Petroleum bill: The pros and cons

By Ibrahim Kasita
After confirmation of huge commercial oil and gas deposits in the Lake Albert region, estimated to bring in $2b every year, Uganda has started a journey of becoming a rich and prosperous nation.

Many sub-Saharan Africa oil-rich states have had less economic growth due to lack of citizen participation in the petroleum sector.

However, the Government has assured Ugandans that the oil resources will increase opportunities for Ugandans.
It has drafted Petroleum Bill to ensure that the “oil curse” does not happen.

The draft has been circulated to the various stakeholders for their comments. The energy ministry is expected to table the bill before Parliament by the end next month.

•The Bill
The 2010 draft Bill, promotes local content, which is the development of local skills, technology transfer, use of local manpower and local products. Oil firms are mandated to give priority to local suppliers and job seekers.

"The licensee (oil firms), its contractors and subcontractors shall give priority to competent citizens of Uganda and registered entities owned by Ugandans in the provision of goods and services," the bill reads.

“The licencee, and the contractors and subcontractors of the licencees shall give priority to the purchase of local products and services from Ugandans wherever they are competitive in terms of price, quality and timely availability.”

The Bill also mandates the oil companies to train local people either in Uganda or abroad through scholarships and other financial support for education.

They are required to pay training, research and development fees annually.

“The licencee shall give preference to the employment of Ugandans with the requisite qualifications, competence and experience required to perform the work,” states the bill.

•Compensation
Land owners, where the oil and gas has been found, will be paid ‘fair and reasonable’ compensation for any disturbances of his/her rights and for any damage done to the surface of the land due to exploration or development operations.

He/she will demand for any crops, trees, buildings or works damaged during the operations.
The proposed law states that “Where the licensee fails to pay compensation…, or if the land owner of any land is dissatisfied with any compensation offered, the dispute shall be determined by law.”
Oil companies are obligated to pay royalty, and income tax. If the oil company fails to pay the stipulated money, the minister can stop the oil company from conducting business, until the payments have been made. This is because the control of the oil and gas resources is vested in the government on behalf of Ugandans.
“Petroleum activities or under any land or waters in Uganda or subject to Uganda jurisdiction, shall not be conducted without an authorisation, licence, permit or approval issued.”
The bill establishes the Petroleum Authority of Uganda, which will monitor, and regulate exploration, development and production, processing, transportation and storage of petroleum and gas processing in Uganda.
It also creates a National Oil Company (NOC), that will manage the commercial aspects of petroleum activities and the participating interests of the state.
The Petroleum Authority board of directors will be appointed by the minister with the approval of the Cabinet, a situation that may undermine the independence and work of the regulator.

•Reactions
However, stakeholders and experts have claimed the Bill does not provide checks and balances to protect oil money from corruption. It does not foster good governance, transparency and accountability.
They argue that though the draft law provide for the public to monitor the work of the Petroleum Authority, it does not provide for the audit of the oil revenues.
“The bill also does not provide for any disclosure to the public of the revenue that is being generated by the industry,” Prof Robert Langenkamp of Revenue Watch Institute commented.
The Revenue Watch Institute is US-based NGO which promotes responsible management of natural resources.
“For instance the amount of production seems to be carefully guarded. Companies must maintain data of the ‘gross petroleum extracted’ but the Government need not disclose the quantity of production on any basis.”
Such an omission would place Uganda out of step with the emerging international norm on public disclosure of revenue data, and would deprive citizens a key tool for public oversight of the industry and economy.

•Confidentiality
Emerging international practice calls for a much narrower and more-precisely-defined provision on confidentiality, which favours public disclosure and places the burden on the party seeking to block disclosure to demonstrate why disclosure would damage its legitimate proprietary business interests.
The provisions regarding “information and documentation” that licensees are required to furnish to the Government are generally adequate, “but the press and the public have access to little information regarding the oil development,” noted Prof. Langenkamp, who analysed the draft bill on behalf of the Civil Society in Uganda.
The bill states that the field development plans and assignments can be revealed to the public “only if disclosure doesn’t violate confidentiality of the data and commercial interests. Prof Langenkamp observed that once payments are made to the government there is little that citizens or the parliament can do to see that the funds are not taken or wasted in the absence of strong legal provisions to ensure that revenues are employed for the public good.
He pointed out that the bill does not address the issue of creating an independent bank account to handle the oil money, which will be vulnerable to corrupt and selfish politicians and powerful army and public officers.
“If such a fund is created, the government will need to set out the terms for its management, including the rules for deposits into the fund, investment strategy, withdrawal provisions, and systems for oversight,” he advised.
“All funds should be subject to regular disclosure of amounts received and “publish what we receive” provision would be beneficial.”
There appears to be no provision for dislocation and disturbance of traditional lifestyle patterns or loss of employment except for a section, which provides for “fair and reasonable compensation payment for any disturbance” of the rights of the landowner.
The draft bill does not specify the procedure one should follow to obtain compensation and it might be helpful to specify the venue and access to the local courts, if a special court is not established.
The proposed law allows Uganda to insist on a stream of oil sufficient to operate a refinery of some size but there are no provision regarding the pricing and other important items.
The RWI analysis also points out that If Uganda proceeds to build or cause the oil companies to build, a refinery it should be a ware of the problems and costs that could be associated with project.
“The reality is that funds expended by the oil firms to build and maintain refinery represent money which will not be available for payment to Uganda,” the report suggests.
“Parliament and other stakeholders should reflect upon the strength and weakness of establishing a company.”
Godbar Tumushabe, the executive director/policy analyst Advocates for Development (ACODE), said Uganda needs effective, transparent and accountable state structures in order for the oil and gas resource to translate into economic development and prosperity.
“Absence of such state structures could usher the country into the “resource curse” syndrome,” he said. “Key elements critical fro oil governance is the rule of law that establishes among other things property rights and limits the states’s discretion in manipulating those rules,” he advised.
There is also a need to ensure that oil and gas exploitation activities do not negatively affect the social, economic and environmental conditions of the regions in which the resource is extracted.
While oil and gas is a new development in Uganda that has the potential to transform the country from among the poorest to the richest nations, it also has the potential to catapult the country into abject poverty, environmental degradation, insecurity and misery amidst plenty of petrodollars.
The key issues to be considered when legislating the new petroleum law should include, revenue management and benefit sharing, waste management and environmental protection, and industry oversight and corporate governance, using a multi-country survey.
Effective, far-reaching legislation is essential if Uganda hopes to benefit from its oil reserves and avoid the oil curse
The oil and gas resource presents a mixture of promise and uncertainty. With a struggling but slowly growing economy, Uganda could take advantage of the anticipated oil and gas revenue windfall to invest in the country’s resources, public and social infrastructure, giving the economy a significant boost and assisting the country in achieving its Millennium Development Goals (MDGs).