Regulatory Overhaul Continues As Above Ground Risks Remain

BMI View: The p assage of a Petroleum Bill in Uganda is likely to preserve the status quo and could deter those companies that have shown interest in the nation ' s nascent oil sector. The passage of a bill should also pave the way for the issuance of new licen c es. However, regulatory roadblocks have already caused production targets to slip and an important next test will be the successful overhaul ing of the country's downstream sector. Although foreign players remain interested in tapping the country ' s oil potential, above ground risks stemming from the poor regulatory environment could see investment flow elsewhere in the region.

The passage of a new oil law in Uganda paves the way for an end to a moratorium on new licensing round s in the country, where recent discoveries have attracted significant foreign interest from those companies that are keen to tap the country's increasingly lucrative reserves. The new Petroleum Bill, which covers exploration, production, and development, will now be sent to the President upon its approv al in Parliament, and he is expected to sign the measure into law after ushering legislators to pass the bill . The p assage of a bill to manage the country ' s upstream, will allow additional law s to be passed that will overhaul downstream regulations and the management of oil revenues. Work on the downstream bill is expected to begin almost immediately.

In the upstream, n ew regulatory bodies, including the Petroleum Authority of Uganda (PAU) and National Oil Company (NATOIL) , wi ll be established to manage upstream development. These bodies will be joined by a Directorate of Petroleum. Meanwhile, NATOIL will manage the state ' s commercial interest s in the oil sector, while the PAU will oversee regulatory compliance.

The bill itself was political ly controversial, due to c oncerns - voiced by Parliamentary opposition parties - that too much authority was given to the energy m inister under Clause 9. The provision in question would give the energy minister a host of discretionary powers, including the authority to grant or revoke oil licences , which opposition party and outside observers have said would limit necessary Parliamentary oversight. An original compromise to strip the minister of some of his expanded authorities was ultimately left out of the final version of the bill that passed through parliament .

Further consolidation in the hands of the minister, will do little to ease concerns about pervasive corruption in the oil sector, with amendments that would have meant parliament would be needed to approve both licenses and the appointment of senior oil sector officials now removed.

Regional Oil Activity Picks Up
Oil Permits In The Lake Albert Region, Central Africa

Regulatory Hurdles To Country's Allure

To date, the largest obstacle to commercialising Uganda's recent oil discoveries has been disagreement between international oil companies (IOCs) and the government over a proposed refinery. The government wants IOCs to increase their funding for a proposed 150,000 barrel per day (b/d) refinery to supply the domestic and regional markets. The partners have stated that they would prefer to invest in a smaller 20,000b/d refinery and a US$5bn pipeline that would transport crude oil to the Kenyan port of Mombasa for export.

Without an existing refinery, Uganda has been forced to rely on expensive fuel imports, which could be eliminated if a larger refinery is built. However, commercial partners say they would struggle to find enough regional demand to make exports tenable ( see our online service, September 7 2012, 'Regulatory Roadblocks Could Delay Oil Industry Development,').

Low Domestic Consumption Supports Exports
Uganda Oil Consumption (in '000b/d)

Disagreement between commercial partners and the government over how best to proceed in the downstream means the upcoming legislation covering this sector will be of critical importance. As we recently noted, regulatory delays have already caused production targets to slip, with Total pushing the date for first oil from its acreage back from 2016 to 2017 ( see, Despite Production Delays, Total Eyes More Acreage,' October 1 2012). Statements from the company suggest even this date is not a certainty.

However, we have also noted that despite these obstacles, Total has been considering acquiring further stakes in Uganda, highlighting the allure of the country's underexplored acreage. Yet with oil and gas exploration booming across East Africa, Uganda's failure to develop an attractive business environment could mean exploration and investment are channelled elsewhere in the region, causing the country's nascent oil sector to fail to meet its potential.

This article is tagged to:
Sector: Oil & Gas
Geography: Uganda

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