The oil and gas sector will work best with separation of roles

It is important to distinguish the roles of the different institutions proposed under the law. The best practice would be that, policy is handled by the Minister, regulation by the Authority and commercial aspects by the national oil company.

Towards the end of 2012, there was a deadlock between the Executive and Parliament on Article 9 of the Petroleum (Exploration, Development and Production) Bill (now Act), 2012. We would like to clarify some technical issues related to the best practice in operations of the petroleum sector.

The proposal by some MPs to give powers to grant and revoke a license to the proposed Petroleum Authority of Uganda was against the principle of separation of roles in the operations of the sector.

It is important to distinguish the roles of the different institutions proposed under the law. The best practice would be that, policy is handled by the Minister, regulation by the Authority and commercial aspects by the national oil company.

Conferring the powers to grant a license to the authority is bound to weaken its role as a regulator. The authority may not effectively audit the performance of conditions set by itself in the license. In addition, mixing regulatory work with policy may cripple one role, yet all are equally important in order to maximise value from the petroleum sector.
The apparent argument of the MPs was that the Minister would sit in her/his office and grant or revoke a license. However, this is not tenable because a Minister does not work in isolation. The Minister works with a team of technical officers who advise on technical conditions of granting or revoking a licence. A license is a tool that the Minister or government uses to ensure that Uganda maximises the benefits from oil and gas.

Benefits related to delineation of the acreage, data management, promotion, ensuring local content, use of appropriate technology, financial competency of the company, technical abilities, joint ventures, work programmes, meeting domestic market obligations and employment of nationals. All this work under the ambit of policy should therefore be done by the Minister.

All the above activities have timelines in terms of performance actions, outputs to be achieved, type of technology to use, standards to apply, number of Ugandans to train and employ in the sector, production profiles, cost recovery according to an agreed formula, sharing of petroleum according to the right formula and ensuring that environment, health and safety rules are followed as stipulated in the license. This is the work of the petroleum regulator. Heaping all the work including the determination of what to license, where to license, deciding on the terms of the license, and analysis of the financial and technical capacities of the license, in addition to its role of regulation becomes an enormous task for the Authority.

There is need to trust our institutions to deliver functions for which they are earmarked for. In our opinion, giving the Minister powers to grant or revoke a license is not because the Minister seeks control over licensing, but rather it is the best practice that allows institutions to specialise in their respective roles. It allows checks and balances, accountability and clear lines of responsibility between the institutions.

Parliament on the other hand exercise their oversight role by requiring the Minister by statutory authority/command to periodically prepare and lay a sector report before the House, on all matters related to the industry.

You may also note that granting and revoking a license is not just analysis of the technical conditions set by the license. Other factors may be considered, for example the foreign policy of the country, values and activities of the company, need for global participation and country customs. This is in line with the fact that petroleum is a strategic and critical resource. Therefore strategic decisions should be left to the Executive so that the Minister takes absolute political responsibility.
On the other hand the Executive has already exhibited utmost good faith by enunciating the Oil and Gas policy for the country. This level of transparency and accountability ought to be supported, nurtured and demonstrated in the regulatory framework, being instituted for the hydrocarbon sector.

Mr Noah K. Kanzira, a member of the Oil and Gas Association of Uganda also contributed to this article.