Black gold: What investors should expect

According to the Oil Bill, the sector will be moderated by a minister who has been given special powers to oversee almost all activities in the sector as Angelo Izama reports.

Uganda’s infant oil sector is rearing for increased activity in the lead up to drawing its first barrel of oil from the ground.

Currently, the main transaction that will coalesce, the combined assets-putting the 2 billion barrels currently discovered, in the hands of a consortium is incomplete.
The three-way partnership of Tullow Oil, Total and CNOOC is awaiting signature to transfer the assets of wild cat explorer Heritage Oil.

This deal, according to Heritage, should be completed in the last quarter of the present financial year ending June. A hold-up on the transaction valued at Shs1.57 billion, according to informed sources, is the tax payable to the Ugandan government.

Heritage - sources say - has been “reluctant” to pay capital gains tax- approximately $400 million - on the transaction. In its annual report released recently - the company lists expected earnings of Shs1.5 billion and no liabilities.

Thus conceivably from June 2010, downstream activities could pick up with production schedules brought forward - and new licences considered.

The government of Uganda has also completed a draft Oil Bill which is expected to be presented before the Cabinet and Parliament in a matter of weeks.

Its proposals including- the creation of a National Petroleum Authority and a National Oil Company are the strongest indication yet, of the vision the government has for the oil industry.

For example - the sector will clearly be heavily politically supervised and tightly managed both for technical efficiency and the attainment of certain national goals including the participation of locals.
The draft was completed last month, a copy of which has been obtained by this newspaper.

The government has also migrated the financial aspects of the Production Sharing Agreements to amended sections of the Income Tax Act.

Read together with the new oil law [officially called the Petroleum (Exploration, Development, Production and Value Addition Act, 2010) - the activities of the oil companies and prospective investors will largely fall within the ambit of national laws and regulations.

The Petroleum [Bill], 2010
The current bill is probably one of the most expansive pieces of legislation in the docket. At almost 90 pages of it touches on a broad swathe of areas in the sector.

Besides establishing a regulator for the sector and a National Oil company, it covers licensing, regulates the commercial activities in the sector, deals with environmental issues, competition, payment of royalties and other levies, creates specific offences and provides for the winding down of the industry.

While providing specifically for pollution and damage from pollution - the law transfers in principle environmentally related matters to the National Environment Act.
It also places all petroleum rights in the hands of the government of Uganda on behalf of the “Republic of Uganda”.
The law will also repeal the present Petroleum (Exploration and Production) Act.

Licensing
Matters touching licensing will be moderated by the minister for the sector (meaning a minister designated for petroleum activities).