Oil and Natural Resource Governance lessons for Uganda (http://www.africanexecutive.com/modules/magazine/articles.php?article=7436&magazine=455)
On 11th August 2013,
spending 12 hours enroute from Uganda to Accra, Ghana, notwithstanding, I was
particularly impressed by the Services of the Rwanda Airline. In my hands was the
Rwanda Air magazine which contained articles that project the good lessons
about Rwanda and indeed having a national airline is one of the most effective
conduits to marketing a country. Rwanda airline I learnt through this magazine
now flies to about 17 destinations. This article however is not about the
Rwanda lessons for Uganda, but key lessons from the two weeks Revenue Watch
Institute training on “Governance of oil, Gas and Mining Revenues” that I have
participated in. The objectives of the training were to empower the
participants with requisite knowledge and skills to enable them undertake
independent analysis of fiscal and management policies, transparency and
contracts analysis, and also to help them understand key legislation issues in natural
resource dependent countries. It is against this background I have shared key governance
issues in Uganda and the citizens’
engagement for reforms at large.
Enshrined in literature is the fact that absence of good Governance tends
to lead to resource curse. Examples can be seen in
cases of Democratic Republic of Congo, Nigeria, Angola, and Equatorial Guinea. Good governance is a broad term that encompasses a set of factors that affect decision-making
on public resource management; that is policies, institutions, legislation,
democracy, state capacity, civil society, independence of institutions and
corporate governance. It is evidenced also that most rich economies countries
in African that have low rating in Transparency International corruption
perception index are arguably the resource cursed; the case of transparency
missing where it is needed most.
Ghana is yet to realize full benefits of the oil production.
Having discovered commercial viable oil in 2007 and started production in
November 2010, Ghana is already implementing transparency initiatives like the Dodd
frank Wall Street reform and consumer protection act which was signed in 2010,
the European Union Directive and Extractive
Industries Transparency Initiative membership-EITI (where companies are
required to publish what they pay to governments and governments publish what
they receive from companies). Ghana has since produced nine reports covering
2004-2011 after signing to EITI in 2003 with the last report covering the oil
and gas sector among other minerals, forestry and Fisheries. The Ghana EITI’s
reports have already informed policy and institutional reforms including the
review of fiscal regime in mining industry and development of guidelines for
the utilisation of minerals royalties at the sub national level.
There are allegations that Uganda could be committing
strategic transparency mistakes at the nascent stages of oil development. The
oil debate in Uganda has been marred by rumours and a lack of clear information.
This has been the case particularly in relation to the Production-Sharing Agreements
(PSAs) signed by the government, and associated allegations of bribery. The
Ugandan government has, to date, released partial details of the agreements to
parliament, but has refused to disclose them to the public. The resulting
controversy has been divisive and perhaps even unnecessary. It may well be the
case that the agreements have been well negotiated, as attested by independent
auditors who have examined them. The fact that they nevertheless remain the
centre of speculation and argument underlines the risks of information being
controlled too closely.
Uganda has also
in principle committed itself to Extractive Industries Transparency Initiative
membership (where companies are required to publish what they pay to
governments and governments publish what they receive from companies), but has
not yet taken the necessary steps for inclusion.Uganda has two laws on oil and gas already: the
Petroleum (exploration, development and production) Act 2012 and the mid stream act and is yet to pass the Public finance bill( which
includes oil revenue management). The contention of the ministerial super powers
in petroleum act notwithstanding, it is critical that mandates of the various
institutions are clarified in the regulations of the respective laws and that
these regulations are expedited. Ghana for example has an Oil Revenue Management
Act now two years running but the regulations are yet been developed.
Regulations are basically rules of operationalisng the law.
Though Uganda has
legally recognized the right of citizens to access information held by
government, enshrined in the Access to Information Act (2005), this has not
been fully operationalized, and is in any case contradicted by the provisions
for confidentiality of information envisaged in new oil-related legislation.
The public finance bill which is yet to be submitted
for second parliamentary reading does not envisage the creation of a future
savings fund, or even the stipulation of a formal fiscal rule laying down in
law the percentage of revenues to be invested. Instead, the division of funds
between the regular budget and the Petroleum Investment Reserve will be decided
on a year-by-year basis by the minister and parliament. There is a clear risk
that political pressures will result in revenues being spent rather than invested.
The last three years of increased spending, high supplementary budgets, high
inflation and debate on the independence of parliament from the executive
illustrate this point. Paul collier in 2011 at the Joseph Mubiru Memorial
lecture makes a case that before revenues flow, prudent management requires
establishing how much public spending should increase and how much to increase.
Uganda should in its laws explicitly define clearly the allocation rules of oil
funds to the budget. One option could be defining a limit on total,
primary, or current spending, either in absolute terms, growth rates, or in
percent of GDP. Examples: Botswana rule – ceiling on the
expenditure-to-GDP ratio of 40 percent. The other option is the imposition of
ceilings on overall revenues or revenues from oil and gas entering the
budget. Ghana
law creates that 70% of the annual net oil revenue is allocated to the budget
and the remaining 30% is allocated to the heritage fund (future savings fund)
and stabilisation fund (for contingency purposes incase of fluctuations). Ghana’s
royalty bill is now in parliament for discussion.
The
Revenue watch institute assessment of public finance bill and the proposed
amendments notes that the current public finance bill proposal is for the
Petroleum Fund to be managed by the Ministry of Finance, with operational
management delegated to the Bank of Uganda. The Bank of Uganda may appoint an
external manager. Financial reports are subject to Auditor-General oversight
and Parliament. However, compared to the Chilean, Ghanaian, Timor-Leste or Sao
Tome and Principe revenue management legislation, and compared to Norway’s fund
management regulatory regime, the Ugandan bill lacks managerial details and
independent oversight. The Ugandan legislation could enhanced to include;
Independent external audits that meet international standards and are publicly available,
an independent supervisory committee that reports publicly on the use of
petroleum revenues and compliance with rules, as in Norway and an
independent oversight body consisting of civil society representatives that
reports publicly on the use of petroleum revenues and compliance with rules, as
in Ghana.
The public finance bill and other related laws define
Uganda’s fiscal regime and is blend of income
tax (30%), production sharing agreements with the government, bonuses, surface
fees and royalty (5% to 12.5%) based taxation. The future revenues
generated will depend on how effectively hedge against companies’ innovative
techniques through thin capitalisation, transfer pricing, accelerated
depreciation, discounting of recovery costs. Ring fencing would also be an
ideal policy response- ensuring that each individual mining project is taxed independently.
The aforementioned innovative techniques are avenues of collusion by
responsible government bodies and companies and thus require vigilant oversight
by competent bodies.
The mandate of the oil companies (NATOIL) is not
well grounded in the petroleum (exploration, and development Act 2012. The current version of the PRM chapter does not
include provisions covering the financial flows between NATOIL and the state.
It is critical that this relationship be clarified. There are good examples of national oil companies like
the Norwegian Statoil- which is almost a purely commercial body. At the same
time, there are also bad cases of national companies especially when there is
political interference, when the mandate is not clear, missing rules, and weak
oversight of the national companies. The State Mining Corporation
(STAMICO) in Tanzania which is entirely government-owned has been largely
inactive in recent years, but the government hopes to revitalize it in order to
manage joint ventures with private companies. So far, STAMICO has only taken
part in one joint venture and no information is available on future operations.
The company is audited annually, but does not publish reports on its operations
or revenues.
In a nutshell the
best safe guards are not in the law but rather the informed citizen and the
real source of the curse is not natural resources but rather the economic and
political mismanagement. There is need to develop impeccable agencies for
routine surveillance and monitoring like in Botswana and Norway. Transparency
in public affairs coupled with effective media scrutiny would go a long away in
the illegal rent seekers or corruption and the associated capital flight. Transparency is the cornerstone of Intergenerational
planning by not depleting our reserves today without compromising the benefits
of the future.There is also need to manage expectations as
well creating effective conduits of informing citizens on the regular development
activities in the oil sector.
The governance lessons
withstanding which is the scope of this article, Uganda should also make a
concerted effort to manage the expected windfall economic consequences of
economy overheating by investing in enhancing agricultural productivity, use
public policies to reduce cost of investment, increase efficiency in public
spending, connect to coast, developing local content policies(beyond the oil
sector), implement the environmental safe guards or environment assessment
recommendations as well strategies to engage local communities. The Ghana Public accounts committee has already
held public consultations in the oil producing Western region of the country,
an important step in ensuring local voices and concerns are adequately
represented in the national debate.
