Uganda: Understanding the role of a National Oil Company

Oil rig West-Africa20 November 2013, Kampala – At the height of World War I, the leader of France, Benjamin Clemenceau, called his American counterpart Thomas Woodrow Wilson with a plea: “the allies must not let France run out of petrol which is as necessary as blood in the battles of tomorrow”. At the time, petroleum exploration, production and marketing was dominated by British and American multinational companies such as BP, Standard Oil, Exxon, etc. The suspicion grew among other governments that they could not trust foreign private companies, however well-managed and regardless of their reliable track record, with oil and gas resources in light of the need also to use petroleum for domestic energy stability. This gave birth to the idea of a national oil company. This should be distinguished from multinational/international oil companies which are normally powerful foreign-owned corporations. Some national oil companies are fully owned by their governments while others are co-owned with investors. There are various reasons for the formation of these companies ranging from ensuring security of supply of petroleum products for the local market and building local expertise in the industry, to accessing crucial industry information and participating in exploration, production and marketing of oil and gas. Some companies carry out regulatory, supervisory and monitoring functions on behalf of their governments. Some developing countries established national oil companies due to sheer nationalism and patriotism. Still, others were founded to provide employment to locals in the lucrative oil industry. With the exception of the United States, every major petroleum-producing country has owned or owns a national oil company. The government should now be in the final stages of establishing Uganda’s own oil company. According to the Petroleum (Exploration, Development and Production) Act, 2013, the yet-to-be-named company will be 100 per cent state owned. Its broad objective is to manage Uganda’s commercial aspects of petroleum activities and the participating interests of the state in the petroleum agreements. Much as we are embracing it, the concept of full ownership by the state is falling out of favour around the world due to poor performance of these companies. Modern national oil companies are designed and structured, for all intents and purposes, to be commercial vehicles competing with the multinationals for the oil reserves. – The Observer

About the Author