Uganda suspends licensing of new oil exploring firms By BARBARA AMONG THE EAST AFRICAN The Ugandan government has suspended the awarding of new oil exploration licences until a policy is drawn up to regulate the lucrative sector perhaps. This follows the discovery of commercially-viable oil deposits in the country and fears that the oil companies stood to reap more than the government. The surprise policy change, which was confirmed to The EastAfrican by Energy Minister Daudi Migereko last week leaves four applications from firms interested in joining the country's oil rush pending. It comes hot on the heels of a deal between Kampala and the US government, in which Washington was to help develop Uganda's oil sector. Uganda has pulled the plug on the lucrative sector as the rest of the region - Kenya, Tanzania and Rwanda - signed exploration agreements with international oil companies in recent weeks. Tullow Oil Company, Heritage Oil and Gas Ltd, which hold exploration licenses in the Lake Albert region, have discovered commercially-exploitable oil deposits in their blocks, while two other firms, Neptune Petroleum Ltd and Dominion Ltd, are still exploring. The government, which says about 200 million barrels have so far been identified, now insists it will drive a harder bargain for the new exploration licences. "Everything is on hold until we put in place an oil and gas policy," Mr Migereko told The EastAfrican. "This comes in the wake of the new discovery; previously, we awarded big areas we were not sure; now we are sure there is oil, so the areas of exploration will be sub-divided." The national oil and gas policy will determine how the revenues received from the sector will be spent. The government has denied reports that it had surrendered more than half of oil revenues to the exploration firms, but has refused to make public, the production sharing agreements it signed with Hardman and Tullow. Local communities in the oil-bearing areas have also been clamouring to have a portion of earnings earmarked to them. The Norwegian government last year offered $1.8 million to Uganda's Energy ministry to strengthen existing policies, train staff, build networks and set up a database over a three-year period. The new policy is expected to amend the Petroleum Exploration and Production Act of 2000, which grants exclusive rights for exploration, development and production of petroleum in any licensed area. Under the current law, the size and location of the acreage to be included in the production sharing agreements is settled by negotiation and exploration licenses are awarded for up to eight years. Mr Migereko told The EastAfrican that a draft policy is awaiting discussion by Cabinet but could not say when it would be ready for debate by Parliament. Previously stated government plans to have the policy ready by the end of the year are, however, unlikely to be met. Government officials say the Cabinet's current priority is ensuring that the Commonwealth Heads of Government Meeting, later this month, is a success, and is unlikely to discuss the draft oil and gas policy before then. Tomson Kyahurwenda, a member of the Parliamentary Committee on Natural Resources, told The East-African that the stalemate between MPs over the former's demands for Ush60 million ($34,285) to buy four-wheel-drive vehicles, had derailed the original schedule, which would have seen the National Oil and Gas Bill debated earlier in the year. "We don't have a timeframe on when the policy will be passed by Parliament, but if it didn't face these upheavals, the Bill would have come to Parliament by March," said Mr Kyahurwenda, who represents Buhaguzi County, one of the areas where oil deposits have been discovered. The MP said committee work on the Bill, whenever it gets to Parliament, is likely to take up to four months before it is forwarded to the plenary for debate, meaning that the failure to follow the initial programme could see it drag on until mid 2008. The draft policy also details the possible alternatives for transportation of the oil, including laying a pipeline to the oil refinery in Mombasa, if considerable quantities are discovered. This would be a reversal of fortunes for a country that is, at the moment, in advanced plans to extend the Mombasa-Eldoret oil pipeline to Kampala so as to reduce the cost of importing petroleum products. The new law is also expected to set up a national oil company and a Petroleum Fund under the Central Bank, to manage oil revenues. According to the oil and gas draft policy, licensing was subdivided into four stages. The first takes a period of four years in which a company performs seismic surveys and drills at least one oil well. In the second, two-year stage, the company is expected to drill at least two exploratory wells with another two-year stage to complete exploration. The fourth stage, also two years long, is for production and possible licence-extension to five years. All the companies holding licenses are at either the first or second stage. It is understood that the operating companies are financing the exploration themselves but will be well compensated when the oil is out for production. The initial revenue from oil will be remitted to the government with a gradual cut to compensate for their seed capital in exploration. It is not clear how much this compensation would be done, but available evidence suggests that it will rise to several million dollars. For instance Dominion Petroleum, one of the new kids on the exploring block, says it is spending at least $4 million on geological and geophysical work and acquiring at least 300km of seismic data. The likely delays to the law, and the suspension of the award of new licenses, are likely to knock out new players interested in joining Uganda's oil rush and delay the proposal to harmonise the policy, legal and fiscal regimes of petroleum exploration and development across the region. The development also follow an announcement by the United States Trade and Development Agency that it had commissioned the New York-based RKR Enterprises, a US consultant to explore areas where it would assist in developing Uganda's oil and gas sector. This announcement, made a few days before President Museveni travelled to Washington DC to meet President George W. Bush, represents the first formal US foray into Uganda's nascent oil industry.