Africa Answers: Five Questions for Lawrence Bategeka about Uganda’s New Oil Law

Earlier this month, Ugandan President Yoweri Museveni signed into law the “Petroleum (Exploration, Development and Production) Act 2013.” This bill establishes how Uganda will govern its new oil resources and clears the way for what is certain to be extensive commercial production. Passage of the new bill also ends an extended period of public scrutiny about the new law, during which the international community and Ugandan civil society groups expressed grave concerns about transparency in the sector and future use of oil revenues.

We recently discussed the bill and its ramifications with Lawrence Bategeka, acting principal research fellow at Ugandan think tank Economic Policy Research Center (EPRC). EPRC is an excellent resource on Uganda’s oil industry and the general economy of East Africa. You can follow them on Twitter at @EPRC_official. Brookings recently held a joint conference in Kampala with EPRC on natural resource management in East Africa.

Please read Lawrence’s answers to our questions below.

1. What are the implications of signing the new oil bill into law?

LAWRENCE BATEGEKA: Implementation of the National Oil and Gas Policy that Uganda prepared in 2008 required a legal framework. The policy goal is “to use Uganda’s oil and gas resources to contribute to early achievement of poverty eradication and to create lasting value to society.” The two laws—(1) The Petroleum (Exploration, Development and Production) Act 2013, and (2) The Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Act 2013—provide the framework for implementation of the National Oil and Gas Policy. These two laws make it possible for industry stakeholders to proceed with the development stage of extracting Uganda’s new oil and gas resources since roles and responsibilities for every stakeholder are now well defined. Uganda should begin to see increased foreign direct investment in its oil and gas sector. However, Ugandans will have to wait until around 2016 to start seeing revenues from oil extraction since there is a minimum period of time it will take to accomplish each stage (e.g., a minimum of three years is required for the construction of an oil refinery).

2. Oil was discovered in Uganda a while back but to date there have been no revenues from the new discoveries. Has the delayed signing of the bills had any impact in delaying revenues from the oil industry?

BATEGEKA: Yes, the delayed enactment of the laws adversely impacted Uganda’s progress in oil and gas production and therefore delayed the realization of oil revenues. Uganda discovered oil and gas in 2006, but seven years later oil production has not yet started. It is prudent to note that the country would not move forward without a legal and regulatory framework. As such, the delay allowed Uganda to understand the oil and gas industry and thus try to avoid the mistakes that other oil-rich African countries have made. The first lesson learned is that operating outside the law would have raised issues of accountability and transparency, which could have possibly led to the “Dutch Disease Syndrome.” The second lesson is that, when civil society organizations work closely with lawmakers, there is likely to be more public debate and engagement on oil matters. This is attributed to the fact that the Petroleum Exploration and Production Bill was the most debated piece of legislation with nearly eight caucuses of the ruling party and an unprecedented use of the media by both those in support of and opposed to the bill. The third lesson is that the political institutions and culture in place have a key bearing on Uganda’s natural resource path regarding the management and utilization of the oil and gas resources.

3. Uganda’s public finance bill will state how oil revenues will be used in the country. Will expediting the signing of this bill have any impact?

BATEGEKA: The public finance bill is yet to be passed by parliament for assent by the president.

Expediting the public finance bill in its current form will have adverse effects due to inconsistencies with the current Public Finance Act and other regulations. In addition, there is lack of general consensus among all stakeholders on the various clauses pertaining to the management and sharing of oil revenues, the intergenerational fund, the creation of oil districts and the distribution of royalties, among others. While the proposed law aims at reforming the public finance sector and provides for fiscal and macroeconomic policies, the public perception is that the debate on the policy may be tilted away from oil issues and emphasis on transparency and accountability or vice versa. Furthermore, the proposed bill is silent on penalties for the abuse of public funds which was clearly emphasized in the current Public Finance Act (now being repealed). The proposals to increase the threshold for supplementary budget from the 3 percent currently provided for in the Public Finance Act to 10 percent in the new draft bill raises suspicions, considering that currently much of the supplementary budget is about 85 percent allocated to State House. If approved, this clause is bound to sideline Parliament as regards approval of what the funds should be spent on.

4. In view of regional integration initiatives going on across Africa, have the bills incorporated the regional integration initiatives? Why or why not?

BATEGEKA: None of the legislation has incorporated regional initiatives or perspectives. The enactment of the laws was based on the National Oil and Gas Policy, which was prepared for Uganda. It only tacitly takes into consideration regional integration initiatives especially from the perspective of building an oil refinery to serve the energy needs of some countries in the region. Since the National Oil and Gas Policy was prepared in 2008, there are other regional developments in the oil and gas industry that may require cooperation from other countries. The laws enacted do not inhibit nor do they enhance cooperation among countries in the region in matters of oil and gas development.

The bills are silent on the competition between countries partly because they feed into the security paradigm. It is also envisaged that negotiations among countries would make the oil production process slower than it already is. There is strong desire to speed up production and realize returns on investment. The government of Uganda has considered floating its oil refinery shares to regional states including East African Community partner states in order to generate funds for the construction of the proposed refinery.

5. Has the discovery of oil in Uganda had any significant shift in the structure of the Ugandan economy?

BATEGEKA: The discovery of oil is yet to have a significant shift in the structure of the Ugandan economy. Uganda’s economy remains largely agricultural and rural. Much of the labor is still employed in agriculture (66 percent of population) and the sector contributes 22 percent to GDP. The largest contributor to GDP is the services sector at 51 percent. However, due to the speculation of oil revenues, the mid-western part of the country where the oil was discovered has experienced an increased inflow of potential investors. As a result, there is now demand in this region for services such as banking, accommodation, food and transport, among others. In response, some local entrepreneurs in the Hoima and Buliisa districts have opened up small hotels, restaurants and recreation facilities to tap into these new opportunities. The government has recently released its Vision 2040 Strategy in which oil and gas are projected to partially finance the transformation of Uganda from peasantry to a modern and prosperous country within 30 years.