Uganda’s draft petroleum law provides checks and balances

UGANDA embarked on the formulation of the Oil and Gas Policy which was approve two years later after profitable petroleum reserves were proven in 2006.

One of the policy objectives is to promote value addition to oil and gas assets. The strategy is to use the assets to contribute to the energy mix to ensuring adequate energy supply.

And the action for this strategy to plan for the early production scheme to address electricity needs as well as plan for a petroleum refining strategy to provide for petroleum products to local and regional markets.

Refining crude oil locally will not only help Uganda meet the local energy demand for the major oil products like kerosene, aviation fuel, diesel and petrol, but also also other by-products from oil that can be used in building roads and in making products like plastics and jellies.

More so, the gas discovered will produce electricity. Plans for gas–to–power facility, which can be converted crude to heavy-fuel oil for electricity generation is underway.

But for this ambition projects to happen, there is a need to set up related infrastructure like the pipelines, processing and storage facilities.

This should be bolstered with predictable laws to regulate the midstream sector if Uganda is to attract the private sector in a competitive environment.

Contents in the draft law

This explains why Uganda has come up with the Petroleum (Refining, Gas Processing, Conversion, Transportation and Storage) Bill, 2012.

But the contents of the midstream laws have been misunderstood or/and misinterpreted. The purpose of the Petroleum (Refining, Gas Processing, Conversion, Transportation and Storage) Bill 2012 is to give effect to article 244 of the Constitution.

The article states that: “… the entire property in, and the control of, all minerals and petroleum in, on or under, any land or waters in Uganda are vested in the government on behalf of the Republic of Uganda.”

The other objects are to promote policy formulation, coordination and management of petroleum refining, gas processing and conversion, transportation and storage and to provide for third party access to infrastructure.

The draft law is also to provide for an open, transparent and competitive process of licensing, to provide for health and safety environment, to provide for cessation of petroleum activities and decommissioning of petroleum facilities and infrastructure and to provide for related matters.

And to execute the above, there is need to create relevant institutions that will ensure effective and efficient management of the petroleum sector.

The bill calls for the establishment of the Petroleum Authority of Uganda and the National Oil Company (NATOIL) together with the minister responsible for petroleum.

“Conflict of interest and lack of transparency” cited

However, there are suggestions that the arrangement creates confusion about the role of different institutions and coordination.

That, there is duplication and overlap of powers among the three bodies, that, the draft law does not set out a clear and practical system for petroleum governance and important issues may fall through the gaps.

That there will be conflict of interests, lack of transparency and accountability and that, the taxpayers will be overburdened by shouldering the costs of maintaining the operations and administration of the newly created entities.

The truth of the matter

However that kind of thinking is designed to shadow the good intentions of the draft laws. All laws in Uganda recognize the minister as the political head. Minister’s decisions are made after consultations with technocrats.

It is a statutory requirement for the minister to oversee the implementation of the law. Therefore the bill is not re-inventing the procedures.

But it does not imply that the minister cannot abuse the powers vested in him/her in the name of executing the law. But this does not make the bill bad. The minister is accountable to Parliament, which is the only public oversight institution.

Parliament has the Constitutional mandate to oversee the implementation of policy, scrutinize public expenditures, influence and shape policy through lawmaking process, and represent citizens’ concerns and needs in decision making.

Together with other bodies like the office of the auditor-general, Inspectorate of Government, the Police, media, civil society among others, the minister is held accountable for his/her action or inactions. The bill if passed into law will not work in isolation.

The bill clearly defines the roles, functions and responsibilities of the Petroleum Authority and the National Oil Company. The Authority is an independent regulator, with powers to enforce compliance and supervise the activities of petroleum contractors in a competitive environment.

A board member cannot be a shareholder of any petroleum entity. It is independent from the ministry and any ministerial direction. The board must submit an annual report including audited accounts, to the minister, who in turn shall submit it to Parliament.

The National Oil Company is to handle Uganda’s commercial interest and managed the business aspects of state participation. For transparency and accountability, Auditor-General will conduct annual audits and make recommendations to Parliament for appropriate actions.

Need to extend licensing period

That is accountability and transparency. Legislation is needed to avoid abuse of monopoly situations and secure national interests. Other aspects are better left to market forces.

However, Parliament should consider the provisions of licensing period of 15 years in the bill which is seen as unacceptable and is counter-productive to Uganda’s national interest.

It is not consistent with staged refinery development plans and will provide ammunition to crude export advocates.

International oil companies have indicated willingness to construct a small local refinery as a concession to secure approval of export crude pipeline. The licensing period should be adjusted to 25-30 years.

The bill together with other laws provides for useful checks and balances. key parameters for petroleum governance are legal framework, regulations, corporate structures, ownership and commercial agreements.

Early political consensus on the need for national control over the direction and momentum of the petroleum industry will help manage public expectations and avoid the resource curse.

We need to support and encourage local industry to participate in the petroleum operations to create a new industry that is capable of evolving even after the last drop of oil has been produced in Uganda.

By Ibrahim Kasita
The New Vision Newspaper
07 July 2012