Tuesday November 6 2012

No private entity should manage oil - MPs insist

An unidentified person looks closer at oil pipes at an Oil machines unit Kigogole well in Hoima District.

An unidentified person looks closer at oil pipes at an Oil machines unit Kigogole well in Hoima District. PHOTO BY ISAAC IMAKA. 


A government plan to essentially cede control of the country’s oil resources to purely private interests continues to attract opposition even as Parliament today is expected to enter the final stages of drafting key legislation under which the sector will operate.

MPs arrive at Parliament this afternoon to consider the Petroleum [Exploration and Production] Bill as debate rages on how to form the National Oil Company (NOC), with politicians and oil activists saying that establishing it as a private concern under the Companies Act as proposed by the government will hurt the public interest in the oil sector.

According to industry watchers and politicians who spoke to Daily Monitor yesterday, if formed under the Companies Act, the company will have private directors and shareholders and be beyond necessary Parliamentary scrutiny.

It would report to the registrar of companies through its annual filings, not to the Parliamentary committee on Corporations Statutory Authorities and State Enterprises unlike other entities charged with overseeing national interests, which are established as parastatals.

MPs warn that this attempt to lock out the public is especially unusual considering that oil is a key national resource which has been earmarked by the government as the engine of growth to propel Uganda into becoming a ‘first world’ country in the next 20 years.

“Forming the company through the Companies Act is an indicator of sinister motives and some hidden motives. The company will be at liberty to run the way it wishes because it is a private entity. Parliament will not have an opportunity to have an input through legislation,” said Mr Gerald Karuhanga (Indep. Youth Western).

“We need a company which accounts and reports to Parliament. If we mess up the oil company, we would have messed up the entire oil sector.” Monopoly autonomy
Mr Karuhanga is also a member of the Parliamentary Forum on Oil and Gas, a coalition of MPs that has proposed a host of changes to the current Bills.

Energy ministry
But the ministry of energy argues that the proposal against forming the NOC through the Companies Act is unacceptable because the National Oil and Gas policy 2008 already provides for a company to be established under the Companies Act.

The ministry gave its stand to the House Natural Resources Committee during a secret meeting in Lweza in July. “It should be emphasised that the NOC be formed under the Companies Act to secure government from liability because the risks involved in the industry like huge compensation claims involved,” a document containing the ministry’s responses reads. “The NOC should be incorporated under the Companies Act so that liability is limited to government shares in the company.”

It continues: “Oil companies raise capital through trading of shares on stock exchanges worldwide. The Capital Markets Authority can only list entities incorporated under the companies Act and limited companies are quicker in decision making and therefore often more efficient.”

But Mr Shem Byakagaba, a city lawyer who has been advising the parliamentary Forum on Oil and Gas on legislative matters, says while deciding on the oil company in terms of oversight and governance, government should take into account the country’s history. “As a state corporation, Parliament has leverage to determine in great detail how the company operates. Norway moved between state corporation and a private company.”

Mr Angelo Izama, an Open Society Fellow studying the political economy of oil and gas in East Africa, says “given our past and current experience with corruption and respect for institutions, Uganda’s National Oil Company should be wholly owned by government with direct scrutiny from Parliament.”

Mr Izama warns that if MPs allow the company to be formed through the Companies Act, chances are high that rich government officers could sell shares to themselves and the end result will be the country’s oil mortgaged to a few individuals who will decide when and how the proceeds should be given to the rest of the Ugandans.

Mr Byakagaba agrees with Mr Izama’s analysis and notes that if the NOC is formed as a private company it means that it could declare shares and invite shares holders outside government, and it could then easily be handed over to the private sector. There are separate fears that a privately-owned entity with tradeable share would be the perfect conduit for laundering ill-gotten wealth.

At a strategy meeting convened in Speke Resort Munyonyo a fortnight ago, MPs resolved that instead of asking government to bring a separate Bill on the Oil Company, the Bill should be divided into two parts.

First things first
The MPs want the first part to deal with the resource management and the general principals of petroleum management and the second part to deal with the proposed Petroleum Authority and but also provide for in detail the provisions of the NOC.

The MPs also resolved in Munyonyo to support an amendment which would tie into the law a requirement that the NOC be a purely state-owned corporation. In Angola, the National Oil Company, Sonangol EP, is a state owned coroporation. But despite having the government as the sole shareholder, Sonangol has always been run as a private company but is under strict performance standards to ensure efficiency and productivity.

In Ghana, the Ghana National Petroleum Company is also state owned. While forming it in 1985, technical assistance was sought from Braspetro, the international subsidiary of the Brazilian Petroleum Corporation [Petrobras].

Whereas the proposed Bill doesn’t say how Uganda’s NOC will be run, in Ghana the corporation is run by a seven-member Board of Directors appointed by that country’s government which exercises supervisory responsibility over the corporation’s operations.