IMF technical mission ¹.

In the 2004 PSA for Exploration Area 1 (EA1), the royalty uses daily rate of production (DROP) tranches. Each tranche pays only its own rate ¹.

The 2015 draft model PSA and other terms

A July 2015 draft model PSA reviewed by the IMF set a higher scale. Once a rate is triggered, it applies to total production and not to each increment ¹. The draft left the gas royalty rate for negotiation once a find is declared commercial ¹.

The same IMF review compared other terms. Cost recovery was capped at 60% of production in EA1 and 65% in the draft model PSA ¹. The state's carried interest was 15% in EA1, and the issued model set a maximum carried state participation of 20% ¹. The government's profit oil share in EA1 ran from 45.0% on the first 5,000 barrels a day to 62.7% above 40,000 barrels a day ¹. IMF simulations assumed corporate tax of 30% across PSAs ¹.

• Below 25,000 barrels a day: 8% ¹
• 25,000 to 50,000 barrels a day: 10% ¹
• 50,000 to 75,000 barrels a day: 12% ¹
• 75,000 to 100,000 barrels a day: 14% ¹
• 100,000 to 130,000 barrels a day: 16% ¹
• Above 130,000 barrels a day: 18% ¹

The Petroleum Fund under the Public Finance Management Act

Section 56 of the Public Finance Management Act 2015 establishes the Petroleum Fund. All petroleum revenue due to the government is paid into it, and the Minister is responsible for its overall management ².

Section 57 makes the Uganda Revenue Authority the body that collects or receives petroleum revenue. Section 3 defines that revenue to include income tax on petroleum operations, the government share of production, signature bonuses, surface rentals, royalties and dividends ².

Section 58 allows withdrawals only under an Appropriation Act, with a warrant of the Auditor General. Money can go to the Consolidated Fund for the budget or to the Petroleum Revenue Investment Reserve ². Section 59 caps transfers to the Consolidated Fund at the amount Parliament approves and directs petroleum revenue to infrastructure and development projects ².

The Bank of Uganda may invest Fund balances under section 59(6) and manages the Petroleum Revenue Investment Reserve under section 64(1) ². Section 75 gives 94% of royalties to the central government and 6% to local governments ².

EACOP and the pipeline tariff

The East African Crude Oil Pipeline (EACOP) is owned by a joint venture that includes TotalEnergies with 62%, the Uganda National Oil Company with 15% and CNOOC with 8%, according to the 5th UGEITI report ³.

The report puts the pipeline's design capacity at up to 246,000 barrels of crude a day and its cost at between US$3.6 billion and US$4 billion ³. It lists a Transportation and Tariff Agreement signed in April 2021 among the project agreements. The report gives no tariff figure ³.

When first oil is due

Official and reported dates for first oil have moved. The table lists each statement with its date and source ^{3,5 6}.

UGEITI reporting

The 5th UGEITI report covers 1 July 2023 to 30 June 2024. Moore Insight was the Independent Administrator ³.

The report puts total extractive sector revenue for FY2023/24 at UGX 663.283 billion. Oil and gas accounted for UGX 327.092 billion ³.

The EITI international secretariat lists oil and gas payments of US$47 million for FY2021 ⁴. Uganda scored 78.5 points, rated Moderate, in its 2023 Validation. The EITI Board decided the result on 14 May 2024 ⁴.