UPDATE: Uganda Plans New Rules To Govern Oil and Gas Sectors

Uganda is in the process of formulating new legislation which will govern the development and utilization of oil resources when production starts in the next couple of years, the Ugandan president said Thursday.

In his state of the nation address, President Yoweri Museveni said that two separate pieces of legislation are being planned, one on administration of oil and gas activities, including the development and production of the oil and gas value chain, while the second law will focus on regulating payments, use and management of oil revenue in a manner that creates sustainable national wealth.

"The key element in these legislations will be to ensure transparency and accountability in the production and utilization of oil resources," he said.

Oil discoveries in three blocks on the Ugandan side of the Albertine rift are estimated at 2 billion barrels, with only around 30% of the blocks explored so far, according to government officials. Two of the blocks are owned jointly by London-listed Heritage Oil PLC (HOIL.LN) and UK-based Tullow Oil PLC (TLW.LN). Tullow oil is the sole owner of one of the blocks.

Museveni further said that in order to attract the huge investment resources required as well as the expertise in the sector, the government will ensure that the development of oil resources will be through the private sector, including international companies. Where necessary, the government will partner with some of these companies in a Public-Private Partnership arrangement, he added.

Plans to build a medium size oil refinery aimed at meeting domestic and regional petroleum demand are also underway. Last week, government signed a deal with Switzerland-based Foster Wheeler (FWLT) to conduct a six-month feasibility study on a 150,000 barrels-a-day refinery in the country.

According to Museveni, the refining of oil domestically will help to develop the value addition chain as well as improve the energy mix of the country.

The government is also planning to increase its expenditure from Uganda Shillings 7.9 trillion in 2010-11 to UGX13.9 trillion in 2014/15, targeting investments in key areas of infrastructure like roads, railway, hydropower dams, pipe line and an oil refinery, he added.

Uganda's oil region is located around 1,300 kilometers from the nearest port of Mombasa and lacks roads railway infrastructure.

According to President Museveni, the Ugandan economy has continued to grow at a relatively high rate despite fears that the global economic downturn would negatively affect the economy. Preliminary data indicates that the economy grew 6.6% in 2009 increasing to UGX33 Trillion ($16 billion) from UGX28.2 Trillion in 2008.

-By Nicholas Bariyo, contributing to Dow Jones Newswires; +256 75-262 4615; bariyonic@yahoo.co.uk

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