WGEI Newsletter Issue No. 4 – February 2016

The content of this newsletter

Introduction

  • About this issue
  • Announcement on changes within the CoP/WGEI secretariat

Need to know

  • Fiscal Regimes in the Petroleum Sector (By Trygve Christiansen, OAG Norway)
  • Two “useful links”: WB contract monitoring roadmap and OECD transfer-pricing library

Trainings and events

  • Extractive industries audit strategy: WGEI involvement in the Zambia Workshop

Members in Action

  • The Ugandan experience in the audit of petroleum activities

 

Introduction

About this issue: 

Welcome to the fourth edition of the WGEI newsletter! In this edition of the newsletter you can read about fiscal regimes in the petroleum sector and learn about SAI Uganda’s experience with auditing petroleum activities. You will also learn about WGEI participation in an extractive industry audit strategy workshop and be reminded of some important tools that could be relevant for your work in auditing the extractive industry sector. Have a nice read!

Announcement on changes within the CoP/WGEI secretariat

We would like to take this opportunity to inform you that Mr. Edward Ssali is now officially the Coordinator of the WGEI Community of Practice. The Previous Coordinator, Mr Ingvald Heldal, will continue to work for the CoP and WGEI as an advisor. All requests should from now be directed to Mr. Ssali (Edward.ssali@oag.go.ug, +256793344663).

Need to know

Fiscal Regimes in the Petroleum Sector (By Trygve Christiansen, OAG Norway)

Countries that are blessed with petroleum resources must try to manage their wealth in the best way possible. Doing so often means allowing international oil companies (IOCs) to explore, develop and operate oil fields, because they have the technical know-how to extract the resource more efficiently and effectively than the government can do on its own.

When IOCs are involved, the government must set up a system for sharing profits that allows it to maximize the benefit its citizens receive from the oil wealth whilst making the country an attractive place for the IOCs to invest. How you organize the fiscal regime depends on whether the government needs revenue immediately, its ability to cover risks and how it wants to attract investors. These factors will all affect the final government take. Government take is government’s share of the net profit (gross production value – costs = net profit). This article will present some basic features of the three most common fiscal regimes: royalty/tax systems, production sharing contracts and service agreements, and how they affect government take. Read More…

Two “useful links”: WB contract monitoring roadmap and OECD transfer-pricing library

For each issue of the WGEI Newsletter we are going to present one or two essential “useful links” that can be found under the “tools and resources” banner on the WGEI home page (www.wgei.org). The aim is to remind of and draw attention to external resources that we think could be useful in the daily work of auditors at the various Supreme Audit Institutions involved in audit of the extractive industries sector.

World Bank Institute has a very interesting tool related to monitoring of contracts in the extractive industries sector that can be reached through the following link: http://contractroadmap.azurewebsites.net/ or through the “external resources” section of the WGEI homepage.

For those who are interested in documents related to transfer pricing OECD has a nice online library on this topic that can be reached through this link: http://www.oecd.org/ctp/transfer-pricing/ or by visiting the WGEI homepage “useful links” section. This page has compiled important documents such as existing guidelines, country profiles and various statistics related to transfer pricing. 

Trainings and events

Extractive industries audit strategy: WGEI involvement in the Zambia Workshop

In December 2015 the advisor of the WGEI Community of Practice traveled to Zambia to co-facilitate an EI audit strategy workshop along with three auditors from SAI Norway. The workshop lasted five days, from December 14th to December  18th, and the whole team of SAI Zambia auditors involved in audit of the extractive industries area participated. The result was a participant driven draft strategy that will be finalized by SAI Zambia in the months to come. Elaboration of strategies for audit of the Extractive Industries has been identified as one of the focus areas in the WGEI activity plan for 2016 and 2017. The WGEI secretariat would therefore be interested in hearing from SAIs planning to elaborate such strategies to see how the Zambia experience can benefit other SAIs in this area.

Members in Action

The Ugandan experience in the audit of petroleum activities.

Uganda is endowed with a variety of natural resources that include copper, cobalt, gold, tin, and most recently petroleum. This article will concentrate on audit of petroleum activities conducted by the international oil companies (IOCs). Ever since the first commercial discovery in 2006, exploration work in Uganda has increased to the point of having over 116 wells drilled with over 80% success rate. Currently, 6.5 billion barrels of stock tank oil initially in place (STOIIP) have been discovered. The increased exploration activity goes yardarm to yardarm with a rise in the exploration costs.

Uganda adopted the Production Sharing Agreement (PSA) system which requires the (IOC) to invest in the exploration, development and production and later recover their costs from the proceeds of the oil and gas produced. This is done through a series of sliding scales and R factor formulas applied as stipulated in the PSAs.

It is the role of the Government to undertake audits to ensure that all the amounts that are to be recovered were necessary, appropriate and incurred in accordance to the applicable laws and regulations. The role of undertaking the above audits is a responsibility of the Office of the Auditor General as mandated by the 1995 Constitutions of Uganda (as amended) and the National Audit Act 2008. The audit provides government with the assurance that the costs incurred were necessary appropriate and in accordance to the applicable regulations. Read More…

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