Understanding the Uganda Petroleum Exploration, Development and Production Bill

The proposed laws - Petroleum (Exploration, Development and Production) Bill, 2012 and the Petroleum (Refining, Gas Processing, Conversion, Transportation and Storage) Bill, 2012 – will govern emerging oil and gas industry for the next 50 or so years.

But understanding the bills in-depth will enable a well-informed and constructive debate that is expected to start in the next financial year. Today New Vision is analyzing the contents of the
Petroleum (Exploration, Development and Production) Bill, 2012.

The Bill constitutes overall very good draft legislation. It is well drafted and organized and it addresses all the key concerns which include establishing independent regulator and protection against conflicts of interests.

It also calls for open and competitive bidding licences award process, protection of the environment and decommissioning protection of landowners/communities and local content and most importantly reporting and transparency.

It is interesting to note that the bill underwent rigorous and wide consultations involving key stakeholders.

“Several positive steps have been taken to address some of the concerns raised by Members of Parliament, development partners, civil society members and advisors and (there is) improved language on public reporting and transparency,” International Senior Lawyers, commented about the bill.

The Petroleum and Exploration Department of the ministry of energy and mineral development aimed to build consensus and come up with the right compromise on critical issues related to petroleum sector so that they are debated and solutions found.

“Issues of national matter should be done by consensus. If you manage to build consensus you build stability,” Ola Borten Moe, the Norwegian minister of petroleum and Energy, said.

Indeed, petroleum wealth has the potential to help raising diverse public expectations which runs the risk of plunging Uganda towards the resource curse.

“We have come up with a communication strategy to ensure that the public access relevant information,” eng Irene Muloni, Uganda’s minister of energy and mineral development, said.

“There is clear and transparent oil and gas policy that allows everybody to contribute to the oil and gas sector.”

The bill gives effect to article 244 of the Constitution, which 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.”

Therefore the proposed law is to regulate petroleum exploration, development and production. The bill establishes the Petroleum Authority of Uganda who will be the independent regulatory body to ensure fairness and equity in the competitive environment.

The proposed law also provides for the creation of the National Oil Company (NATOIL), which will take up government's commercial interest within licenses. The production sharing agreements provides that government will have 15-20% interest in every license.

NATOIL will be a state enterprise but will be established under normal company law subject to rules and practices applicable to commercial enterprises.

Again the bill is intended to regulate the licensing and participation of commercial entities in petroleum activities. This will be done in an open, transparent and competitive bidding process.

This is aimed to create a conducive environment for the promotion and exploration of Uganda's petroleum potential.

The bill provides for efficient and safe petroleum activities, cessation of petroleum activities and decommissioning of infrastructure. This means that oil firms must come up with plans for cessation involving an impact assessment and a disposal section.

The impact assessment provides an overview of the expected consequences of the disposal for the environment and other factors. The disposal part must include proposals for how cessation of petroleum activities on a field can be accomplished.

The bill also provide for the payment (royalty) arising from petroleum activities and provide for the conditions for the restoration of derelict lands. Oil companies shall pay royalty fees to government on petroleum recovered at the well head as per the petroleum agreements.

It also has provision of liability for pollution damage. The oil companies are responsible for pollution damage without regard for fault.

Safety aspects associated with the petroleum activities are incorporated in the bill. The petroleum activities shall be conducted in a prudent manner to ensure a high level of health, safety and environment throughout all phases of the activities.

Basically, the new bill is to repeal the old and existing law –the Petroleum (Exploration and Production) Act, Cap 150 and for related matters.

However, as Parliament debates on the bill, there is a need to bring on board other players to manage the oil and gas sector rather than leaving it to the ministry of energy and mineral development alone.

For instance the ministry of labour, gender and social development should be co-opted to regulate and supervise the working environment and safety and emergency preparedness and working environment in the petroleum activities. Parliament can consider establishing the petroleum safety regulatory body.

“You have to put in place a robust legal and regulatory framework. Keep petroleum data and know the location of the reserves. (Parliament and civil society) listen to technical people,” Bent Nyland the director general Norwegian Petroleum Directorate, advised.

We must know that a predictable and transparent framework must b in place in order for the oil companies and service providers to make good decision.

Our (Parliament, Civil Society, Media, Policymakers and technical experts) roles and responsibilities are defined must ensure proper attention to all important considerations and make sure that the value created benefits the society.

This includes consideration of the external environment, health, working environment and safety.

We all benefit from a framework that provides the petroleum industry with incentives to meet government’s goal of using oil and gas petroleum resources to contribute to early achievement of poverty eradication and create lasting value to society.

But we must also ensure the investors fulfill their objectives of wealth creation for their shareholders and profit maximization.

“Companies sink a lot of money and need to return their money with profits. Nyland explained. “If you are unpredictable no company will be interested in your country. There is a need for stable and predictable regulatory system.”

By Ibrahim Kasita
The New Vision Newspaper
01 June 2012