22 February 2013

Uganda: Parliament Passes Second Oil Bill

Parliament Thursday moved a step closer to completing the oil law chain to govern the country's nascent oil and gas sector by passing a bill to regulate midstream operations.

The Petroleum (Refining, Conversion, Transmission and Midstream Storage) Bill, 2012 covers a whole range of issues pertaining to midstream operation in order to provide sufficient checks and balances and mitigate abuse of office and corruption.

The bill defines the powers of the sector minister and also compliance with environmental principles in an attempt to protect the environment from irreparable damage due to careless waste disposal.

Just like in the Petroleum (Exploration, Production and Development) Bill, 2012, the bill bestows upon the sector minister sweeping powers, including granting, suspending and revoking of licenses, besides initiating, developing and implementing policy concerning midstream operations.

Related to environmental protection from pollution, the bill deals extensively with disposal of decommissioned facilities like oil refineries and provides for deterrent penalties for things like oil spills.

The bill also delineates the functions of the Petroleum Authority and creation of a National Oil Company as is the case with other oil producing countries around the globe.

Because of the stiff competition between oil companies, the bill prohibits disclosure of information obtained while in employment of the sector ten years after leaving employment.

However, MPs sparred over a clause giving investors who build oil refineries 20 years to recoup their investments.

MPs Robert Ssebunya and James Kakoza said the 20 years was a fair time lag since investment in oil refineries is capital intensive, while Alice Alaso, Theodore Ssekikubo and Francis Epetaiti pushed for a scaling down of the years to 15.

"A child born today will go to school, graduate, get a job in the oil sector when the same investor is still recouping his investment. This tantamount to mortgaging the sector," Alaso said.

However, Minister of Energy, Irene Muloni, defended the 20 year time lag saying oil refinery facilities would be obsolete and therefore a financial burden to the government to take over, after expiry of a 20 year lease.

MPs had also stood over a clause providing for affirmative action in service delivery in the oil sector, until what constituted a Ugandan company was properly defined.

The clause which seeks to ensure that indigenous business people are not edged out of the lucrative sector mandates foreign companies to provide services in the sector after entering into joint ventures with local companies.

The oil legislative framework will be completed by the mooted Public Finance Bill which seeks to provide for the regulation of the management of revenues accruing from the industry.

Uganda has an estimated 3.5 billion barrels of crude oil of which an estimated 40% of this will be extracted in a period of 30 years.

Experts have predicted that oil is poised to double government revenue from USD$2.261 ounce full production gets underway.

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