Blog: Hon Irene Muloni, Minister for Energy on the status of oil and gas sector in Uganda at UCUK2019

Hon Irene Muloni, Minister for Energy on the status of oil and gas sector in Uganda at UCUK2019

Dr Irene Muloni started the session by acknowledging the Vice President, Lord Popat, Ministers and Members of Parliament present.

She thanked Willy Mutenza and his team for bringing together investors, Ugandans and the government to discuss trade and investment.

The Ministry of Hon Muloni tackles energy and minerals but the focus at the forum is on oil and gas.

The Ministry’s mission is to ensure the reliable adequate and sustainable exploitation, management and utilization of energy and mineral resources   including oil, laws, policies and institutions already in place, structures to ensure these resources are harnessed in the most transparent and accountable manner.

The constitution rests ownership of oil and gas resources in the government on behalf of the republic of Uganda. It is imperative that this point is clearly emphasised so that Ugandans know these resources belong to them.

In terms of policy, the national oil and gas policy was formulated in 2008, and new laws have been enacted in place in 2013 for exploration, development and production. The law on petroleum refining, conversion, transmission and mid-stream storage was also enacted in 2013.

The public finance and management act were amended in 2015 to ensure that the funds accrued from these resources are well managed. Following enactment of the laws are regulations looking at various areas of development right from exploration development and production, to health and safety and to the environment. These regulations are looking at national content because the government wish Ugandans to fully participate in the process. Those laws also pertain to the core resources looking at how much is being pumped out or sold.

These regulations are looking at health and safety and the environment for the upstream exploration development and for the production mid-stream where we have refining, conversion, transmission and storage.

Also, there is the production sharing agreement which are the engagement agreement signed with the investors who bring on board their much-needed resources so that joint partnership is created and we are able to harness their resource.

Having the law in place, institutions were needed to help the Ministry manage their resource at the highest levels. The Ministry is tasked with policy formulation and licencing and also promoting the investing opportunities in the sector.

The second bidding round was announced and to market more blocks and to get more investors come on board.

Other institutions like the petroleum authority of Uganda regulate and monitor what has been agreed by the government and investors. The Uganda national oil company was set up to take care of commercial interest as a country and is owned 100% by the government of Uganda through the Ministry of Energy and Ministry of Finance.

In the Albertine Grabben, one of the prospective areas, exploration was done of about 40% of the area and out of that 10-15 % has been licenced, meaning that the rest of the area is still open for further exploration. That is why the process of second bidding round to get more investors on board comes into the picture. Out of the 40% confirmation of 6 billion, about 1.4billion will be extracted.  In the same area, the government has confirmed there are over 500 billion cubic feet of gas and with more exploration activities, even more gas is expected to be found.

There are now three international oil companies that have been licenced for production and two international oil companies are doing exploration. Total E&P have been given three production licences for four fields and have applied for a further three production licences and are under review. Tullow Oil has five production licences for nine fields and these two companies were issued production licences in 2016. All of them are preparing for production. Of recent, the media has been awash with negative news that Total has left but Hon Irene Muloni confirmed that Total is preparing for production. What did not work out was the transaction where Tullow Oil was trying to sell some of its shares to Total and CINOC who exercised their rights to buy those shares.  The issues of taxes related to the transaction and capital gain tax was not resolved before finalising the sale. In addition, the purchase agreement expired so the matter could not be resolved on time, but that does not mean the whole process in Uganda has come to a halt.

CINOC was issued a production licence for one of the fields and is in the process of preparing to go into production. The other two companies doing exploitation are Armour Energy Uganda Ltd and Oranto Petroleum Uganda Ltd from Nigeria.

There is a lot of investing opportunities along the value chain from exploration development, production, refining, conversion, transmission, and storage up to exporting the crude.

At upstream level which I the exploration development and production, investments can be made in central processing facilities, pipelines, camps, well pads, access roads and in a lot more activities in preparation for the first oil production.

At midstream, there is the refining conversion, transmission and storage, construction, and 60000 barrels per day refineries so that value is added to the oil. In addition, there is a need for the construction of a 1443-kilometre-long pipeline all the way from Hoima up to Tanga on the Indian Ocean in Tanzania.   A heated crude pipeline will enable access the international market. An airport is being constructed by Colas in Hoima to help bring in equipment, and experts and also to be used to export agriculture products and bring in tourists. This multi-purpose airport has been strategically located to cater for the various needs in the country. Various preparations are being made including the construction of road infrastructure. In May 2019, a second licencing round was announced with new laws, and it was agreed to encourage competition so that everything is done in a more transparent and accountable manner.

Five blocks are offered right now in Albertine Grabben and pre-qualification requests have been running since May 2019 ending in November 2019.

In terms of commercialisation plans for a 60000 barrels per day refinery, the government has approved the kind of refinery to be setup. The refinery will produce LPG, Petrol, Diesel, jet oil and HFO. At the moment, Uganda is importing all these products is imported in East African region. This makes the government’s decision to refine and add value to this resource a strategic investment that will also meet the needs of the people of Uganda and also of the East African region.

The two governments of Uganda and Tanzania have entered into and are negotiating inter government agreements to have an East African oil pipeline structured as private investment in order to attract private funding. This is to be able to construct the pipeline and deliver oil to the international market once the refinery is running. The petrol chemical and energy-based industries will be developed in the Albertine Grabben region to add value again to the by products from the crude.

The Kabale industrial park will help to add value to the by-products of crude oil. This will also help to absorb some of the 70% youth who are educated but need jobs to keep them active.

Institutions for skills development have been set up so that when these processes are taking place, these skilled youth can tap into these job opportunities.

The government is working with the Ministry of Education in preparing Ugandans and the government is also working with the private sector in making sure they prepare themselves to take advantage of all these opportunities. The area will also be a free zone and warehousing and logistics are also areas to invest in.

Other opportunities include setting up camps for workers, expatriates camps, schools and recreations areas, medical facilities where local people can participate too. In the Kampala area, land has been acquired for storage facilities to store finished products to be distributed. A product pipeline will be constructed from Hoima to Kampala to facilitate the finished product to be distributed within and across the country.

The national oil company is tasked to take the lead by getting a joint venture partner from the private sector.

All these preparations and investments need a lot of money and entire value chains around $20billon dollars are needed.

On the national content issue, the government would want Ugandans to prepare themselves by getting skills, and by going into joint partnerships with the private sector to take on business in this sector.

The law now demands that in a joint venture with a foreign investor, at least 48% shares are held by Ugandans. About 25% contracts in Goods and Services sectors like transportation , security, foods and beverages , hotel and catering , human resources management, office supplies , fuel supply and land surveying , cleaning and forwarding, carne hire , locally available construction materials , civil works supply of locally available drilling and production materials , environmental studies and impact assessments, communication and information technology services , waste management to be given or awarded to locally owned companies where possible.

The government is also building a talent register so that when jobs arise, there should be adverts and priority given to Ugandans.

The Director of Immigration General Kasiita-Gowa also mentioned that the process of work permits has been made more efficient.

About 14000 direct jobs are expected, with 42,700 indirect jobs, and about 105,000 induced jobs making a total of 161,700 jobs generated which should be opportunities made available to Ugandans, especially the young population.

Hon Irene Muloni thanked the president HE Yoweri Kaguta Museveni   for peace and stability.

She finally assured investors that all laws and regulations are in place and favourable to investors.

On challenges, she noted that there are high stakeholders’ expectations. The issue of delayed final investment decision is a concern not only for investors but also for the government. The process needs to continue so that the area of contention for the transaction of selling some of the shares by Tullow Oil to its partners and the taxes that accrue out of the transaction is resolved so that these companies can make their final investment decision.

There is the issue of unstable oil prices globally but the government has nevertheless remained resolved to continue with the processes and preparations to pump the oil out of the ground.

On behalf of the Government of Uganda, Hon Irene Muloni invited investors to look at Uganda as their best investment destination with plenty of opportunities with great rewards and return on their investment.
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