Researchers urge Uganda to reconsider production sharing agreements in the mining sector, cautioning about risks and challenges. The National Mining Company is being established to manage government interests, and insights from global experiences may guide its trajectory. Concerns about Uganda’s capacity to market minerals necessitate careful planning before adopting new agreements.
Researchers have advised Uganda to reconsider the use of production sharing agreements (PSAs) in its mineral and mining sector. This caution comes as the government negotiates a PSA with the Sarrai Group for Kilembe Mines, with researchers from the Natural Resources Governance Institute (NRGI) expressing concerns about potential pitfalls associated with this model. The National Mining Company, responsible for overseeing the government’s stake in mining, is also taking shape amid these discussions.
Thomas Scurfield, an Economic Analyst at NRGI, noted that while PSAs are prevalent in oil and gas, their use in mining is uncommon and raises a host of challenges. A PSA establishes a legal relationship between host governments and International Oil Companies (IOCs) concerning the exploration and extraction of natural resources. Although recently incorporated in Uganda’s new Mining Act, these agreements could expose the country to complex sharing issues.
NRGI researchers, including Dr. Paul Bagabo, compiled a report analyzing global experiences with National Oil Companies, hoping Uganda can learn from the experiences of 58 countries. The report was presented at a stakeholder meeting focused on increasing equitable value addition in the mining sector, organized by the Uganda Office of Natural Resources Governance Institute and the Advocates Coalition for Development and Environment (ACODE).
Dr. Bagabo emphasized that the government could encounter unforeseen difficulties by pursuing PSAs. While there may be frameworks for sharing benefits, he cautioned against potential risks inherent in the mining sector. He stated that apart from copper, which has a stable international price, Uganda’s ability to market other minerals remains limited. Enhancing local capacity for storage, valuation, and marketing before adopting PSAs is necessary.
The NRGI report provides insights from various countries, such as Azerbaijan, the DRC, and Myanmar, which have tested PSAs in mining. States like Egypt have shifted from PSAs to royalty tax regimes due to their shortcomings. Unfortunately, Uganda’s intentions regarding the use of PSAs seem ambiguous. The Ministry of Energy claims that adopting PSAs aims to maximize the nation’s mineral benefits.
Scurfield discussed the flexibility of PSAs, explaining that governments can choose to take their share of production physically, which requires managing marketing and logistics. A total of over ten recommendations have been presented for optimizing the National Mining Company’s performance, essential for the nation’s mining development.
Dr. Gerald Banaga-Baingi, from the Ministry of Energy, refrained from commenting on the recommendations but emphasized that the National Mining Company aims to maximize resource value. He noted that the company has been operational for a hundred days and will evaluate the report’s recommendations for potential adoption in the future. Banaga-Baingi assures careful selection of board members to enhance operational efficiency.
The National Mining Company’s board comprises various industry experts ensuring effective governance. The company is currently in the process of recruiting a Chief Executive Officer and senior management team members.
Engineer David Sebagala, a Senior Inspector of Mines at the Ministry of Energy, acknowledged that the report contains both beneficial and questionable proposals. He emphasized the need for clear separation of roles between the regulator and the National Mining Company to avoid conflicts of interest.
The revised Mining law stipulates that for medium and large-scale mining licenses granted after 2022, the government has an automatic 15% stake, potentially extending to 30%. Sebagala elaborated that this stake is an option, allowing the government to analyze project viability before exercising it, ensuring strategic participation in mineral operations. The National Mining Company also aims for broad involvement in gold mining and its value addition processes.
In summary, the debate around production sharing agreements in Uganda’s mining sector highlights significant concerns from researchers regarding their viability. As Uganda explores the establishment of the National Mining Company, it is imperative to learn from global experiences and assess the potential risks associated with PSAs. Ensuring proper governance and enhancing local capacities could lead to better management of the country’s mineral resources.
Original Source: www.independent.co.ug
