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Auditor General Rejects UGX 250 Bn Claim By Oil Companies

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The rejected costs had been inflated by the companies in order to claim more money from government when oil production begins.
16 Sep 2017 13:43
Keto Nyapendi Kayemba(C) flanked by Assistant Auditor General Corprate Affairs, Francis Masuba and Director Audit, Joseph Hirya Director Audit, Joseph Hirya(L)

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The Auditor General has disallowed an over two hundred and fifty billion shillings ($70 Million) claim by International oil companies as recoverable costs in oil and gas explorations and drilling. The rejected costs had been inflated by the companies in order to claim more money from government when oil production begins.

The Assistant Auditor General, Keto Nyapendi Kayemba who is directly in charge of auditing the oil and gas sector says the claims were disallowed during cost recovery  audits by her directorate.

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Cue Out…so that costs are not recoverable///  The disallowing of claims by the companies according to Nyapendi Keyemba have been on the increase in the recent past. She said the claims would previously easily pass because  the Office of Auditor General did not have experts in auditing oil and gas sector.

The Office of the Auditor General currently has ten members of staff with post graduate training in oil and gas-related areas.     She says with the experience gained by her office from training of its staff in the sector, the auditors are finding more costs that cannot be allowed.

Nyapendi Kayemba reveals that her directorate two months ago considered a claim by one of the oil companies that had inflated the recoverable costs. She did not name the company but she says 75% of the claims were disallowed.

The claims for recoverable costs by international oil companies according to Nyapendi are likely to skyrocket as the country moves to the development phase of oil.

Currently there are four international oil companies is licensed to operate in the Albertine Graben. They include Tullow Uganda Operations Pty Limited, Total Exploration & Production Uganda B.V, and China National Offshore Oil Corporation (CNOOC) Uganda Limited and now Armour Energy Limited from Australia which was licensed for the Kanywataba block.

All the four oil companies signed Production Sharing agreements with government allowing them to explore, drill wells as well as extraction of oil. Under the production sharing agreement model, the oil companies invest their own money into sector as sort of a loan to government. The invested money is claimed as recoverable costs when production begins. The Office of the Auditor General has since 2009 been auditing the companies for recoverable costs as per the Production Sharing Agreements. There is a clause in the agreements requiring the Auditor General to audit oil companies for the recoverable costs. Nyapendi Kayemba told URN  that the Office of the Auditor General has so far audited and approved one billion dollars as recoverable costs incurred by international Oil Companies during exploration and drilling phases among others. With much focus on the Oil and gas sector, the Office of the Auditor General says it has unearthed huge anomalies relating to reporting by the mining companies licensed to operate in the country.   

The mineral companies are by law required to provide audited accounts to the Ministry of Energy as per the mining Act. But the Office of Auditor General says its audits have discovered discrepancies to under declarations and miss reporting among others. Joseph Hirya, the Director of Audit also a specialist in auditing the oil , gas and mining sectors revealed that the companies were submitting different figures to the different government entities like customs, Uganda Revenue Authority, Ministry of Finance and that data Bank of Uganda showed different data over the same period. /// Cue In “What we discovered in some…. Cue Out …may be losing“/// He says huge sums of money were lost by government in terms of Royalties due to deliberate efforts by the mining companies to under declared their production and earnings. The revelations from the Office of the Auditor General on the mining sector seem to confirm with past two report by Global Witness this year.

The first report released in June said the mineral sector in Uganda was
characterized by corruption, mismanagement and high level political influence,"

George Boden, Uganda campaign leader at Global Witness said impunity is endemic and attempts at reform failed in the face of entrenched interests. He said one major obstacle was that companies rarely declared their profits, making it difficult for landowners to calculate what they are due, and for local authorities to claim tax. Another report “Time to Dig Deeper'detailed analysis of public supply chain due diligence reporting in the mineral sector in the region.

The study found a national reporting rate of 70 per cent of exporting companies in Rwanda, 45 per cent in eastern Congo and zero in Uganda. In terms of reporting quality, Congo came out on top. Six Congo-based companies were transparent about at least one risk associated with their operations, compared to just one in Rwanda.

No Ugandan companies in the study reported at all, showing that the country is seriously lagging behind in efforts to promote responsible mineral sourcing.