Why Uganda will delay to issue more oil licences

Wednesday, 25th May, 2011

THERE has been growing interest from international companies to take part in the oil-rich Lake Albert rift.

According the Ernest Rubondo, the commissioner in the petroleum exploration and production department over 50 companies applied for exploration licenses.

The rise of investors’ interest in Uganda’s nascent petroleum industry comes after reserves of at least 800 million have been confirmed, and the Lake Albert basin is believed to contain up to 2.5 billion barrels of oil.

And according to the World Bank, this level of reserves would put Uganda into a peer group with Chad (0.9 billion barrels), Republic of Congo (1.9 billion), Equatorial Guinea (1.7 billion) and Gabon (3.2 billion), but far short of Angola (13.5 billion), and Nigeria (36.2 billion).

It will also put Uganda among the top 50 producers in the world and top 10 in Africa. And only 30% of the 22,000 sq km Lake Albert basin, where petroleum prospecting is taking place has been explored.

The basin is subdivided into 11exploration areas out of which five are licensed.

Now, international oil companies are scrambling for the six unlicensed exploration areas (70% of unexplored blocks) to try their luck.

But they will have to wait a little longer. The energy ministry maintains that the next round of licensing will take place only when there is a new law.

“It will be under a new law and regulations to ensure good resource management and efficient licensing,” Rubondo explains.

Licensing new companies was halted four years ago. But a draft Petroleum Resource Bill 2010 has been completed and awaits Cabinet approval before it is subjected to extensive Parliament debate before it is passed into a good law.

However, the draft bill has issues that should be amended. For instance it stipulates: “An application for a petroleum exploration license shall be made to the Minister in the manner prescribed by regulations.”

But the Civil Society Coalition for Oil and Gas (CSCO) in Uganda is opposed to such a clause because “a single minister will often lack the expertise to realize and understand these potential effects.”

The civil society urges that when reviewing a license, the minister responsible for petroleum activities should consult with other relevant ministries for licensing purpose.

However, it is not clear whether Cabinet will incorporate the recommendations or approve the bill without further amendments.

It is also uncertain when the bill will be forwarded to Parliament for debate and how long it will take to pass it into law. All this take time.
Furthermore, the unlicensed areas will be further demarcated into smaller and easy-to-manage blocks.

Reuben Kashambuzi, the chief technical advisor to the energy ministry, explained the demarcation will be in accordance with resource potential.

“Why you must have small blocks is because the company gives you small budget and has small work programme,” he said.

“Whatever is spent on a block is consolidated. The smaller areas the better as long as they (investors) give you production targets and government makes decent returns. Government can control the amount of oil (pumped) in the economy.”

The objective of the National Oil and Gas Policy of 2008 is to ensure efficiency in licensing areas with the potential for oil and gas production.
Uganda prefers gradual licensing rather than licensing all the areas at once.

“Gradual licensing will optimize the license terms by attaining good work programmes and improved fiscal terms for the country,” the policy states.

“It will also enable the country to develop the required skills in tandem with the growth of the sector thereby facilitating better management of the resources.”

In the past, Uganda licensed explorers on the basis of first come, first serve. And in 1991 a Belgian oil company, Petrofina, was licensed to explore the entire Lake Albert basin.This is because Uganda did not have enough information on the basin and there were few companies interested in venturing into Uganda.

However, after two years of futile search for oil and gas, the company withdrew from the venture.

“We would be crying to our gods every night because all this success we are going to benefit would be for one company,” Kashambuzi, the chief technocrat behind Uganda’s oil and gas industry, recalled.

By IBRAHIM KASITA: The New Vision Newspaper