Oil and Gas Workshop for Ugandan

Parliamentarians
25
th
-26th February 2010
THEME 4 The Regulatory
Function
Oil and Gas Workshop for Ugandan Legislature February 2010
Objectives & Agenda
Understand the role of the regulator and the
challenges for effective regulation
The Governance Context
Regulation Checklist
Functions
Objectives
Processes
Organisational models
Oil and Gas Workshop for Ugandan Legislature February 2010
Context for Regulation
Policy
Monitoring
and Regulation
Commercial
Operations
Strategy
Oil and Gas Workshop for Ugandan Legislature February 2010
What is Regulation?
A principle rule or law designed to govern
conduct
Merriam-Webster's Dictionary of Law
Oil and Gas Workshop for Ugandan Legislature February 2010
Regulation Checklist
Clear Policies
Are Government policy goals for the sector clear?
Enabling
Laws
Are the necessary laws in place to enable policy
objectives to be achieved?
Enacting
Regulations
Has the law been enacted into effective regulation?
License
Agreements
Are individual license agreements
enforceable and consistent with policy, law
and regulations?
Competent
Regulatory
Agencies
Are the systems and institutions in place
to monitor and ensure compliance and to achieve
policy objectives?
Oil and Gas Workshop for Ugandan Legislature February 2010
Regulation, Coordination and Consultation
Judiciary
Parliament
Civil
Society
Regional
Government
Some countries choose
to create
Supreme Petroleum
Council or equivalent
to coordinate
policy making
Oil and Gas Workshop for Ugandan Legislature February 2010
Technical Upstream Regulations cover
typically
Licensing
Prospecting, Exploration and Appraisal
Activity
Development and Production Activity
Measurement and Lifting of Crude Oil and
Gas
Abandonment of oilfield installations
Local Content Provisions
Reporting and Confidentiality
Oil and Gas Workshop for Ugandan Legislature February 2010
Regulatory Objectives -
Government
License obligations being met
Expenditure is justified and value for money
Industry spending maximises national benefits
Operations being carried out safely with no harm to
environment
National resources are being exploited efficiently
Government receives the revenues due to it from the
production and sale of petroleum under the agreed
fiscal regime
Oil and Gas Workshop for Ugandan Legislature February 2010
Regulatory Objectives Oil
Company
Legal title
Respect for contract
Clear and simple rules
To operate within the law
Swift approvals without the need for facilitation
(corrupt) payments
Maximum operational autonomy
Minimise administration costs
To adhere to corporate policies and norms
Oil and Gas Workshop for Ugandan Legislature February 2010
Typical Regulatory Processes
Pre-activity Approval
Approval of work programme and budget
Monitoring of progress
Active risk management
Post activity audit
Audit of outcomes
Identification and punishment of infractions
Oil and Gas Workshop for Ugandan Legislature February 2010
Getting the Balance Right
Efficiency Assurance
Oil and Gas Workshop for Ugandan Legislature February 2010
Too many regulatory agencies leads to
inefficiency
E&P
Operating
Company
JV Partners
Industry
Regulator
Ministry
of Energy
Ministry of
Finance
Tax
Authorities
NGOs
National
Auditors
Home
Regulator
Presidency
Oil and Gas Workshop for Ugandan Legislature February 2010
An effective regulator needs
Authority and Mandate
No conflict of Interest
Effective Processes
Capable People
Oil and Gas Workshop for Ugandan Legislature February 2010
Upstream Regulator 4 Organisational
Models
NOC acts as regulator
e.g. Petronas
Ministry is regulator
e.g. UK
Separate Statutory Regulatory Body
e.g. Norway, Indonesia, Brazil, Columbia
NOC/Ministry share regulatory functions
e.g. Sonangol
Oil and Gas Workshop for Ugandan Legislature February 2010
Pluses and Minuses of Different Regulatory
Models
Regulator Model + -
NOC
Strengthens authority of NOC in
eyes of IOCs
Technical expertise usually in the
NOC
NOC regulates itself conflict
of interest
NOC decision-making political
rather than commercial
Ministry
Regulator close to policy-making
Strengthens Govt control over
NOC
Lack of competent people
Weakens NOC
Regulation overly influence by
short term political issues
Independent
Agency
Shields regulator from political
interference
Able to take a longer term view
and build competence
May not be enough resources
for competent NOC and
regulator
NOC/Ministry
Shared
NOC can retain some leverage
over IOCs
Ministry can retain ultimate
authority but delegate some tasks to
NOC
Potential for competition
between Ministry and NOC
Usually a compromise
solution where NOC power is
entrenched
Uganda Petroleum Sector Governance - Parliamentarians Training February 2010
Oil and Gas Workshop for Ugandan Legislature February 2010
Indonesia Oil and Gas
Sector Governance
President
Min of
Energy
Min of
Finance
Min of
State Owned
Enterprises
MIGAS
Pertamina
PLN
Core
Business
PGN
Integrated E &P Downstream Gas Power
BPMIGAS BPH MIGAS
Upstream
Parliament
Downstream
Susilo Bambang Yudhoyono Sept 04 -
Regulatory Function
Oil and Gas Workshop for Ugandan Legislature February 2010
Indonesia Lessons
Investors declining interest in exploring in Indonesia in early
2000s was brought about by
Frequent changes in Indonesias political leadership
The enactment of a new oil and gas law but slow enactment of
implementing regulations
The issuance of new laws many of which conflict with existing
regulatory framework
The ongoing restructuring of the NOC
The organisational development of the regulator BP Migas
Issues relating to regional autonomy and taxation
The efforts by the GOI to increase tax revenues from the oil and
gas industry
Source PWC investor survey 2005
Oil and Gas Workshop for Ugandan Legislature February 2010
Nigerian Regulatory Lessons
The Ministry of Petroleum remains essentially a civil service
outfit that is ill equipped to conceive and formulate the required
policies for such a complex and sophisticated industry. The
regulatory body, the Department of Petroleum Resources
(DPR) is, by and large, similarly constrained being a body
tucked away within the Ministry. The most problematic,
however, remains the National Oil Company, the NNPC. It is
simply a typical Nigerian state institution that operates as a
huge amorphous cost centre with little or no sensitivity to the
bottom line. The Oil and Gas Implementation Committee Final Report, 2008.
Oil and Gas Workshop for Ugandan Legislature February 2010
Budget Approval Nigeria Current
Process
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Uganda Petroleum Sector Governance - Parliamentarians Training February 2010
Oil and Gas Workshop for Ugandan Legislature February 2010
Proposed New Nigerian Oil Sector
Governance Model
President
Ministry
Petroleum
Directorate
Petroleum
Inspectorate
Petroleum Products
Regulatory Authority
National Petroleum
Assets Mgt Agency
NNPC
Petroleum
Equalisation
Fund
National Frontier
Exploration
Service
JV
Companies
IOCs
Oil and Gas Workshop for Ugandan Legislature February 2010
Working Session
Consider how to enable an effective regulatory
function. How much authority should be delegated
to it? How independent does it need to be. What are
the appropriate mechanisms for ensuring its
independence?, source of authority, etc.? How will
the management team be appointed? What are the
core skills and knowledge that it needs to have
access to. How will the regulatory function be held
accountable?
Oil and Gas Workshop for Ugandan Legislature February 2010
Regulation Checklist
Clear Policies
Enabling
Laws
Enacting
Regulations
Competent
Regulatory
Agencies
Are Government policy goals for the sector clear?
Are the necessary laws in place to enable policy
objectives to be achieved?
Has the law been enacted into effective regulation?
Are the systems and institutions in place
to monitor and ensure compliance and to achieve
policy objectives?
License
Agreements
Are individual license agreements
enforceable and consistent with policy, law
and regulations?