How Uganda’s Oil Earnings Have Been Growing Before Start Of Commercial Production

Uganda has in the last five years seen earnings from oil and related activities grow substantially.

Yet the country is yet to sell a single drop of oil. In fact, commercial oil production, government has indicated, can only be expected in the fourth quarter of 2025.

But heightened activity ahead of first oil since government and joint venture partners signed the final investment decision in February 2022, has seen Uganda rake in huge earnings in form of tax and non-tax revenues.

Government first announced the discovery of commercial oil reserves about 18 years ago.

However, over the years, production has been rolled over into several unrealised timelines.

Of course, during the period, there have been some solid earnings here and there, with the average income from oil-related activities standing at an annual average of Shs99.6b in the four years to June 2023, according to data contained in the Petroleum Fund report released by the Ministry of Finance last Tuesday.

The report indicates that oil-related earnings held in the Petroleum Fund and managed by Bank of Uganda, have grown four-fold in the four years from Shs35.4b in June 2020 to Shs125.9b in June 2023.

The Fund registered its largest earnings in the period ended June 2021, which rose by Shs119.6b from Shs35.4b in June 2020 to Shs155b due to tax proceeds from the sale of Tullow Oil’s interests to Total Enrgies.

Detail indicate that Uganda earned at least Shs54b in capital gains tax from the Shs2 trillion transaction, in which Tullow Oil sold its interest, before exiting the country’s oil sector.

Other earnings have over the years been generated from income tax, withholding tax, value added tax, stamp duty, surface rentals, sale of data and educational or instruction-related levies.

However, the report indicates that earnings substantially declined in June 2022, dropping by Shs73b from Shs155b in the period ended June 2021 to Shs81.9b.

The report does not explain the cause of the decline, but indicate a massive recovery, in which earnings grew substantially, expanding by 54 percent or Shs44b in the period ended June 2023 from Shs81.9b to Shs125.9b.

The revenues were largely generated from tax-related activities, which, during the period, contributed 94.13 percent of total oil incomes, while non-tax activities contributed 5.86 percent.

In real value, of the Shs125.9b earnings, tax and related activities contributed Shs118.5b, while non-tax activities contributed Shs7.3b, the report shows.

During the period ended June 2023, Uganda earned the largest amount from oil-related activities from withholding tax, which raked in Shs90.6b, while income tax and educational or instruction-related levies raked in Shs27.9b and Shs4.4b, respectively.

Other income sources included surface rentals, earning Shs2b, signature bonuses (Shs740.3m) paid by Uganda National Oil Company and DGR Energy Turaco, following the signing of production sharing agreements for Kasuruban and Turaco, respectively, and production licenses (Shs107.5m).

The 54 percent increase in earnings during the period ended June 2023, details indicate, has seen the value of the Petroleum Fund more than double to Shs246.6b as of June 30, 2023 from Shs121.1b, which signals that Uganda is pressing all buttons to realise first oil next year.

The signing of the final investment decision about three years ago has provided the required momentum, and in a status report to Parliament in October last year, Energy Minister Ruth Nankabirwa said “we [government and joint venture partners] are on track to have first oil by the end of 2025”.

More than 11 oil wells, eight in the Tilenga and three in the Kingfisher area, with capacity to produce up to 190,000 barrels and 40,000 barrels of oil per day respectively, have already been drilled.

Idle fundsHowever, the Petroluem Fund reported a foreign exchange loss of Shs499.8m due to exchange of dollars to shillings.

Additionally, in his report, Auditor General John F.S. Muwanga, who has since retired, noted that whereas the Charter for Fiscal Responsibility provides that a maximum of 0.8 percent of the preceding year’s estimated non-oil gross domestic product outturn is transferred to the Consolidated Fund for budget operations, with the remaining balance directed to the Petroleum Revenue Investment Reserve for sustainable investment, during the 2022/23 financial year no funds were allocated to either, which undermines the economic benefits from prudent oil revenue investment.

“Shs206.6b of the entire Fund balance remained unallocated.

The failure to appropriate funds, results in idle financial resources and undermines the economic benefits from prudent oil revenue investment,” he wrote in comments contained in the Petroleum Fund

Source: The Monitor