Researchers caution Uganda against implementing production sharing agreements (PSAs) in the mining sector, particularly concerning a current negotiation with Sarrai Group for Kilembe Mines. While PSAs are common in oil and gas, their application in mining is rare and may pose unforeseen challenges. Experts stress the importance of enhancing local capacities and recommend careful consideration of the benefits-sharing framework. The Ministry of Energy aims to maximize the value from mineral resources amidst ongoing discussions regarding the NMC’s structure and operations.
In Uganda, researchers have warned against the use of production sharing agreements (PSAs) for the mining sector, as the government negotiates one with the Sarrai Group for the Kilembe Mines takeover. Experts from the Natural Resources Governance Institute (NRGI) express concerns regarding the applicability of PSAs, which are commonplace in the oil and gas sectors but rare in mining. Economic Analyst Thomas Scurfield noted that PSAs are intended for legal arrangements between host governments and International Oil Companies (IOC) for resource development.
The recent adoption of PSAs as part of Uganda’s new Mining Act has raised eyebrows. NRGI researchers, including Dr. Paul Bagabo, presented their findings to stakeholders, emphasizing the lessons from 58 countries that have experienced PSAs in mining. Dr. Bagabo cautioned that the government could encounter unforeseen challenges by adhering to the PSA model for sharing mineral benefits, arguing for the need to enhance local capacities in storage and market development before proceeding.
The NRGI report discusses prior experiences from countries such as Azerbaijan and the Democratic Republic of the Congo, which utilized PSAs in mining. Egypt has shifted from this model to a royalty tax system, while Côte d’Ivoire initially incorporated PSAs into their mining code but later removed them. The Ugandan government aims to utilize PSAs to maximize benefits, yet the framework for such an arrangement remains ambiguous.
Scurfield suggested various configurations for PSAs, indicating that the government may opt to receive physical minerals, allowing the National Mining Company (NMC) to manage them. He outlined the logistical challenges involved in handling transportation, warehousing, and sales of these minerals. The report recommends several strategies for the NMC to effectively fulfill its mandate.
Dr. Gerald Banaga-Baingi, from the Ministry of Energy and Mineral Development, refrained from commenting on specific PSA recommendations but reiterated that the NMC’s establishment aims to enhance mineral resource value. He stated that the government will review the report for possible implementation of its recommendations.
The NMC’s governing board comprises experienced individuals tasked with promoting efficient operations. Additionally, positions for senior management and a Chief Executive Officer are currently being advertised. Engineer David Sebagala, a Senior Inspector of Mines at the Ministry, affirmed the importance of assessing report proposals, separating the roles of regulators and the NMC to ensure clarity in responsibilities.
Recent legislation guarantees the government a 15% stake in all medium and large-scale mining licenses granted post-2022, although this stake is not mandatory. Sebagala explained that the government would assess the viability of exercising this option, with an opportunity for equity stakes in projects demonstrating high potential, potentially leading to controlling interests for the NMC. The NMC aims to engage comprehensively in gold mining and value addition processes.
In conclusion, Uganda’s exploration of production sharing agreements in its mining sector has garnered critical scrutiny from experts. The concerns raised highlight the necessity of building local capacity and clearly defining roles and frameworks within the National Mining Company. Moving forward, it is essential for the Ugandan government to deliberate over the potential challenges and advantages of adopting PSAs as it seeks to maximize the benefits of its mineral resources. The future success of the NMC will likely hinge upon these considerations.
Original Source: www.independent.co.ug
