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Investing in Oil and Gas in Uganda

Saturday, July 23rd, 2022

Investing in oil and gas in Uganda

Oil was discovered in 2006 in Uganda. Since this time, there has been a shift and a rising interest in the Oil and gas sector within Uganda. Not to say that oil was nonexistent before, but this was the first time we had enough oil to venture into the commercial market. According to the 1995 Constitution, the government holds ownership and control of all petroleum resources within the country and all laws that govern this are laid out in the Petroleum (Exploration, Development, and Production) Act 2013.

The government of Uganda’s goal is to ensure the sustainable utilization of petroleum resources. Policy guidance in the oil and gas sector is controlled by the Ministry of Energy and Mineral Development (MEMD). The Ministry is mandated to oversee the exploitation and development of natural and petroleum resources in Uganda; in particular, the Ministry manages private sector parties through the issuance of licenses and the negotiation of petroleum agreements. 

Credit: Independent.co.ug

The good Lord put oil and gas out there for us to find and use, and we’d better do it

Red Adair

The two regulatory institutions that regulate petroleum within Uganda are stipulated by legislation. These institutions assist the Ministry with its mandate and ensure effective management of the sector. These include;

  • The Petroleum Authority of Uganda is a government organization mandated to regulate the petroleum industry and the players involved. It’s in charge of licensing, monitoring operations of oil companies, supervising exploration, enforcing compliance, and disposing of petroleum products. 
  • The Directorate of Petroleum helps to promote the development and sustainable exploitation of energy resources. The Directorate is mandated to, among other things, undertake licensing and national capacity building, regulate exploration drilling and coordinate the development of the petroleum sector. 

Given the high demand for investments in the oil and gas sector, the head of the MEMD is empowered by the Upstream Law to enter into petroleum agreements with private investors. The Upstream Law gives effect to the constitution and regulates petroleum exploration, development, and production. 

We are currently working with a two-tier system licensing regime consisting of:

  • Licenses issued by the Minister of Energy for the exploration, development, and production phase; and
  • Petroleum Sharing Agreements between persons or an oil company and the government of Uganda.

The license allows the licensee exclusive rights to execute petroleum operations within defined contract areas, as under an exploration license, and explore for petroleum. Where discovery is made, the licensee then applies for a production license.

Previously, any interested investors would express their interest directly to MEMD and the parties engaged in negotiations for the exploration license and the Petroleum Sharing  Agreements. Today, one acquires an exploration license through open bidding or direct applications. The Minister, upon obtaining approval from the cabinet then makes it known to stakeholders and interested parties when the bidding processes for petroleum exploration licenses will open. Interested investors then apply to the Minister in writing, expressing interest to participate in the bidding round, with the prescribed fee enclosed.

One would need to acquire the following requirements;

  • personal details (names and nationality) for individuals; 
  • for a company, the name, place of incorporation, directors’ names and nationalities, share capital, and the name of any beneficial owner(s) with more than 5% share capital;
  • identification of the block(s);
  • identification of ten blocks and fewer where exceptional circumstances are in existence;
  • a detailed statement providing particulars of work and proposed minimum expenditure;
  • proof of financial status, technical and industry competence; and
  • a proposal on the employment and training of Ugandan citizens and any other relevant information.

Any applicants must furnish security or a performance bond to execute obligations under the exploration license. Additionally, an applicant must present an insurance policy capable of covering liabilities while executing operations under this license.

Now you might have concerns as to what happens when the investors are foreign. We cannot ignore the fact that the majority of the investors in Uganda are and will be foreigners. Because of this, the government set up some regulations to govern this likelihood. According to Objective (vii) of the National Oil and Gas Policy, 2008, there should be optimum national participation in oil and gas activities. Ideally, Uganda must not be left behind. To achieve this, the following requirements are desired;

  • Investors are required to give preference to national goods and services and, if they are unavailable, there is a mandatory requirement that if an international company is identified to provide such goods and services, it should enter into a joint venture with a Ugandan company and offer it share capital in the joint venture. 
  • Any foreign company is mandated to upskill Ugandans in all phases of operations and submit a detailed schedule of such training and recruitment of Ugandans annually to PAU after the license is granted, offering equal opportunity to disabled persons, both genders and host communities; and
  • A licensee is also required to share technology and upskill Ugandans by taking advantage of training programs locally or outside Uganda, implementing knowledge sharing with Ugandans, and employing trained Ugandans in management and technical work. This obligation is a shared responsibility with the government.