Capability Building in Africa

This month I would like to relate a recent trip to a country that is just starting out on its oil and gas journey.  It was a fascinating visit and very thought provoking.  I’d like to start this article with a short description of the visit and end with a brief request for help.  I’ll be asking for your brief thoughts on the subject of best practice in oil and gas – your “Top Tip”.  Your contribution will take a tiny amount of your time but could have a big impact on the work of dedicated government officials in a developing country.  Please read on!

In October I travelled to Kampala, Uganda, to assist with capability building in the oil and gas industry.  Together with Norton Rose we delivered a training programme titled “Oil and Gas Legislation and Agreements”.  This programme was sponsored and organised by the British High Commission in Kampala.

The aim of the 5 day course was to give the business and legal perspectives on how legislation and agreements work in oil and gas.  The programme was attended by 23 government officials – senior folks drawn from various government departments including the Ministry of Justice, Law Reform Commission, Directorate of Civil Litigation, Directorate of Legal Advisory Services, First Parliamentary Council, Registration Services Bureau, Revenue Authority, Ministry of Finance, and the Ministry of Energy and Mineral Development

It was very clear that delegates are eager to do the best for their country and to ensure that the oil and gas industry develops in the optimum way.  All were therefore keen to learn as much as possible within the short amount of time we had together and as we went through each topic of the programme in turn the most common question by far was “What is best practice?”

This is a very valid and topical question.  Despite the heightened international media interest and increased local expectations driven by recent exploration success, the oil and gas industry in Uganda is still very much in its infancy.  In a strange way, initial success with the drill bit has underlined just how much uncertainty there is over how and what time frame the oil industry there will develop.

Therefore, when delegates asked about “What is best practice?” they were trying to find out what would be the most appropriate approach for Uganda to take.

For me, best practice is not something that can necessarily be lifted from one country or region and directly inserted into another.  Given the complexity of our industry and its challenges, off the shelf solutions will probably not work for Uganda (nor anywhere else starting out on its oil and gas journey).  The secret is to design legislation that uniquely addresses the needs of the local situation.  This will almost certainly require taking a look at what other countries have done and perhaps then hand-picking some approaches that have been tried before.  But the final solution should be uniquely Ugandan.

Amongst the factors to consider when drafting such legislation will be:

  • National policies and strategies and how oil and gas fits in to the development of the country.
  • The degree to which the State wishes to share risk with investors.
  • The level of desired competition within the country.
  • How to encourage activity by investors (e.g. encouraging exploration).

Those are my thoughts on best practice in oil and gas legislation and agreements, but what are yours?

This note is going out to many people in the industry with a collective experience of literally thousands and thousands of years.  The politicians, NGOs, development agencies and others all have their views on best practice in legislation and agreements, but what do the industry insiders amongst us think?

Please use the comments area to suggest the one thing that you think is important to get right in the area of oil and gas legislation and agreements.  If you prefer you can leave your comment anonymously.  Or you can email me directly.  Either way, I will ensure that your experience and insights are passed on to my friends in Uganda.

For those reading this in Kampala please feel free to comment on the nature of the challenges you face, as you see it, or to debate the issue that I have raised.

I look forward to reading your comments!

Comments

  1. Anonymous says:

    Hi Angus,

    My top two “best practices” : design sustainable contracts between investors and the government, with respect to sharing of risks taken and rent derived from investments; and of course maintain consistent fiscal and legal regulations.

    david

  2. Hi Angus,

    The top of the list in your suggestions”National policies and strategies and how oil and gas fits in to the development of the country” encompasses my top best practices. The first is the establishment of a Sovereign Wealth Fund akin to that established by the Norwegians and more recently by the Ghanians. I believe the Ghanian government received help from the Norwegians on adapting the SWF model for Ghana. This type of legislation by it’s very nature reduces the corruptive influence of sudden, large revenues accruing to developing countries when oil is discovered. It also provides a nest egg for when this finite resource does become exhausted. Finally it forces the Ugandan government to think in the medium to long term in planning the development of the Ugandan nation, a necessary criterion for effective nation building.

    My second top Best Practice is enacting legislation that provides for the development of local (Ugandan) content in the provision of goods and services to the Oil & Gas industry. This suggestion often results in howls of protectionism as if it were a bad word, self-preservation is probably a more appropriate one and we mustn’t forget, the Ugandan’s government’s primary responsibility is to provide for its citizens. Uganda must develop oil industry related local skills and competencies in order that Ugandan’s benefit from the various support industries to the oil industry. Fabrication yards, expert welders, fitters, steel rolling mills, earth science competency, data processing, insurance services, refinery operations and so on can provide significant revenue to their government and employment for their people. Despite the stated CSR practices of IOC’s it is clear that they rarely seek local skills and services in the countries where they operate unless they are arm-twisted into doing so, the Niger Delta in Nigeria is a case in point.

    Brgds,

    Etan

  3. Peter Smith says:

    Hi Angus,

    My thought on Uganda:
    I assume that other people are worrying about the governance issues to protect the environment and avoid the famous resource curse suffered by other emerging market countries, suddenly overwhelmed by petroleum wealth.

    My main thought is on how can they bootstrap themselves as knowledgeable operators. Just focusing on smart legislation is not enough. They need to take the opportunity to develop a national technical and management capability.
    We don’t want them to waste time and effort to produce a classic NOC.
    However, there are some countries where the NOC’s have worked reasonably well where they are in competition with the IOC’s:
    Colombia (Ecopetrol), I think, may be a good example to look at , and may be Peru (Peru Petro) and distinguish what made these better models than PDVSA and PEMEX . (Fair competition?). A NOC that’s separate from the oil ministry and on an equal footing with all other operators could also enter into partnerships with IOC’s (assuming they have access to capital and cash flow) and thus participate in blow-by-blow decision making to gain a realistic business/technical perspective.
    It would need outside financial support at first and probably would employ quite a few expats who would be gradually replaced by nationals to produce a balanced mix.

    Cheers

    Peter

  4. John Paul Edoku says:

    Dear Angus,

    Good to here from you and share the thoughts.

    In my opinion, “best petroleum practices” refers to the best available practices that are generally accepted as good, safe and efficient in carrying out petroleum activities and that can be applied globally under similar circumstances. For instance, use of modern and efficient equipments that are health and environmentally safe.”
    I hope it will be helpful with modifications.
    Regards,

    John Paul

  5. Keith Myers says:

    Angus,
    I was in Kampala in October going through the law with parliament. We did a complete analysis of the draft law which they used to prioritise the issues. Key themes-

    Institutions
    Licensing
    Transparency and Accountability
    Social and Environmental Impact
    Revenue Management

    Cheers

    Keith

  6. Tudor Rees says:

    Angus

    I have found that most refiners that are starting out have loss levels of about 1% of throughput and that I suggest you draw their attention to the measurement and accounting procedures produced by the IP now the IE.

    Regards

    Tudor

  7. Joseph Muriithi says:

    Best practices must be strategies informed &driven.The strategies as you rightly say need to be case specific but could”borrow ” from best experiences,practices and ideas.No need to reinvent the wheel.

    It is imperative to craft winning strategies in :-entry ,coping with the turbulent oil exploration and product phases taking into account all “environments”(social,legal,political and competitors)in the industry.

    Engaging the host local community in a structured way is necessary to help manage expectations and expound on CSR angle.Conflict management is an integral cog.

    Trust you find these comments helpful,the Angolan case an Nigerian case are relevant to contextualize the comments.

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