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Investing in Oil and Gas in Uganda

Oil was discovered in 2006 in Uganda. Since this time, there has been a shift and a rising interest in the Oil and gas sector within Uganda. Not to say that oil was nonexistent before, but this was the first time we had enough oil to venture into the commercial market. According to the 1995 Constitution, the government holds ownership and control of all petroleum resources within the country and all laws that govern this are laid out in the Petroleum (Exploration, Development, and Production) Act 2013.

The government of Uganda’s goal is to ensure the sustainable utilization of petroleum resources. Policy guidance in the oil and gas sector is controlled by the Ministry of Energy and Mineral Development (MEMD). The Ministry is mandated to oversee the exploitation and development of natural and petroleum resources in Uganda; in particular, the Ministry manages private sector parties through the issuance of licenses and the negotiation of petroleum agreements. 

Credit: Independent.co.ug

The good Lord put oil and gas out there for us to find and use, and we’d better do it

Red Adair

The two regulatory institutions that regulate petroleum within Uganda are stipulated by legislation. These institutions assist the Ministry with its mandate and ensure effective management of the sector. These include;

Given the high demand for investments in the oil and gas sector, the head of the MEMD is empowered by the Upstream Law to enter into petroleum agreements with private investors. The Upstream Law gives effect to the constitution and regulates petroleum exploration, development, and production. 

We are currently working with a two-tier system licensing regime consisting of:

The license allows the licensee exclusive rights to execute petroleum operations within defined contract areas, as under an exploration license, and explore for petroleum. Where discovery is made, the licensee then applies for a production license.

Previously, any interested investors would express their interest directly to MEMD and the parties engaged in negotiations for the exploration license and the Petroleum Sharing  Agreements. Today, one acquires an exploration license through open bidding or direct applications. The Minister, upon obtaining approval from the cabinet then makes it known to stakeholders and interested parties when the bidding processes for petroleum exploration licenses will open. Interested investors then apply to the Minister in writing, expressing interest to participate in the bidding round, with the prescribed fee enclosed.

One would need to acquire the following requirements;

Any applicants must furnish security or a performance bond to execute obligations under the exploration license. Additionally, an applicant must present an insurance policy capable of covering liabilities while executing operations under this license.

Now you might have concerns as to what happens when the investors are foreign. We cannot ignore the fact that the majority of the investors in Uganda are and will be foreigners. Because of this, the government set up some regulations to govern this likelihood. According to Objective (vii) of the National Oil and Gas Policy, 2008, there should be optimum national participation in oil and gas activities. Ideally, Uganda must not be left behind. To achieve this, the following requirements are desired;

Investing in Uganda as a Foreigner

In the past two years, you might have noticed several foreign companies have said farewell to our Uganda borders and made decisions to invest in other countries. Companies like Shoprite, Vodaphone, and Pep, packed their bags one day and felt that Uganda was no longer conducive for their investments to thrive.

It is safe to say that this is the sort of break-up that is solely our fault. Their continued losses no longer justified their commitment to Uganda’s economy. This is something that was only escalated by the recent pandemic. It is no use crying over spilt milk, and though it may be an important topic for us to dive into, this article is more about how these foreign companies came to invest in Uganda in the first place. How can invest in Uganda today?

Credit: Government of Uganda

“An investment in knowledge pays the best interest.”

Benjamin Franklin

It is clear that with the number of foreign companies in Uganda today, the government of Uganda is interested in foreign investments. A foreign investor could be a natural person not a citizen of the East African Community countries, a company not incorporated under the laws of the East African Community states or with majority shares held by non-citizens or controlling interest in a partnership owned by persons not members of the East African Community states. The minimum investment capital requirement for foreign investors is USD 250,000. This is to enable them to qualify to register as an investor and receive an investment license.

For a person to register for an investment licence, they must do so by making an application: An application for an investment certificate shall be in a form prescribed by the Authority and shall include— 

(a) the full name and address of the applicant; 

(b) the shareholders and nationality of the business enterprise 

(c) the nature of the business, its capital structure, business plan and the amount to be invested

(d) such other information, documents or particulars as may be specified in the application form. 

What incentives are available for investors?

To maximize the returns of an investor in Uganda one must rely on various incentives. To acquire status to enjoy these incentives, an investor must meet various requirements established in the act. These include;

a) Meeting the minimum investment capital requirements 

b) Engaging in priority areas 

c) Exporting at least 80% of the produce

d) Providing at least a 30% substitution on the value of the imported goods 

e) Using at least 70% of locally sourced raw materials

f) Having at least 60% of employees as citizens 

g) Introducing advanced technology or upgrading the available technology.

This will enable the investor to qualify for a certificate for incentives. Though the law of Uganda adequately awards different incentives to investors, it also provides for specific foreign businesses that would not be privy to these benefits. These include any business that involves wholesale and retail commerce, personal service sector, public relations business, car hire services and operation of taxis, bakeries, confectioneries and food processing for the Ugandan market alone. 

There is a beauty that comes with investing in Uganda. Article 26 of the Constitution of Uganda, allows a person to own property. This does not exclude foreign investors. A foreign investor has a right to own and use the property. The Investment Code Act continues to emphasise this right, under section 26 stating that no business enterprise, interest or right of a registered investor shall be compulsorily taken or acquired from an investor except by the Constitution.

Restrictions:

The Investment Code Act states that they shall not carry on the business of crop production, animal production or acquire or be granted or lease land for crop production or animal production. An exception is provided for the provision of materials and any other assistance to Ugandan farmers in crop production and animal production or in cases of leasing land for purposes of manufacturing or carrying out the activities where foreign investors cannot get incentives and a priority area for investment.