key insights into uganda's new oil laws

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Petroleum Exploration and Production DepartmentPetroleum Exploration and Production Department

Fred KabandaPrincipal Geologist and Head Regulatory Unit

Petroleum Exploration and Production DepartmentMinistry of Energy and Mineral Development

PRESENTATION AT A BREAKFAST MEETING WITH SENIOR EDITORS AND SUB EDITORS,

PROTEA HOTEL KAMPALA16th APRIL 2013

KEY INSIGHTS INTO THE RECENTLY PASSED PETROLEUM LEGISLATION

Petroleum Exploration and Production Department

PRESENTATION OUTLINE

1. Introduction

2. Key insights into the Petroleum (Exploration Development and

Production) Act, 2013

3. Key insights into the Petroleum (Refining,Conversion,Transmission

and Mid stream Storage) Bill, 2012

4. Way Forward

5. Conclusion

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1.0 INTRODUCTION

1.1 Mandate

The Constitution of Uganda (1995) vests oil and gasresources in the Government on behalf of the Republic ofUganda.

The Constitution mandates the Parliament of Uganda tomake laws regulating the exploration and exploitation ofminerals and petroleum.

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INTRODUCTION… CONT’D

1.2 What Legal and Regulatory Framework has run the sector;

i) The Petroleum (Exploration and Production) Act (PEPA), Cap 150, Laws of Uganda2000) which was enacted in 1985;

ii) The Petroleum (Exploration and Production) (Conduct of Exploration Operations)Regulations, 1993; and

iii) The Production Sharing Agreements (PSAs).

The above mentioned legal instruments worked well during the promotion andexploration phases but, as the country enters into the development and productionphases, the need for a new legislation to address the emerging issues in the sectorbecame apparent.

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INTRODCUTION CONT’D

1.3 New Legislation

The National Oil and Gas Policy for Uganda, February 2008 is beingoperationalized among others through legislation.

This resulted into the tabling of the following pieces of legislation inParliament;-(a) Petroleum(Exploration, Development and Production) Bill, 2012(b) The Petroleum (Refining,Conversion,Transmission and

Midstream Storage) Bill, 2012 and(c) The Public Finance Bill, 2012 covering petroleum revenue

management was tabled by the Ministry of Finance, Planningand Economic Development.

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INTRODUCTION… CONT’D

1.4 Status of the different pieces of legislation;

i) The Petroleum (Exploration Development and Production) Act,2013 was assented to on 21st March 2013 with itscommencement date being 5th April 2013.

ii) The Petroleum (Refining,Conversion,Transmission and Mid streamStorage) Bill, 2012 was passed by the Parliament on 21st February2013 and its awaiting ascent by the President.

iii) The Public Finance Bill, 2012 on revenue management which isbeing taken forward by the Ministry of Finance is currently atcommittee stage in Parliament.

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2.0 KEY INSIGHTS INTO THE PEDP ACT 2013

2.1 Institutional Framework

Petroleum Authority of Uganda to regulate the oil and gas sub-sector(Section 10 &11):

The National Oil Company to take forward commercial aspects of thesub-sector(Section 42)

Creation of a Directorate of Petroleum through restructuring under theMinistry to handle matters of policy. This Directorate will be under theoffice of the Minister.

The Minister will be responsible for negotiating, licensing, and revocation oflicenses.

Other institutions that play a key role in the oil and gas sub-sector, suchas NEMA , URA , etc. are being restructured to handle the increasingactivities.

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KEY INSIGHTS INTO THE PEDP ACT 2013 CONT’D

2.2 Licensing

The Minister is mandated to open up new areas for petroleum activities

Reconnaissance permit : A person intending to carry out reconnaissancesurveys shall apply to the Minister for a reconnaissance permit.

The permit shall remain in force for 18 months from the date of issue

Exploration licence: The Minister shall with the approval of Cabinetannounce areas for exploration licensing.

The duration for the exploration license is initially two years renewable twice for a period of 2 years each (2.2.2)

Licensing can be done stratigraphically.

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Production licence;The holder of a petroleum exploration license who has made a discovery has the exclusive right to apply for a production license

The production license will be for a period not exceeding 20 years but renewable for five years

Where the licensee who makes a discovery does not apply, competitive bidding shall be used.

Either case, acceptable FDP and PRR must be submitted and Production rates are controlled through production permits.

Permit to Operate a Drilling rig

Mode of Entry into a licenseAll licensing shall be done in a fair, open and competitive manner

Direct applications are provided for in exceptional circumstances such as in a situation where invitation for bids have been sent out three times and no application has been received.

LICENSING ..CONT’D

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KEY INSIGHTS INTO THE PEDP ACT 2013..CONT�’D

2.3 Environmental PrinciplesA licensee and any other person who exercises or performs functions, duties or powers under this Act in relation to petroleum activities shall comply with environmental principles and safeguards prescribed by the National Environmental Management Act and other applicable Laws.

The Act places liability for pollution damage on the licensee withoutregard to fault. The “Polluter Pays Principle” in environmentmanagement has been emphasized.

The Licensee is also liable for damage caused by a third party (Suchas a sub contractor) who is performing tasks on the licensee's behalf.

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KEY INSIGHTS INTO THE PEDP ACT 2013 ..CONT’D

2.4 State participation and National Content

a) State Participation;

The Government may participate in petroleum activitiesthrough:

a specified participating interest in a licence, or contract grantedunder this Act and

in a joint venture established by a joint operating agreement

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b) Provision of goods and servicesThe licensee, its contractors and subcontractors shall givepreference to goods which are produced or available in Uganda andservices which are rendered by Ugandan citizens and companies

Where the goods and services required by the contractor or licenseeare not available in Uganda, they shall be provided by a companywhich has entered into a joint venture with a Ugandan companyprovided that the Ugandan Company has a share capital of at least48% in the joint venture.

The licensee will be required to recruit and train Ugandans in allphases of petroleum activities

The licensee is required to submit a detailed programme forrecruitment and training of Ugandans.

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2.5 Health, Safety and Environment The licensee, his contractors, and sub-contractors

ensure the safety of any person employed or otherwise present at or in the vicinity of any installation; and

protect the environment and natural resources, including taking precautions to prevent pollution;

A licensee is prohibited from flaring or venting petroleum in excess of the quantities needed for normal operational safety without the approval of the Minister on the advice of the Authority.

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2.6 Decommissioning A licensee shall submit a decommissioning plan to the Authority;(a) before a petroleum production licence or a specific licence to install and operate

facilities expires or is surrendered; or(b) before the use of a facility is terminated permanently

A decommissioning fund shall be established for purposes of implementing activities approved in the decommissioning plan

2.7 Other AspectsThird Party Use of facilities; facilities may be shared to allow reduction of costs and proper planning.

Payments including Royalties, annual area fees, bonuses and Penalties will be collected by URA

Procedures for availing Information to the Public are provided

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3. KEY INSIGTS INTO THE PETROLEUM (REFINING,CONVERSION,TRANSMISSION AND MID STREAM STORAGE) BILL, 2012

3.1 BACKGROUNDObjective 4 of the National Oil and Gas Policy provides for promotion of valuable utilization of the country’s oil and gas resources while Objective 5 promotes development of suitable transport and storage solutions which give good value to the country’s oil and gas resources.

Government formulated a commercialisation plan for the discovered oil and gas resources.

The plan is to satisfy the national and regional petroleum products requirements before considering export options.

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KEY INSIGHTS INTO THE MID STREAM BILL,2012�…CONT�’D

3.2 OBJECTIVES OF THE BILLi) Promote the development of midstream petroleum facilities.

ii) Facilitate investment in Midstream infrastructure

iii) Regulate the development, installation, operation and maintenance ofMidstream facilities

iv) Provide for the security of Midstream facilities

v) Promote equitable access to Midstream facilities especially pipelines

vi) Ensure public safety and health, and protection of the environment

vii) Support the development of state participation and national contentin the petroleum industry of Uganda.

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3.3 Institutional arrangement(i)Minister:

The Minister to perform the role of policy setting and implementation. Issuing, renewing and revoking licenses with

approval of Cabinet.(ii) Petroleum Authority of Uganda (PAU) shall handle

regulatory aspects including;-Ensuring optimal utilisation of existing and planned facilities Reviewing and approving transportation and storage tariffs

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(iii) National Oil Company (NOC) to handle commercial interests of Government in the Midstream sub-sector which may include managing the Public shares in the refinery company.

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3.4 Licensing of Midstream FacilitiesAn application for a license shall be made to the Minister asprescribed in regulations

The Minister may require a licensee to make arrangementsfor the execution of a bond or other form of security

An applicant is granted the opportunity to appeal againstthe objection by the Minister for a license

A person aggrieved by the Minister’s decision may appealto the high court within thirty days

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LICENSING �…CONT�’D

The license to construct and operate a facility shall bevalid for twenty five years ( Initial five years forconstruction).After the 25 years, the license may be renewed for aperiod of five years at a time.The Minister will stipulate conditions to be fulfilled bythe licensee and these include;i) Access to available capacity in a facility by third

parties.ii) Sale of oil and gas products in order to provide

adequate supplies and competition to the Ugandanmarket.

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3.5 PETROLEUM PRICINGPricing of crude oil or raw gas shall take into account world marketpricing based on arm’s length principles

A licensee shall determine the gate price of petroleum products in amanner to be prescribed in regulations

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KEY INSIGHTS INTO THE MID STREAM BILL, 2012…CONT’D

3.6 HEALTH, SAFETY AND ENVIRONMENTAspects of environment shall be regulated by the National EnvironmentManagement Authority

Flaring or venting in excess of quantities needed for normal operationalsafety is prohibited

All facilities shall be designed and constructed so as to avoid any gas flaringor venting under normal operating conditions

Excessive flaring has to be with the approval of the Minister in consultationwith the Authority

Licensee is allowed to flare during emergencies above the normal operationlevels.

A licensee is required to submit a decommissioning plan to the Authority

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3.7 State participation and national content

Government prioritizes development of capacity ofUgandans to offer services and goodsThe licensee and his/her contractors are required to;

a) give priority to purchase of local products and servicesb) submit a detailed programme for recruitment and

training of Ugandansc) show commitment to technology and skills transfer to

Ugandans

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4. WAYFORWARD

1. The Petroleum Exploration and Production Act of 1985 has now beenrepealed by the Petroleum Exploration Development and Production Act,2013.

2. Proper and complete regulation of the sector requires an update of the regulations. The process for this update has commenced.

3. The petroleum midstream bill which was passed by Parliament is awaiting assent while the public finance bill is before Parliament

4. Regulations for the Petroleum Midstream will be newly written and the process of writing these regulations has started.

5. Many aspects of the new petroleum law were drawn from the current PSA’s. Revision of the model PSA will be undertaken before any future licensing.

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5.0 CONCLUSION

1. Implementation of the National Oil and Gas Policy is on-going. Updatingthe Legal and regulatory framework is progressing well.

2. Public Finance bill is being taken forward by the Ministry of Finance,Planning and Economic Development.

3. Preparation of regulations is on-going while revision of the model PSAwill be undertaken before licensing.

4. Implementation of the new set of legislation will among others streamlinemanagement of the sector, help in proper resource management but alsocreate employment and business opportunities to Ugandans in this newpetroleum sector.

5. Thank you for the support you have given in developing legislation. Welook forward to more of such support.

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Thank You

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Further Information;COMMISSIONERPETROLEUM EXPLORATION ANDPRODUCTION [email protected]

key insights into uganda's new oil laws

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