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It is not only the minister who will make oil licensing decisions

By Vision Reporter

Added 10th December 2012 12:24 PM

THE two Bills are expected to guide the development of the sector as the country progresses from exploration through development and production to commercialisation

THE two Bills are expected to guide the development of the sector as the country progresses from exploration through development and production to commercialisation

By Eng. Irene Muloni

In order to operationalise the provisions of the National Oil and Gas Policy for Uganda, give effect to Article 244 of the Constitution, enhance investment promotion and regulation of oil and gas resources and lay a foundation for commercialisation of the discovered oil and gas resources, the Ministry of Energy and Mineral Development tabled two Bills before Parliament in February, 2012.

The Bills presented to Parliament

These Bills are the Petroleum (Exploration, Development and Production) Bill, 2012 – also known as the Upstream Bill - and the Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Bill, 2012 – also known as the Midstream Bill. 

The two Bills are expected to guide the development of the sector as the country progresses from exploration through development and production to commercialisation.

The institutions to be created

Among other provisions, the Upstream Petroleum Bill proposes to create two institutions; the Petroleum Authority of Uganda (PAU) and the National Oil Company (NATOIL). A Directorate of Petroleum is also being formed in the ministry through a Public Service restructuring process.

The role of the minister vis-à-vis the Petroleum Authority and Cabinet

The specific roles and responsibilities of the minister, with technical guidance of the Directorate of Petroleum and on advice of the Authority and upon approval by Cabinet, include negotiating and endorsing petroleum agreements together with granting and revoking of licences.

The primary role of the Authority, as described in the Policy and in the Bills, is to regulate and monitor compliance in the petroleum sector while the National Oil Company will be responsible for managing the commercial aspects of the State. 

One of the key aspirations of the Policy was to adopt democratically accepted practices of institutional checks and balances, the cornerstone of which is the separation of powers in the country’s emerging Oil and Gas sector.

Why should the minister grant or revoke licences?

Some sections of society are advancing an argument that the role of granting and revoking licences as provided for in Clause 9 of the Upstream Bill should be with the Authority and not the minister as presented to Parliament in the draft Bills.

If this is to be the case, the Authority would solely negotiate the licence terms, grant the licences, and then monitor and regulate the licensees.

In practice, the Authority would be monitoring or policing the same terms and conditions it negotiated and licensed.

The danger here would be that, in case the Authority erred during the negotiation and licensing, it would be difficult for this error to be brought out by the same Authority during monitoring and enforcement of compliance.

It is important that Clause 9 is not read in isolation but also put in the context of Clause 11 that provides for the roles of the Authority which, among others, provides for the Authority to advise the minister during licensing as well as Clauses 59 and 75, which provide that the minister grants Exploration or Production Licences upon consultation with the Authority and on approval of Cabinet. 

It should be noted that investment promotion and licensing is an elaborate process that involves continuous acquisition of data, using the data obtained to demarcate the areas to be licensed into blocks, preparing and using this data to attract investment, announcing and holding competitive licensing rounds before licences are negotiated and granted.

One cannot go into licensing unless that entity has the necessary data and it is the ministry, which acquires the data and, therefore, in the best position to carry out investment promotion and licensing. 

On the other hand, regulation is also a continuous process, which starts after the licences have been granted. 

Regulation involves, among others, monitoring work programmes in the field, costs incurred by oil companies, management of the oil and gas resources discovered through effective reservoir management, measurement of crude oil produced and ensuring the implementation of appropriate health, safety and environmental safeguards during operations. 

It would, therefore, be inappropriate to require the Authority, which is charged with the key tasks of monitoring and enforcement of compliance, to undertake the licensing process. 

That would create conditions for conflict of interest as described above. I wish, therefore, to emphasise that the minister will not make decisions on licensing on his or her own but on the advice of the Directorate of Petroleum and the Authority, and upon approval by Cabinet.

The Upstream Bill proposes licensing through an open and competitive bidding process, which will ensure transparency in issuing of licences.

What is the international best practice?

International best practice in the petroleum sector requires that the responsibility for licensing should be distinct from that of regulation.

This is the case in countries such as Norway, Australia, Denmark, The Netherlands, The United Kingdom, Mozambique, Sri Lanka, Thailand, Mexico, Kenya, Angola and Equatorial Guinea, among others, some of which have well developed and successful oil and gas sectors. 

Providing for the minister to license in the Bill will enable the Authority to carry out its regulatory function independently.

Oil is a strategic resource

It should be remembered that petroleum is a strategic resource and some of the areas in the Albertine Graben with potential for oil production are at an international border with The Democratic Republic of Congo. 

Therefore, besides licensing of oil companies, the shared aspect of this resource requires the executive arm of the Government to have the mandate to negotiate and enter into Joint Development Agreements with other States.

What is the role of Parliament?

Parliament will continue to play an oversight role in the sector as provided by the Constitution and as is currently the practice. 

The minister reports to Parliament and, therefore, will be held accountable for all decisions in the sector, including licensing.

Conclusion and way forward

The spirit of the debate in Parliament should, therefore, be to pass legislation for the sector that can be implementable and will enable the country achieve the goal of its National Oil and Gas Policy, which is “to use the country’s oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society”.

Writer is the Minister of Energy and Mineral Development

It is not only the minister who will make oil licensing decisions

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