Researchers caution Uganda against production sharing agreements in the mining sector, highlighted by ongoing negotiations with the Sarrai Group for Kilembe Mines. While the intent is to maximize benefits through the National Mining Company, there are concerns about the effectiveness of PSAs, especially given the challenges in marketing non-copper minerals. The government is urged to enhance its capacity in mineral management and marketing before fully committing to PSAs.
In recent discussions regarding Uganda’s mineral and mining sector, researchers from the Natural Resources Governance Institute (NRGI) have raised concerns about the government’s pursuit of production sharing agreements (PSAs). Currently, negotiations are ongoing with the Sarrai Group for the Kilembe Mines. The NRGI’s caution arises during the establishment of the National Mining Company, responsible for managing government stakes in mining.
Thomas Scurfield, an Economic Analyst at NRGI, notes that while PSAs are prevalent in the oil and gas industries, their application in mining is uncommon. PSAs typically govern the relationships between host governments and International Oil Companies (IOCs) during resource exploration and production. Uganda’s adoption of PSAs as part of the new Mining Act is anticipated to utilize insights from a report analyzing 58 countries’ experiences with national oil companies.
At a recent stakeholder engagement on equitable value addition in the mining sector, Dr. Paul Bagabo expressed that the government might encounter unforeseen challenges by pursuing PSAs. He indicated that, apart from copper, which has established international pricing, other minerals pose marketing difficulties. He emphasized the urgent need for Uganda to enhance its capacity to store, value, and market its minerals before committing to PSAs.
The report examined the experiences of various countries, revealing that some have transitioned from PSAs to royalty-based regimes, such as Egypt. In contrast, countries like Azerbaijan, DRC, and Myanmar have attempted to implement PSAs in mining. The clarity of Uganda’s intentions regarding PSAs, however, remains dubious.
The Ministry of Energy stated that the introduction of PSAs aims to maximize national benefits from mineral resources. Thomas Scurfield elaborated on how PSAs can be structured to allow governments to receive physical minerals, enhancing the National Mining Company’s management and marketing capabilities.
Dr. Gerald Banaga-Baingi, Assistant Commissioner at the Ministry of Energy, acknowledged the establishment of the National Mining Company as a strategy to optimize the country’s mineral resource value, but did not directly address the recommendations concerning PSAs. He assured that the board of the National Mining Company was judiciously chosen to ensure effective governance.
The company has recently advertised positions for a Chief Executive Officer and senior management roles. Senior Inspector of Mines, Engineer David Sebagala, mentioned that while some proposals from the NRGI report are beneficial, others are not suitable for Uganda’s context. Sebagala emphasized clearly delineating the roles of the mining regulator and the National Mining Company as operations commence.
The new Mining law grants the government a 15% stake in mining licenses issued after 2022, although this remains a discretionary option. The law also allows for an equity acquisition of up to 30% in mining operations. Sebagala clarified the government’s willingness to pursue beneficial projects and potential joint ventures as the National Mining Company aims to oversee gold mining and value addition processes effectively.
Concerns regarding Uganda’s adoption of production sharing agreements for its mineral sector have been raised by researchers, indicating potential challenges associated with their implementation. The government aims to maximize benefits from the mining sector through the National Mining Company, yet the long-term effectiveness of PSAs remains uncertain. The establishment of the National Mining Company entails careful consideration of governance structures and stakeholder engagement to ensure sustainable mining practices. Future strategies should prioritize enhancing Uganda’s capability in mineral value addition and market engagement before advancing with PSAs.
Original Source: www.independent.co.ug
