Thursday, December 1, 2011

The Contextual Frame work in Oil in Uganda

While making a Strategic plan for a certain CSO, I researched on the The General Context of O & G in Uganda and the following is an abridged version that is helpful for others:


 

1.0 General context on Oil in Uganda

Oil and gas are non-renewable extractive resources which are therefore finite. Their exploitation and utilization must therefore be undertaken in a manner that creates durable and sustainable social and economic capacity for the country. The oil and gas resources have the potential to provide immense benefits to the country through creation of employment, generation of revenues, development of lasting infrastructure, and subsequently fast-tracking socio-economic transformation of the country.

Oil and gas resources and revenues accruing from them can also pose challenges of the revenue windfall phenomenon and the paradox of plenty if not well managed. While these issues have documentary evidence as priority areas for the Government of Uganda, the current continued over concentration by government on marketing the petroleum potential outside the country, while keeping oil deals out of sight to citizens, other than adequately providing information on oil and gas sector activities and guaranteeing sufficient citizenry participation in the governance of the petroleum industry has compelled NGOs formation and interventions.

Oil exploration in Uganda is old. The first oil well is reported to have been drilled at Waki 1 in current Hoima district in 1938. However, the discovery of commercially viable quantities is since 2006. Remarkable progress has since 2006 been made, leading to confirmed oil deposits estimated at over 2 billion barrels; allowing commercial production of up to 20 years at a production rate of 100,000 barrels per day.

Owing to the quantities found, Government has initiated processes to build refinery capacity. In 2008, government proposed an early production scheme (EPS) which was vehemently opposed by civil society and other stakeholders on the account of environmental impact and non commercial viability. Government has, on the other hand continued with feasibility studies, including consideration of a fully fledged refinery and pipelines.

Oil exploration is taking place within the Albertine Graben which is host to the Great Lakes richest biodiversity and conservation jewels. The region is also part of the historical cultural institutions such as Bunyoro Kitara Kingdom, Toro Kingdom, Acholi and Alur chiefdoms and other diverse ethnic groupings. The region is therefore ecologically and culturally volatile.

In July 2010, a report about the profound economic dynamism and transformation going on in African economies, McKinsey Global Institute (MGI); a reputable global economics and business research organisation categorized Uganda among what it called "Transition Economies". These countries according to MGI are the third best group of economies after what it called "Diversified Economies" which have the most sustainable growth rates and the second category "Oil Producers", which it says have the highest per capita GDP and growth prospects but have the least developed manufacturing and service sectors.

The report notes, "Several transition economies are likely to increase their resource exports in the coming years, which could turbo-charge growth. Ghana and Uganda, for instance will benefit from recent oil finds, generating additional revenue that, if invested wisely, could spur further diversification."

The discovery of oil has generated excitement, hope as well as anxiety among the various stakeholders in the country and beyond. While there is optimism that oil revenues could spur exponential growth and development in the country, there is also skepticism that the arrival of oil could worsen the existing tensions and political as well as ethnic fragmentation at national and sub national level.

Whereas the Government is moving to put in place the requisite legal and institutional framework for petroleum governance, there is need to appreciate and deal with such conflicts that are instigated by oil.

Policy, Legal and Institutional framework for Oil Governance in Uganda

Oil and gas management cuts across policy areas of taxation and revenue management, government accountability, corporate regulation, environment, land security etc., so it is vital to recognize that there are other existing laws relevant to the overall framework for managing the new sector, apart from those that directly cover the upstream, midstream and downstream phases of oil and gas industry.

  1. Constitutional Provisions and related legislations

Ownership and control of minerals and petroleum in, on or under any land or waters in the country is vested in the Government on behalf of the Republic of Uganda. The Constitution empowers Parliament to make laws regulating the exploration and exploitation of minerals and petroleum, the management of accruing revenues, payment of indemnities, and the conditions for the restoration of derelict lands.

  1. The National Oil and Gas Policy (NOGP), 2008

The Oil and Gas Policy 2008 was approved by Cabinet in January 2008. This policy superseded The Energy Policy for Uganda published in 2002 and stands as the current overarching governance framework for the exploration, development, production and utilization of the country's oil and gas resources.

The Policy Goal is to use the country's oil and gas resources to contribute to early achievement of poverty eradication and create lasting value to society.


 

The National Oil and Gas Policy 2008 identifies the following issues for the country with regard to the petroleum sub sector:-

  1. Development of institutions, including legislation and manpower, necessary for effective management and regulation of the sub-sector.
  2. Establishment of the country's oil and gas resource base so as to facilitate short, medium and long term planning for the sub-sector.
  3. Management of the country's oil and gas resources together with the revenues accruing therefrom, in a manner that facilitates sustainable development and avoids distortion and destruction of the nation's economy.
  4. Managing the impact of an emerging oil and gas sub sector on, among others, the country's governance system, the economy, the environment and subsequently human development.
  5. Contribution of oil and gas resources to the country's energy mix.
  6. Ensuring that the country provides a conducive environment for attracting the levels of investment required to establish the country's resource potential and facilitate its development.
  7. Participation of the country's private sector and its entrepreneurs in the oil and gas activities.
  8. Management of expectations, arising out of the perceived benefits of oil and gas activities, together with the anxiety arising from some experiences of poor management of this sub-sector in other parts of the world.

The Policy Principles are:

  1. Using finite resources to create lasting benefits to society;
  2. Efficient Resource Management;
  3. Transparency and Accountability;
  4. Protection of the Environment and Biodiversity;
  5. Spirit of Cooperation; and
  6. Capacity and Institutional Building;


 

In effect, the Government has pursuant to the 2008 Policy, moved to operationalize the Policy by undertaking the following key actions:

  1. Developing a new petroleum legal framework that will include the emplacement of a Resource Management Law, and a Revenue Management Law.
  2. An efficient Resource Management system is also being put in place through the creation of a sound Institutional Framework which separates Policy Setting and Business Promotion from Regulation of the Industry and Commercial Businesses. This will lead to creation of a Directorate of Petroleum in the Ministry responsible for Oil and Gas; a Petroleum Authority of Uganda; and a National Oil Company.
  3. Ensuring optimum national participation in oil and gas activities to cater for the local content. This will include having Ugandan nationals and enterprises participate in the provision of goods and services to the industry.
  4. Development of a communication strategy to bridge the communication gap between the oil and gas industry and the general public.
  5. Formulation of a Petroleum Fund which will house all revenues from the oil and gas sector and use of funds on projects which create durable wealth. In addition Royalties from oil and gas will be shared by all stakeholders.
  6. Development of specialized skills required in the oil and gas industry through the establishment of training institutions. The new Uganda Petroleum Institute at Kigumba is a case in point.

The policy underpins the importance of transparency and accountability towards stakeholders in handling all aspects of natural resource management.

  1. Other Related Laws:
  2. The Petroleum (Exploration and Production) Act, Chapter 150
  3. The Petroleum (Exploration and Production) (Conduct of Exploration Operations) Regulations, 1993,
  4. The Petroleum Supply Act, 2003;
  5. The Mining Act, 2003;
  6. The Mineral Policy of Uganda;
  7. The National Oil and Gas Policy 2008;
  8. The National Environment Act;
  9. The Land Act, 1998
  10. Access to Information Act, 2005
  11. National Environment Act, Cap. 153
  12. Investment Code Act, Cap. 92
  13. Penal Code Act, Cap. 120
  14. Income Tax Act, 2002
  15. Wildlife Act, Cap. 200
  16. National Forestry and Tree Planting Act, 2003
  17. Public Health Act, Cap. 281
  18. Water Act, Cap. 152
  19. Public Procurement and Disposal of Assets Act, 2003

All the above provide the legal and regulatory framework under which the Government explores, licences, regulates and generally manages the oil and gas resource in Uganda. Some are core legislations others are secondary, and many are overdue for review to take care of the emerging challenges and the opportunities. Cognizant also of the proposed Petroleum (Exploration, Development, Production and Value Addition Bill, and the expected revenue management bill. More related legislations are likely to be proposed in respect of all affected sectors.

  1. Linkages of the Oil and Gas Sector to the National Development Frameworks

The plans for the energy sector are contained in the National Development Plan (NDP) for 2010/11 to 2014/15, whose implementation began at the start of the FY 2010/11. The NDP lists oil and gas among the "Primary Growth Sectors" i.e. the sectors which produce goods and services

According to the NDP, the following phases will be crucial for the development of the sector.

  1. Upstream operations include exploration and production;
  2. Midstream operations involves transportation and refining;
  3. Downstream operations include distribution and marketing.

Overall, the NDP lays emphasis on good governance and citizen participation. The Plan sufficiently anchors the oil and gas sector in the planning and management of the country for the next five years. CSCO should therefore leverage these provisions and position itself to be a major player in the implementation and monitoring of Government processes in the sector.

2.0 CONTEXTUAL ANALYSIS

2.1 General context

Oil and gas are non-renewable extractive resources and their exploitation and utilization must therefore be undertaken in a manner that creates durable and sustainable social -economic capacity for the country. The oil and gas resources have the potential to provide immense benefits to the country through creation of employment, generation of revenues, development of lasting infrastructure, and subsequently fast-tracking social transformation of the country.

Oil and gas resources and the revenues accruing from them can also pose challenges of windfall revenue phenomenon and the paradox of plenty if not well managed. While these issues have documentary evidence as priority areas for the Government of Uganda, the current continued over concentration by government on marketing the petroleum potential outside the country, while keeping oil deals out of sight to citizens, other than adequately providing information on oil and gas sector activities and guaranteeing sufficient citizenry participation in the governance of the petroleum industry has compelled CSCO's formation and interventions.

2.2 Country Development Context

Uganda remains a poor third world country, with some of the worst social indicators. The country has one of the highest population growth rates in the world at 3.2% per annum. According to the Uganda Bureau of Statistics report 2008, 25% of the population lives below the poverty line, although this figure is a national average aggregate in the face of regional development disparities, with the Northern region reported at a poverty level of 46%. Uganda's per capita income is a paltry US$506, recorded in FY 2008/09 and projected to rise to about $850 in 2014/15.

Over 75% of the people of working age are employed or derive their livelihood in agriculture, where they mainly produce for their own consumption using crude technologies with little or no surplus for sale, although most of the food crops are also sold to obtain an income. The majority of the people below the poverty line are children, women, persons with disabilities (PWDs), the elderly, people living with HIV/AIDS (PLHA), and Internally Displaced People (IDPs).

Since 1997, the Government of Uganda has committed itself to eradication of poverty. A Poverty Eradication Action Plan (PEAP) was formulated and put in place to re-orient government plans as the overarching planning and national development framework. Upon PEAP, national budgets became more poverty-alleviation focused. The PEAP became the framework through which resources are allocated from the centre to the local level. Building on the successes and challenges of PEAP a more coherent and focused National Development Plan (2010) was formulated and its implementation commenced with the Financial 2010.

Decentralization Policy in Uganda has been implemented since 1993. In 1995, the policy was given a legal and institutional framework through the constitutional making processes. Article 176 (1) of the Republic of Uganda Constitution 1995 provides that the system of Local Government in Uganda shall be based on the district as
a
unit under which there shall be such lower local government and administrative units as Parliament may by law provide. The constitution under Article 176(2) a) provides that "the system shall be such as to ensure that functions, powers and responsibilities are devolved and transferred from the Government to local government units in a coordinated manner".

The provision further provides in 176 (2) b) that "Decentralization shall be a principle applying to all levels of government and in particular from higher to lower local government units to ensure people's participation and democratic control in decision making" and in 176 (2) (c) that "the system shall be such as to ensure the full realization of democratic governance at all local government levels". The system of decentralization was strengthened and given a legal and institutional framework by enacting the Local Government Act 1997 to "enable the transfer of political, financial and administrative responsibilities from the centre to the local government level". In effect, 70% of public service delivery is through Local Governments (LGs) with over 90% of their budgets financed by the national budget. Ironically, the LGs are allocated 30% of the National budget.

Given the above development context, Uganda's oil resources will be managed both at the national and local government levels. A number of legislations like the Uganda Wildlife Act 2003 and the Mining Act provide for a mechanism of sharing responsibilities, resources and revenues between the central government, the local governments (districts) and land owners. Oil will not be an exception to this arrangement. The relationship among the three is crucial and it is incumbent on the civil society to appreciate and network with all the key stakeholders, especially if the poor of the poor are to benefit from this resource.

2.3 The Oil and Gas Sector Spectrum

Uganda's oil sector is still nascent but has taken important steps during the last five years. From the recent discoveries, it is clear that potential for investment and general development is very high. However, while this discovery is a tremendous economic opportunity for Uganda, it dawns with challenges which Government, all Ugandans and our partners must prepare for. The sector is highly technical and specialized and there is still limited capacity within the country.

Ugandans must cope with, and at best, mitigate these challenges to avoid the Paradox of Plenty which has in a number of oil producing countries caused "the Oil Curse".

There has been limited community awareness in the oil and gas sector. This has partly been due to government's lack of appropriate structures, systems and personnel. However, it is worth noting that government is in the final stages of developing its communication strategy, which hopefully, will help in informing the citizenry about the sector. Objective 7 of the NOGP aims to ensure optimum national participation in oil and gas exploration, production and decision-making, and the CSOs are responding to this need. Civil society has hitherto played a crucial role in unearthing, analyzing and disseminating information to all strata of Ugandans. There is need for CSOs to focus more on local communities especially those directly affected by the oil and gas exploration and production.

2.4 The Political Context

The oil and gas sector has since 2006 become a priority sector upon the discovery of viable commercial deposits. As earlier noted, the sector is listed in the National Development Plan among the primary growth sectors, and comprehensive objectives, strategies and directional interventions for strengthening the sector have been developed. Among these priorities, there are specific provisions for civil society and community participation in shaping the current and future oil governance.

Despite the provisions within the NDP, there are practical challenges in delivering on the commitments outlined, especially guaranteeing space for civil society to participate in ensuring proper governance.

The policy, legal and institutional framework for oil regulation, production and marketing has been developed and continues to be improved. This framework addresses priorities in the upstream, midstream and downstream outlays. However, there are still intrinsic weaknesses in setting up the requisite institutional framework to drive the oil agenda. This is coupled with obvious gaps in the legal and regulatory framework. Further still, there are still glaring shortfalls in ensuring transparency as a great deal of information on oil remains undisclosed to the citizenry.

Uganda has sine 1993 been governed through the decentralization policy framework, with political and administrative powers partially devolved to the local governments. The number of districts and lower local governments has been unprecedentedly burgeoning. There are currently 112 districts in Uganda, with more expected to be created in the near future. The irony is the distorted planning and service delivery chain that while local governments deliver 70% of the public services, the get only 30% of the national budget allocation, with the rest going to central government MDAs.

Uganda has just emerged from a second multi-party general elections and the political term of the President and the ruling party will be concurrent with the planning period of CSCO. In addition, all presidential candidates including the successful president used oil as a key economic, and social transformation factor in their manifesto. This on one hand creates increased public excitement and expectation but also provides the ruling class an opportunity to harness this resource for maximized public benefit or the other way round. However, in many countries with oil resources, the resources have not always resulted in improved public life but rather civil strife and conflicts, and bad governance. The above notwithstanding, civil society retains an opportunity to hold government accountable on the basis of the promised deliverables during the election campaigns.

2.5 Economic context

The NDP emphasizes a mix of economic growth and poverty alleviation. The national focus continues to emphasize and support the private sector as the engine of growth, and this is also the spring board for developing the oil and gas sector.

However, there are structural bottlenecks in the economy to realizing accelerated socioeconomic transformation for prosperity. Whereas the NDP interventions aim at creating employment, raising average per capita income levels, improving the labour force distribution in line with sectoral GDP shares, raising country human development and gender equality indicators, and improving the country's competitiveness to levels associated with middle income countries, these are still critical challenges that must be rightly dealt with.


 

Government's efforts should be directed towards transforming Uganda from a predominantly peasant-based economy to a just, peaceful and prosperous middle-income country. This means that investment priorities must be the right ones, including but not limited to: developing physical infrastructure mainly in energy, railway, waterways and air transport; human resources development in areas of education, skills development; access to health, water and sanitation; facilitating availability and access to critical production inputs especially in agriculture and industry; and promotion of science, technology and innovation.

In order to realize maximal benefits to Ugandans, there is need to equitably manage, distribute and share revenues from the sector.

The sector should emphasize local content in all its operations.

2.6 Socio-cultural context

Whereas there has been relative peace in most parts of the country, past civil conflicts in Northern and Western Uganda depict the tensions that the country must deal with. This is on the backdrop of numerous civil wars that have been fought in various oil rich countries. These tensions still linger as no comprehensive peace arrangements have been concluded in Uganda.

CSOs should augment the various government and international organisations' efforts in fostering peace and development in the hitherto conflict-ridden areas of Northern and Western Uganda, while preventing emergence of further insurgence on the account of oil resources.

As noted earlier, Uganda is a multi-cultural nation having been built with bricks of different cultural and ethnic diversities. The Albertine Graben consists of various cultural institutions with different historical settings and values. Sometimes, these diversities have been contradictory, breeding tensions and ethnic conflicts. Land conflicts in some areas have been common and they threaten social peace. The above scenario is a recipe for social and cultural conflict.

The arrival of oil therefore threatens to intensify the already existing social and cultural fragmentation at national and sub national level in different ways.

These conflicts cannot be resolved or mitigated by formal government interventions perse. There is a crucial role for civil society to play in promoting peace and devising creative means of resolving the inherent conflicts in these areas.

2.7 Technological context

Oil exploration and production is highly technical, and requires immense expertise. Uganda is not possessed of sufficient skills in this nascent industry. Hence, the government today relies on foreign experts whose terms and conditions of service are exorbitant. These are cost recoverable and will definitely reduce on the gains the country would be poised to benefit.

It is worth noting the government effort of setting up the Kigumba Petroleum Institute. However, the calibre of personnel produced therefrom will not have an immediate technological impact on the industry.

Civil society therefore needs to work with Government to design, promote, and implement appropriate educational programmes that can transform the Ugandan manpower from a none or semi-skilled work force to a well trained human resource that is consistent with the demands of the current economic and technological trends. Civil society should also prioritize communication efficiency to avail necessary oil and gas information to the citizens in the friendliest mode possible.

2.8 Environmental context

National Environment Act, specifies that before undertaking oil exploration and development activities, companies must carry out Environmental Impact Assessment (EIA). Upon completion of the assessment, an EIA report is submitted to National Environment Management Authority (NEMA) for approval. Before NEMA approves the report, they ought to consult with the relevant stakeholders like Directorate of Water Development, Uganda Wildlife Authority, Petroleum Exploration and Production Department, Civil Society Organisations and the Communities.

While Government reports that EIAs have to date been carried out by oil exploration companies, the EIA process has either not been very comprehensive or some of the recommendations in the EIA reports have been ignored. Even then, the adverse environmental result of oil and gas is inevitable, but must be minimized. The communities' knowledge about these implications and available livelihood or coping mechanisms is a very crucial step in preparing them for the impending oil developments.

It is crucial to note that the country's forest cover has been declining in the last two decades, there has been outright failure by Government to restore critical wetland ecosystems while widespread land degradation and soil erosion causing widespread economic and livelihood losses as key definitions of environmental conservation failure in Uganda. It is no doubt oil exploration, extraction, and production if not soundly mitigated, will exacerbate due to disturbances arising from inevitable activity e.g. road construction, increased flow of people and machinery. Suffice to note that the Albertine Graben is home to immense flora and fauna and hosts most of the protected areas including forests and national parks/game reserves some of which are endemic.

CSOs needs to lay clear strategies of addressing current and future environmental concerns while keeping effective mechanisms for citizenry vigilance and voices to mitigate some of the dire environmental calamities especially in the Albertine Graben area.

3.0 PROBLEM ANALYSIS

This analysis is meant to inform CSCO's interventions in respect of the policy, legal, structural, management, systemic and environmental challenges that the oil and gas sector faces. It also underlines the intrinsic, external and inherent weaknesses of civil society in Uganda in operation and organisation with a view of fostering coordinated approaches and alleviating the challenges.

The sector lacks the local requisite technical, technological and management capacity. This leads to dependency on foreign human and technological capacity.

There are still inadequacies in the policy, legal and institutional framework for oil and gas sector in relation to the whole value chain. The existing framework was designed to address the needs of exploration in 1985 and before. There are no provisions to guide the detailed licensing, management, oversight etc. in respect of the midstream and downstream operations. Recognition is made of the National Oil and Gas Policy of 2008 and the various legislations currently under review. For all these to be effective, they must address the key concerns and principles as outlined in the policy and best practices.

Uganda has consistently been ranked as one of the most corrupt countries in the recent fifteen years by TI and other Anti Corruption indices. A number of efforts have been undertaken by government, including development of a strong policy, legal and institutional framework. However, corruption levels have remained unabatedly high. With the windfall of oil revenues, the country is threatened with a breakdown of governance and accountability infrastructure. Many oil rich countries have lost their resources to corruption perpetuated through political patronages at the expense of the common person.

There is thus need to strengthen and implement the existing policy, legal and institutional framework before actual oil revenue is realized.

Globalization and privatization have enhanced the notion of profits at the expense of public interest and public good. The developers in the sector are not not-for-profit organisations. They are in the business for business. The interest of the common person could easily be relegated unless there is a strong voice to challenge private sector business interests and champion the public good. Riding on the current guarantees to monitor, watchdog and question unfavorable government decisions and actions, there is need to strengthen the capacity of the hitherto weak citizenry.

Uganda has one of the highest per capita presence of CSOs in Africa (Source??). There is relative good space for civil society engagement including in the oil and gas sector. The NOGP recognizes the role of the civil society. Indeed, CSOs have played a remarkable role on sensitizing the citizenry, undertaking policy research and inputting legislations. However, CSOs still lack the capacity to handle sophisticated sectors such as oil and gas. Additionally, many of them are insufficiently resourced. There is also duplication of functions on account of proliferation and lack of effective coordination of CSOs and networks. CSOs have in some cases also behaved much like 'business competitors', scrambling for the attention of same donors and resources. This has dented the otherwise good image of the CSO movement.

Significant efforts have been taken to streamline the coordination of CSOs in the country through formation of formal networks/coalitions usually focusing on specific issues. There is now need to further build capacity of all CSOs and networks in the sector to be able to effectively engage at policy level and sensitize various stakeholders especially the citizenry.

The Albertine Graben is shared by many countries (be specific to the countries) in the Great Lakes Region and the whole of the Nile basin. Resources such as Lake Albert and River Nile which are vulnerable to the exploitation of Ugandan oil and gas resources are owned and governed under regional legal frameworks, but conferring diverse rights to the different countries. Moreover, the oil under Lake Albert has already caused a political and economic conflict between Uganda and the DRC. CSOs should therefore take lead in the promotion of peaceful and harmonious cross-border exploitation of oil through the inter-country CSO networks and effective engagement at national and regional level.

Issues of potential conflict, social issues, economic distortions – land, lifestyle, and how the thematic areas are pertinent.

The area where oil is found hosts the richest bio-diversity of Africa. Already, there are concerns that the ongoing oil exploration is adversely affecting the bio-diversity of the Albertine region.

Refer to The Oil and Gas Policy, 2008

2 National Development Plan, 2010/11 – 2014/15.

3 Office of the Prime Minister: Northern Uganda Recovery and Development: How far and Which Way?, 2011

4 National Development Plan 2010/11 – 2014/15

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