Even as Kampala is embroiled in a $283 million tax dispute with Irish prospecting firm Tullow, more problems are emerging in its handling of the nascent oil business.

In the latest episode, oil industry experts have punched holes in the proposed Petroleum (Exploration, Development, Production and Value Addition) Bill intended to regulate the sector, which is expected to gross $2 billion annually once production starts.

The experts are particularly critical of the Bill’s failure to advance the objectives of the 2008 National Oil and Gas Policy, which the coming draft law is meant to operationalise in the first place.

They also argue that the law proposes licensing models that are at variance with laws in other producing countries.

They single out the short period for reconnaissance, exploration and production given to prospecting firms, the institutional red-tape that the companies have to plough through or are required to answer to, as well as the Bill’s departure from the National Oil and Gas Policy.

While the Policy, for instance, provides for “collection of the right revenues and use (of these) to create lasting revenue for the entire nation,” the proposed law is quiet on government disclosure of revenues to the public. For the public to audit oil revenues, the law must define and provide procedures for such an audit.

The Uganda Chamber of Mines and Petroleum engaged international oil advisory firm Daniel Johnston & Co to do an independent review of the Bill whose first draft came out in May this year.

Recently, the oil consultants presented the review in Kampala, cautioning that the Bill is out of step with licensing practices elsewhere. The upshot is that the terms are unfavourable and if written into law, will cause prospecting firms to be reluctant to invest in production activities over such a short period.

The government has maintained a straight face in the wake of this criticism, but sources say it is working behind the scenes to quickly remedy the offensive sections in the draft law, which experts say are a huge turn-off for investors in Uganda’s oil sector.

The draft Bill — now before the Cabinet — was immediately greeted with criticism by pressure groups both locally and internationally. Energy and Mineral Development Minister Hilary Onek could not specify when it will go to parliament to be debated and passed into law.

Uganda Chamber of Mines and Petroleum chairman Elly Karuhanga says the intention behind the review is to establish what has been done elsewhere, in order to reduce bottlenecks and regulatory impediments around Uganda’s emerging oil and gas sector.

In addition to this, a new study by audit firm PricewaterhouseCoopers also mentions the regulatory environment, particularly the proposed laws in Uganda and Nigeria as ranking top among players’ biggest concerns on the African continent.

“An uncertain regulatory framework was ranked by the respondents as the top constraint in developing their oil and gas businesses in Africa,” reads the report, The Africa Oil and Gas Survey 2010, released three weeks ago.

However, the energy minister says the government will not be stampeded into making decisions just because some oil experts have made critical comments on the draft Bill.

In a telephone interview with The EastAfrican last week, Mr Onek accused the oil firms of hiding behind “experts” to bully small oil-rich countries into making laws that will favour the companies, at the expense of the national interest.

“Who are these experts? They are all the same as the oil companies, and it is their intention to eat all the flesh and leave only bones for the owners of the resource,” he said.

“It is typical of these oil companies to come up with all this because they want to make a windfall if they catch the government napping.”

While Daniel Johnston & Co hail the Oil and Gas Policy as “consistent with many other nations,” the New Hampshire-based consultant questions the spirit behind the new law, noting that the “language in the draft Bill represents a significant departure from the existing (1985) Act and (the 1999) model PSA and does not improve the situation”.

The review further suggests that “these changes, by and large, will be viewed negatively by the international oil industry.” The consequences of this would be a possible domination of Uganda’s oil sector by the firms that are already active here like Tullow, China National Offshore Oil Corporation and Total.
“As the Chamber of Mines and Petroleum, we want to work towards making our MPs legislate from an informed point of view that takes account of what is happening elsewhere.

"Once our parliament is informed, we will achieve clarity in the law so that Uganda is an attractive investment destination,” said Mr Karuhanga, who also doubles as Tullow chairman.

And although he is on record as saying the oil companies’ tactics “are all part of international conspiracies to exploit countries like Uganda,” Mr Onek also says the oil companies have nothing to fear, as the proposed law is still a long way from enactment.