At least $81.147m (Shs300b) has been disallowed as “costs not recoverable” by oil companies from the Production Sharing Agreements (PSAs) signed with government between 2001 and 2011.
An audit report of the costs seen by this website shows that the disallowed costs are either inflated or fall outside the bracket of the costs recoverable by the international oil companies.
The PSAs spell out the type of costs which are recoverable and those which are not. Costs to be recovered include all exploration, development, production and operating expenditures but with the country moving into the development phase during which at least $8b will be invested, this website has learnt that oil companies are filing more outrageous claims in recoverable costs.
The final audit also shows that $935m (Shs3.4trillion) is the actual recoverable cost by oil companies from PSAs from 2001 and 2011: expenses spent on various activities during exploration and appraisal of Uganda’s oil.
The $935m, according to the audit report, is out of the total bill of $1b (approx. Shs3.7trillion) the oil companies filed. These recoverable costs are claimed by Anglo-Irish Tullow Oil PLC, which is on its way out as an operator but will remain in a non-operator position.
The Auditor General is mandated to audit the recoverable costs requests by the oil companies, which according to the Production Sharing Agreements with government are required to invest and will recoup their money once oil production starts.
Until 2010, government hired audit firms Ernst and Young and KPMG to audit the recoverable costs as the office of the AG built capacity but the latter has since assumed the role with a team of 10 staff.
The auditors are now preparing audit reports for the PSAs from 2012 to 2016 to get a clear picture of costs specifically claimed by France’s Total E&P, and China’s Cnooc. The two companies which entered the Ugandan upstream market in 2012, together with Tullow Oil PLC, claim to have spent close to Shs3.5b.
The first draft of the audit report was supposed to be ready by this time but sources familiar with the matter attributed delays to protracted haggling battle with especially Total E&P which has been dragging feet, from submitting reports to feedback.
Sources say the first draft audit will be ready by end of July.