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Oil bill “well thought out” but “blurry” in places, international expert says

The  Petroleum (Exploration Production and Development) Bill currently being reviewed by the Natural Resources Committee of Uganda’s parliament is “detailed, well thought out and covers a lot of bases” but contains some ambiguities and in some respects is “tilted in favour of oil companies,” an international expert told civil society representatives in Kampala on Thursday.

Douglas Nordlinger, a lawyer who has specialised in the energy sector for many years and who advises the Government of Southern Sudan on oil affairs, was speaking to a meeting convened by the Advocates’ Coalition for Development and Environment (ACODE), one of Uganda’s leading NGO think tanks.

“Oil companies will like the Bill because it gives a legal foundation for the rights that they have to be in Uganda, it gives them predictability for their investments, and it’s quite well articulated,” Mr. Nordlinger said.  However, he added, the Bill as a whole “tilts in favour of confidentiality rather than transparency” and “tilts in favour of the oil companies.”

The structure of the proposed Petroleum Authority is “unusual,” according to Mr. Nordlinger.  “If it’s because of checks of balances, to keep out political influences, that could be a good thing,” he suggested.  “But it might also cause blurring of responsibilities and accountability . . . so if something goes wrong there could be a lot of finger-pointing.”

Mr. Nordlinger welcomed the proposal to establish a National Oil Company (NOC), describing it as “a way of developing human and resource capital in the industry, ensuring that Uganda has a platform to participate, and also a way to ensure that Uganda gets a bigger share . . .  The powers are there to require that in each block the [international] companies must make room for the NOC and allow the NOC to have a share of the production.”

But, he cautioned, “If there isn’t transparency and oversight over the NOC it could become a money bug. The bill is very ambiguous on the kinds of contracts [the NOC] is allowed to enter into, and it is totally silent on how the board is selected.   There ought to be stronger rules governing the National Oil Company. Reporting to parliament would be a good idea.”

However, Mr. Nordlinger rejected the idea that parliament, rather than the government of the day, should grant exploration and production rights.  “I don’t think it’s a good idea to have parliament involved in awarding of licences,” he said.  “I don’t see parliament as institutionally capable or the right kind of organisation to get involved in the awarding of licences.”

Mr. Nordlinger also praised the bill for requiring exploration licences “to be put out for competitive bidding on a non-discriminatory basis.  That’s really important and really good.”  But he raised concerns about clauses that empower the minister in charge of oil “to award blocks on a privately negotiated basis in exceptional circumstances.”  Such circumstances, Mr. Nordlinger felt, should be more clearly spelt out in the bill.

In additional comments, he suggested that “It would be good to have the tax regime specified in law rather than in Production Sharing Agreements (PSAs.)”  PSAs, he pointed out, are usually “long and elaborate, filling a number of gaps in the statutes.”   They specify the division of ‘profit oil’ between the government and an oil company.

Mr. Nordlinger also drew attention to a clause requiring the minister, before opening an area for exploration, to allow “up to 90 days” to receive and consider objections from the public.   Ninety days, he pointed out, is explicitly a maximum period; a minister would in practice be empowered to shorten the period for public comments.  Even 90 days, he suggested, might too short to allow for coherently formulated objections.

In addition, he argued that the bill’s “definitions of pollution are very narrowly defined and they need to be expanded.”

Downstream risks

Weaknesses concerning environmental protection were further highlighted in a presentation by Makbul Rahim, a lawyer and policy analyst who serves as legal adviser to the Commonwealth Secretariat and to ACODE. His presentation mainly addressed the Petroleum (Refining, Gas Processing, Transportation and Storage) Bill.

“In the bill there is a provision for NEMA [the National Envrionmental Management Authority]to give a licence for waste management,” Mr Rahim noted. “But it is not clear why this is the one environmental issue to be singled out for specific inclusion.  There is a whole host of environmental permitting that should be made obligatory.”   In addition, he pointed out, the decommissioning of midstream infrastructure such as oil refineries and pipelines is a much more costly and lengthy process than decommissioning an oil well.

Mr. Rahim also emphasised the need for adequate capacity and resources for the Petroleum Authority and the National Oil Company.  “NOC is not only to take a stake in the upstream, but also in the downstream; but there is a lot of unclarity around the financing of the NOC. How is it to be financed?”

If the NOC engages as a joint-venture partner in upstream exploration and production, Mr. Rahim he said, “it is shielded by the [international copany] operator—it knows what cut it is going to get.”  Yet in downstream activities there are “many commercial risks and liabilities.”

Report: NY