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sharing in governance of extractive industries

Let us not misguide the oil debate

By Ibrahim Kasita

The energy ministry finallytabled two oil Bills - the Petroleum (exploration, development and production) Bill 2012 and the Petroleum (refining, gas processing and conversion, transportation and storage) Bill 2012 - in Parliament in last week.

The third Bill - the Petroleum revenue management Bill - is expected to be tabled before Parliament soon by the finance ministry.

The three bills are critical because they will provide a legal and regulatory framework to handle the development, production and utilisation of the oil and gas resources.

Uganda has about 2.5 billion barrels of oil, regarded as commercially-viable. This means that the industry is fast-moving from exploration to appraisal, development,production and exploitation.

The development has raised excitement and high expectations and environmental concerns. The management of the oil revenues and the need to update the legal and regulatory framework have also been raised by a cross section of stakeholders.

The three bills, if passed into law, will handle all these worries.

Previous laws
The tabling of the two Bills before Parliament last week does not mean the nascent petroleum industry has been operating in a vacuum. The success registered in the exploration stage was guided by an established legal and regulatory framework.

Let us not misguide the oil debate The Petroleum (exploration and production) Act of 1985 (revised in 2000) and the Petroleum (exploration and production and conduct of exploration operations) regulations of 1993 were key in this.

The production sharing agreements signed with Heritage Oil and Gas, Hardman Resources (now Tullow Uganda), Dominion and Neptune also guided the operations of the petroleum industry.

Other relevant statutes and guidelines on important aspects such as environment,wildlife and water have been used to manage the exploration phase of the industry. The income tax Act (as amended in 2010) was enacted primarily to cater for taxation of petroleum operations.

This is contrary to various claims that there were no laws to regulate the petroleum sector. Therefore, an informed debate on the draft Bills to be realised, Parliament must consider all the facts first.

Need for new legislation

Everyone agrees that the existing laws are not adequate to manage the appraisal, development, production and exploitation of the petroleum resources.

When the Government formulated the oil and gas policy for Uganda in 2008, its broad goal was to use the oil resources to contribute to early reduction of poverty and improve society’s welfare.

The guiding principles of the policy included using the oil resources to create efficient resource management,transparency and accountability, competitiveness and productivity, protection of environment and conservation of bio-diversity, spirit of co-operation and capacity and institutional building.

The implementation of the policy started with the drafting of new petroleum laws, two of which, have already been tabled in Parliament for debate.

To ensure that there is access to information and participation in the oil and gas industry debate, a communication strategy has been put in place to provide a platform for managing stakeholder expectations and promoting transparency and accountability through engagement, information exchange and sharing.

Further, a national local content strategy policy that ensures Ugandans participate in the oil and gas industry has been developed. It will ensure that priority is given to the employment of Ugandans and local goods and services are procured.

To protect and manage the environment and bio-diversity, the Government has come up with a policy document on environment management in Uganda’s oil and gas sector.

This is all in line with the national oil and gas policy of 2008.

Missing link
There is a need to understand the way the oil and gas industry operates to put into context the various issues arising.

Access to correct information on the sector will greatly facilitate an informed debate and decision-making.

The good thing is that this information is available.

http://www.newvision.co.ug/mobile/Detail.aspx?NewsID=629149&Cat...

 

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Comment by Edmund Rich on March 26, 2012 at 20:13

Elison - Apart from the gain in international credibility, the benefits of implementing the EITI include an improved investment climate by providing a clear signal to investors and international financial institutions that the government is committed to better management of the sector. EITI also assists in strengthening accountability and good governance, as well as promoting greater economic and political stability. This, in turn, can contribute to the prevention of conflict based around the oil, mining and gas sectors.

The US does not refuse to implement it.  Indeed they committed to implementation and are making good progress: http://eiti.org/news-events/united-states-launches-public-consultat....

But your point is well taken - enhancing transparency and accountability in the sector is not the magic bullet to good management of the sector.  It is only a necessary but not sufficient step - a point well recognised by the EITI family:  http://eiti.org/blog/eiti-expectations-necessary-not-sufficient

But not being everything is not the same as being nothing, and Nigeria's achievements and improvements and quality of public discourse on the matter is a demonstration of that even though they have not yet cracked the corruption issue which no single weapon can defeat alone: http://eiti.org/document/case-study-nigeria.

Comment by Elison Karuhanga on March 26, 2012 at 17:51

what are the advantages of EITI? countries that have adopted it..how have they benefited? why does the US still refuse to adopt it? Example being Nigeria..has EITI helped the corruption issues? how come the west(EU countries) and the east (China and the mideast) dont seem to be interested? Deo which particular law is the subject of dispute and which perfect law exists upon which there can be no dispute? maybe the 10 commandments...but laws from human hands can all create dispute. now regarding amendment of the Public Finance law I think lets first see the amendment before we disagree with it.. it may be a fantastic amendment vs a lousy law or vice versa.. lets first see. ultimately the best must not be the enemy of the good. we must always remember that capital goes where capital grows. Watch kenya... in 3 years they may already commercialise the discovery...watch us..in 3 years we may be on the 9th injunction.. similarly we must ensure a proper regulatory framework. one that protects land owners, the environment and  public money. 

Comment by Kasita Ibrahim Emolu on March 24, 2012 at 14:08

Edmund Rich -it is true the 2008 Oil and Gas Policy of Uganda calls for the implementation of EITI. And the draft bills call for the implementation of EITI. When the debate starts, I believe this will be an issue that will receive massive support.

Comment by Kasita Ibrahim Emolu on March 24, 2012 at 14:04

Deus, I am glad that you acknowedge the good things that the policy makers have done in pushing forward the nascent petroleum industry. I also agree with you that we must not critique them. But the crux of the matter is we must first understand the background and history of the industry. This will now empower us to evaluate what was not done right and that should be corrected. The current oil debate is driven by ignorance.

I don't say that the previous laws were better. What I was saying is they served the exploration purpose very well. The success that we are proud about were guided by those laws. However, there is a need to update them as the industry is moving from the first value chain -exploration -to appraisal, development, produciton and export. Each value chain have different challenges and costs. We cannot entirely rubish the old laws. Yes, the government is not tabling the revenue management laws but amending the public finance and accountability act, which I think is okay. Oil is just meant support other economic sectors but not as an isolated activity.

Deus, information is accessible. What you need to do first understand the industry and then pose the right questions. The challenge is that most of us don't know what we want. We end up confusing ourselves. Just ask how does the media get the information -some of them regarded as sensitive? I don't see the problem of access to information. That used to be the problem of the past and not now. The ministry of energy and its petroleum exploration and production department is very open and friendly. Likewise the oil companies are willing to talk to everyone. That is why they organise frequent visits to their areas of operation for us to have the real feel. Let's stop living in the world of the past. We need to move forward, Deus! What is happening on the ground, Deus? Come on!! There is nothing terrible as you want the world to think! Be brave and continue contributing to the success of the nascent industry. Don't enslave yourself. If there is anything bad, how do we manage to access the information and publish it for mass consumption? Let's not scare-monger but work together. The oil industry is not an end itself. We should just use it to catapult other sectors for sustainable economic and social development. This is all in the Oil and Gas policy.

Comment by Kasita Ibrahim Emolu on March 24, 2012 at 13:45

Kobina, thanks for raising the questions. The communication strategy is being implemented. Various media managers and their journalists and the general public and host communities have been informed about the the industry. There have been various trips to Lake Albert Graben -where the discoveries are found -and my of them have really appreicated. MPs have visited the graben too. A website www.petroleum.go.ug was established and all important documentation regarding the sector are posted there.

 

The Local Content Strategy is still on paper and not even a policy. As it is now it is just like a background paper. But well informed media and civil society are requesting the local content strategy becomes a policy which will lead to the legislation of local content. However, in the new bill, there are some clauses that support local content and national participation. There is a long way to go! Hope that answer the issues you raised.

Comment by Edmund Rich on March 23, 2012 at 20:59

Kasita - excellent and informative post.  The 2008 Oil and Gas Policy commits Uganda to implement the EITI but little has happened since then.  Do you know if either of the Petroleum Bills mention EITI implementation?

Comment by MUKALAZI DEUS on March 23, 2012 at 9:12

Kasita,thanks for the update.I find you piece a bit skewed and misleading in a number of ways.

1. The issue is not whether the oil debate is misguided or not. the issue should be whether the queries and facts being laid on the table are valid or not. Yes, there are so many good things that the government has done in the oil sector but that should not stop any one from raising the gaps simply because we fear to be branded una ppreciative. Even if the government got 99 things right but got one wrong, that one wrong thing should be pointed out.

2. It's erroneous to suggest that the previous laws have done Ugandans any better. The laws you cite are responsible for the unending legal battles between  the companies and the government. Ugandans stand to lose millions of dolars due to gaps in the laws especially taxation laws. So i find it weird to praise such laws when all they have managed to achive is secrecy and taxation battles.

3.The government is not tabling the Oil Revenue Management Bill but is intsead planning to ammend the Public Finance Act. The reasoning behind this is that we can't have a separate revenue management law for other resources like lakes, parks, forests etc. I find this development very unfortunate because OIL  is not your ordinary resource. I have my doubts whether ammending the Public Finace Act will take care of all the un answered questions regarding oil revenue management. besides, leaving out the revenue management legislation at this time and presenting the two Bills now, presents a challenge. it would have been better to have all the laws presented at the same time so they are discussed as a package.

4. You mention a number of activities the Ministry is engaged in and a number of documents developed this far  like the Communication Strategy, Local Content Policy, etc which is all good. My problem though is accessing this information. A quick visit to the Ministry of energy website (http://www.energyandminerals.go.ug), reveals a dormant website. You would expect the website to be bubbling with info since there is no any other recognized national information center. I know the Ministry created a separate website for petroleum activities at http://www.petroleum.go.ug which is a bit active. there should be a link to this website from the official ministry website to let people who want to access information do so easily. Otherwise this remains hidden and does not serve the purpose.

Finally, we would all want to be positive and happy about Uganda's oil find. But we are denied this feeling because of whats happening on the ground. Raising genuine issues should not be construed as misguiding the oil debate. We must face these challenges squarely and expose the gaps, because if we don't as Ugandans, no one else will.

Comment by Kobina Aidoo on March 21, 2012 at 4:09

Ibrahim -  I have two questions:

  1. I remember there was a spat in the press about the formulation and implementation (or lack of it) of that communication strategy. What's your take on that?
  2. Are there plans to turn the local content strategy into law?

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