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KEY INSIGHTS INTO THE RECENTLY PASSED PETROLEUM LEGISLATION

Fred Kabanda Principal Geologist and Head Regulatory Unit Petroleum Exploration and Production Department Ministry of Energy and Mineral Development
PRESENTATION AT A BREAKFAST MEETING WITH SENIOR EDITORS AND SUB EDITORS, PROTEA HOTEL KAMPALA
16th APRIL 2013

Petroleum Exploration and Production Department

PRESENTATION OUTLINE
1. 2. Introduction 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. 5. Way Forward Conclusion
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1.0 INTRODUCTION
1.1 Mandate

The Constitution of Uganda (1995) vests oil and gas resources in the Government on behalf of the Republic of Uganda. The Constitution mandates the Parliament of Uganda to make laws regulating the exploration and exploitation of minerals and petroleum.

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INTRODUCTION CONTD
1.2 What Legal and Regulatory Framework has run the sector; i) The Petroleum (Exploration and Production) Act (PEPA), Cap 150, Laws of Uganda 2000) 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 and exploration phases but, as the country enters into the development and production phases, the need for a new legislation to address the emerging issues in the sector became apparent.

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INTRODCUTION CONTD
1.3 New Legislation The National Oil and Gas Policy for Uganda, February 2008 is being operationalized among others through legislation. This resulted into the tabling of the following pieces of legislation in Parliament;(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, Planning and Economic Development.
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INTRODUCTION CONTD
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 its commencement date being 5th April 2013. ii) The Petroleum (Refining,Conversion,Transmission and Mid stream Storage) Bill, 2012 was passed by the Parliament on 21st February 2013 and its awaiting ascent by the President. iii) The Public Finance Bill, 2012 on revenue management which is being taken forward by the Ministry of Finance is currently at committee 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 the sub-sector(Section 42) Creation of a Directorate of Petroleum through restructuring under the Ministry to handle matters of policy. This Directorate will be under the office of the Minister.
The Minister will be responsible for negotiating, licensing, and revocation of licenses.

Other institutions that play a key role in the oil and gas sub-sector, such as NEMA , URA , etc. are being restructured to handle the increasing activities.
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KEY INSIGHTS INTO THE PEDP ACT 2013 CONTD 2.2 Licensing The Minister is mandated to open up new areas for petroleum activities Reconnaissance permit : A person intending to carry out reconnaissance surveys 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 Cabinet announce 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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LICENSING ..CONTD
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 license All 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.
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KEYINSIGHTSINTOTHEPEDPACT2013 ..CONTD
2.3EnvironmentalPrinciples A 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 without regard to fault. The Polluter Pays Principle in environment management has been emphasized. The Licensee is also liable for damage caused by a third party (Such as a sub contractor) who is performing tasks on the licensee's behalf.
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KEY INSIGHTS INTO THE PEDP ACT 2013 ..CONTD

2.4 State participation and National Content a) State Participation; The Government may participate in petroleum activities through:
a specified participating interest in a licence, or contract granted under this Act and in a joint venture established by a joint operating agreement

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KEY INSIGHTS INTO THE PEDP ACT 2013 ..CONTD b) Provision of goods and services The licensee, its contractors and subcontractors shall give preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies Where the goods and services required by the contractor or licensee are not available in Uganda, they shall be provided by a company which has entered into a joint venture with a Ugandan company provided that the Ugandan Company has a share capital of at least 48% in the joint venture. The licensee will be required to recruit and train Ugandans in all phases of petroleum activities The licensee is required to submit a detailed programme for recruitment and training of Ugandans.
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KEY INSIGHTS INTO THE PEDP ACT 2013 ..CONTD 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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KEY INSIGHTS INTO THE PEDP ACT 2013 ..CONTD

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 Aspects Third 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 BACKGROUND

Objective 4 of the National Oil and Gas Policy provides for promotion of valuable utilization of the countrys oil and gas resources while Objective 5 promotes development of suitable transport and storage solutions which give good value to the countrys 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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3.2 OBJECTIVES OF THE BILL i) Promote the development of midstream petroleum facilities. ii) Facilitate investment in Midstream infrastructure

KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD

iii) Regulate the development, installation, operation and maintenance of Midstream 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 content in the petroleum industry of Uganda.
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KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD
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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KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD (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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KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD 3.4 Licensing of Midstream Facilities An application for a license shall be made to the Minister as prescribed in regulations The Minister may require a licensee to make arrangements for the execution of a bond or other form of security An applicant is granted the opportunity to appeal against the objection by the Minister for a license A person aggrieved by the Ministers decision may appeal to the high court within thirty days
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LICENSINGCONTD
The license to construct and operate a facility shall be valid for twenty five years ( Initial five years for construction). After the 25 years, the license may be renewed for a period of five years at a time. The Minister will stipulate conditions to be fulfilled by the 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 Ugandan market.
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KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD

3.5 PETROLEUM PRICING

Pricing of crude oil or raw gas shall take into account world market pricing based on arms length principles A licensee shall determine the gate price of petroleum products in a manner to be prescribed in regulations

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KEY INSIGHTS INTO THE MID STREAM BILL, 2012CONTD

3.6 HEALTH, SAFETY AND ENVIRONMENT Aspects of environment shall be regulated by the National Environment Management Authority Flaring or venting in excess of quantities needed for normal operational safety is prohibited All facilities shall be designed and constructed so as to avoid any gas flaring or venting under normal operating conditions Excessive flaring has to be with the approval of the Minister in consultation with the Authority Licensee is allowed to flare during emergencies above the normal operation levels. A licensee is required to submit a decommissioning plan to the Authority
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KEYINSIGHTSINTOTHEMIDSTREAMBILL, 2012CONTD
3.7 State participation and national content

Government prioritizes development of capacity of Ugandans to offer services and goods The licensee and his/her contractors are required to; a) give priority to purchase of local products and services b) submit a detailed programme for recruitment and training of Ugandans c) 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 been repealed by the Petroleum Exploration Development and Production Act, 2013. Proper and complete regulation of the sector requires an update of the regulations. The process for this update has commenced. The petroleum midstream bill which was passed by Parliament is awaiting assent while the public finance bill is before Parliament Regulations for the Petroleum Midstream will be newly written and the process of writing these regulations has started. Many aspects of the new petroleum law were drawn from the current PSAs. Revision of the model PSA will be undertaken before any future licensing. 24

2. 3. 4. 5.

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5.0 CONCLUSION
1. 2. 3. 4. Implementation of the National Oil and Gas Policy is on-going. Updating the Legal and regulatory framework is progressing well. Public Finance bill is being taken forward by the Ministry of Finance, Planning and Economic Development. Preparation of regulations is on-going while revision of the model PSA will be undertaken before licensing. Implementation of the new set of legislation will among others streamline management of the sector, help in proper resource management but also create employment and business opportunities to Ugandans in this new petroleum sector. Thank you for the support you have given in developing legislation. We look forward to more of such support.
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5.

Thank You
FurtherInformation; COMMISSIONER PETROLEUMEXPLORATIONAND PRODUCTIONDEPARTMENT pepdebb@petroleum.go.ug www.petroleum.go.ug

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