NIGERIA – As expected, the ruling National Resistance Movement (NRM) in Uganda has used its overwhelming majority in parliament to pass the country’s controversial Petroleum (Exploration, Development, Production) Bill that prepares the East African nation to move from oil exploration to production between 2014 and 2017.

The bill passed along with another one – the Petroleum (Refining, Gas Processing, Conversion, Transportation and Storage) Bill. Both bills were introduced in parliament in February 2012 to give legal effect to the national oil and gas policy that was approved in 2008.

The objects of the bills are to regulate all aspects of the petroleum industry, establish the Petroleum Authority of Uganda, provide for the national oil company, regulate the licensing and participation of commercial entities in petroleum activities, and provide for an open, transparent and competitive process of licensing.

But the bill attracted fierce opposition because of Clause 9 that gave exclusive authority to negotiate, grant, and revoke exploration and production licenses, issue policy and regulations, and approve field development plans to the minister responsible for petroleum.

Several Ugandan and international experts viewed this as excessive concentration of executive power in the hands of the minister and could lead to bribery and corruption, and lack of a transparent and competitive licensing.

The clause generated acrimonious debates among members of parliament. After months of public consultations, workshops and negotiations between the executive branch and parliament, amendments to Clause 9 were passed and the minister’s powers were diluted in the second reading on Nov. 12, 2012.

Fears Of Corruption

Power over licensing and field development plans were passed to the Petroleum Authority in the amendments, although the minister was left to sign agreements by issuing certificates of approval. The Ugandan government initially accepted the amendments but later insisted that the initial powers of the minister as specified in Clause 9 be re-introduced in full in the bill.

Opposition against Clause 9 stemmed from the fact that corruption is so rife in Uganda and the minister may misuse the powers.

International observers and Ugandans have cause to worry in that they won’t want to see Uganda’s government and its cronies squander the country’s oil revenues as it is happening in Nigeria, where many of its citizens say that oil has becomes a curse rather than a blessing.

Uganda’s oil, the observers said, should be used to contribute to early achievement of poverty eradication in the country of about 34 million and to create lasting value to its society.

Allegations of corruption in Uganda, especially in government, led to the suspension of aid from the governments in the United Kingdom, Ireland, Norway, and Denmark over the suspected embezzlement of donor funds earmarked for post-war reconstruction in northern Uganda.

Transparency International announced in August 2012 that Uganda was the most corrupt country in East Africa.

Clause 9 was finally retained in the final version of the bill passed on Dec. 7 when 149 members of parliament voted in favor and 39 against. Five MPs from the ruling NRM defined the party whip by voting against it. Reports said more than 100 NRM members were absent when the bill was passed. Observers interpreted this as evidence that they opposed the bill and didn’t want to be seen as approving it.

“Giving that much power to the minister leaves no room for public scrutiny and would eventually lead to corruption,” said Kizza Besigye, leader of Uganda’s main opposition, the Forum for Democratic Change (FDC).

National Oil Company

The bill also established a national oil company to advance Uganda’s interest in the oil sector, and a Petroleum Authority as the industry regulator. It provides for national content under which preference shall be given to goods that are produced or available in Uganda. Services that are rendered by Ugandan citizens and companies, training and employment of Ugandans, and technology transfer are also stipulated in the bill.

The passage of the bill, which becomes law when signed by President Kaguta Museveni, means that international oil companies (IOCs) that have done exploration work can now move into production activities.

Ernest Rubondo, commissioner of the Petroleum Exploration and Production Department, said Uganda would start oil production within two years, while a mini-refinery would be operational in 2017.

Rubondo said at an oil conference in September that Uganda’s oil reserves had increased to 3.5 Bbbl and could pass 10 Bbbl of oil.

A total of 77 oil wells have been drilled in Uganda and 70 have encountered oil and gas, he said, adding that Uganda is probably one of the cheapest countries in which to drill for oil.

Oil industry experts say at least six oil blocks and 10,000 sq km (3,861 sq miles) of acreage will be available for licensing in Uganda now that the bill has been passed. Tullow Oil, Total, and China National Offshore Oil Corp. (CNOOC) are expected to start producing oil in Uganda between 2014 and 2017. Lukoil also has expressed interest in Uganda’s oil after a visit to Russia the week of Dec. 12 by Museveni.

International watchdog Global Witness urged the government of Uganda to join the Extractive Industries Transparency Initiative (EITI) and publish all incoming oil payments particularly now that the United States has passed legislation that requires all US-listed extractive companies to disclose payments made to foreign governments. Total and CNOOC are listed on the New York Stock Exchange.

Uganda has not committed to EITI though reports say the 2008 Oil and Gas Policy made provisions for steps toward implementing EITI.

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