Oil Bills: Will they erase our doubts?

The hunt for oil in Uganda dates back to the early 1920’s when significant oil exploration was done by E.J.Wayland, a government geologist who documented substantial amounts of hydrocarbons in the Albertine Graben. This discovery was later to be followed by the first ever drilling of wells in 1938, in which some hydrocarbons were encountered, but no testing was done on this new discovery. However the hunt did not stop there as later on in the 1940’s and 1950’s further exploration was carried out and several shallow wells were drilled mainly for stratographic purposes. Despite having vivid signs of the country acquiring its newly found wealth, Uganda was affected by World War II. The war had an adverse impact on the oil discovery; its impact was greatly felt as the next sound of oil in Uganda was not going to occur till the early 1980s, which saw the acquisition of aeromagnetic data across the entire Graben region.

Insights. After a long wait, and failing to beat the parliamentary deadline of November 30, 2011, government last month tabled two important oil Bills in Parliament. And as MPs embark on a process of turning the Bills into law, Saturday Monitor’s Isaac Imaka, in a two-part analysis, looks at what the Bills provide and whether the long awaited law will save Uganda from the oil curse.

The Petroleum (Exploration, Development, and Production) Bill 2012 was the first Bill to be tabled. The Bill is to be a law governing the exploration of minerals and the sharing of loyalties arising from mineral exploration.

It aims at regulating petroleum exploration, establish the national oil company, regulate licensing, and create a good environment for the promotion of exploration, development and production of Uganda’s petroleum potential.

But does it cut the ice in addressing what it is meant to?
Experienced lawyers, scholars, and analysts say that although it is an improvement of the previous oil laws and the existing legal regime, it leaves out important issues and grants the President and his ministers more powers than the Petroleum Authority created to manage the oil resources

They also point that the Bill, will not solve the current demand by Ugandans that the government make public the agreements its signs with oil companies on their behalf.
Prof Jenik Radon and Ms Marie-Pauline Jeansonne, both scholars at Columbia University, School of International and Public Affairs, say in their critique of the Bill, that although the law is intended to create a sound and sustainable legal environment for the development of the oil industry in Uganda, it gives so much powers to the Minister but doesn’t give guidance as to how these discretionary powers are to be exercised in order to provide increased confidence.

“Lack of guidance increases uncertainty in investors, since it is more difficult to predict how authorities will act exante and the investors and their financing banks and other financial institutions require such assurance in order to make long term significant investments.”

To the sector players, one of the most worrying provisions in the Bill is section nine, which provides that the minister shall be responsible for granting and revoking licenses, negotiating and endorsing petroleum agreements promoting and sustaining transparency in the petroleum sector among other things.

Although Section 10 of the Bill creates a petroleum authority as a corporate body with perpetual succession, the Authority is not independent from external influence and indeed going by Section 14, the minister may give directions in writing to the Petroleum Authority with respect to the policy to be observed and implemented by the authority and the Authority shall comply with these directions.

“There seems to be an inconvenient marriage between different legal regimes or jurisdictions,” says a Kampala lawyer, Shem Byakagaba.
“What these guys have been doing is that you look at Ghana, Norway, Kazakhstan and Libya and put all this together.”

In their analysis of the Bill, Global Witness, an international body that pushes for good management of natural resources, says such an arrangement leaves the Authority susceptible to control by the Ministry, threatening its independence.
The legislation also establishes the authority as a body corporate, which raises the ambiguity as to whether it will have the same responsibilities as other arms of government.

Other powers
The Bill also grants decision-making powers to several entities and authorities, but fails to establish an adequate system of checks and balances to monitor the exercise of those powers.

As Prof Radon and Ms Jeansonne say, the Bill should specify the criteria against which the Minister is required to exercise his or her powers.
This would, for example, specify a bidding process which obliges the decision maker to accept the highest bid for the natural resources, while at the same time complying with the most stringent safety and environmental standards, which are common in developed nations such as Norway, US and EU member states.

The Columbia University scholars argue that no single person can be reasonably expected to simultaneously achieve all of the functions granted to the minister, let alone balance them appropriately.

“Expertise for regulating these functions should lie with the most relevant, preferably expert, administrators, and need to be granted to co-equal Ministries or authorities as part of an institutional checks and balances system, a time-tested approach accepted throughout the world,” they say.

This unchecked power by the minister also undermines the institutions that the Bill seeks to create One notable aspect of the Bill is the absence of a role for Parliament in the management of the oil resources.