Analysis: Rocky start for Uganda’s oil sector

Prime Minister Amama Mbabazi has been accused of receiving funds to lobby for oil production rights on behalf of the Italian oil firm ENI, which eventually lost its bid for exploration rights to British firm Tullow Oil. Along with Mbabazi, Foreign Affairs Minister Sam Kutesa and Internal Affairs Minister Hilary Onek are both accused of taking bribes from Tullow Oil worth over US$23 million and $8 million respectively. 

The ministers and Tullow Oil deny all the allegations, but MPs on 11 October demanded the ministers’ resignations and formed an ad hoc parliamentary committee to investigate them; Kutesa has now stepped aside from his ministerial position to allow investigations into separate charges of abuse of office and causing financial loss relating to the Commonwealth Heads of Government Meeting held in Uganda in 2007. 

Oil exploration began in Uganda’s northwestern Lake Albert basin nearly a decade ago; the Energy Ministry estimates the country has over two billion barrels of oil; Tullow operates three oil blocks in the region, and had sold off part of its stake to Total and China’s CNOOC. However, following the allegations of bribery, parliament has halted the sale. 

The revelations of possible large-scale graft have caused outrage in the population. The discovery of oil had given hope to a country that despite more than 25 years of relative stability, remains poor. The UN Development Programme reports that 51 percent of the population lives below the poverty line. 

“We were so excited when we heard about oil, we knew we would at least get roads, better electricity supply and better hospitals but now it seems that, as usual, all the money is going into the pockets of a few,” said Asuman Kasule, a taxi driver in the capital, Kampala. 

No regulatory framework

Analysts say that while the allegations of corruption are troubling and must be addressed, Uganda has bigger problems when it comes to its nascent oil industry. Oil production is due to begin as early as 2013, but the country has not put in place a regulatory framework for the oil industry; the existing legislation on oil and gas exploration was passed in 1993, and analysts say it is not sufficient to deal with the current dynamics. 

In addition, the country has not put in place measures to ensure transparency, inclusion of local communities, revenue management and the mitigation of environmental damage. A 2008 National Oil and Gas Policy was intended as a road map for the handling and use of the oil, but critics say many of its recommendations have not been followed.

 

The oil development process has been shrouded in secrecy, breeding confusion and suspicion

“As of today, Uganda does not have an oil revenue management framework,” Richard Businge, senior manager at International Alert, a peace and conflict NGO, told IRIN. “Government’s argument is that the country has sufficient income and tax laws, which is not necessarily the case because the oil industry is a unique one, which requires a more specific revenue management law. The oil development process has been shrouded in secrecy, breeding confusion and suspicion.” 

Transparency

Parliamentarians say oil production sharing agreements dating as far back as 2001 were only shared with them in September 2011. Attorney-General Peter Nyombi Thembo has said the agreements contain confidentiality clauses that prevent the government and parliament from disclosing their contents to third parties. 

During a heated debate on 11 October, parliament passed a resolution banning confidentiality clauses in any future oil contracts with foreign companies. 

“A lot has gone on in the oil industry without the knowledge of the Ugandan public, and a lot is still going on,” Tony Otoa, a researcher with Advocates Coalition for Development and Environment (ACODE), a public policy think-tank, told IRIN. “This sort of secrecy – which covered up patronage, corruption – is what preceded the problems Nigeria had in the early stages of its industry.” 

Otoa said it would be crucial for Uganda to join international mechanisms for transparency in the oil and gas sector such as theExtractive Industries Transparency Initiative (EITI), an international scheme that attempts to set a global standards for transparency in oil, gas and mining. Implementation of EITI would mean regular, accessible publication of all payments by oil companies to governments and all revenues received by governments from oil companies. The National Oil and Gas Policy recommends that Uganda participate in EITI. 

Another such mechanism is Publish What You Pay (PWYP), an international network of civil society organizations that call for oil, gas and mining revenues to form the basis for development and improve the lives of ordinary citizens in resource-rich countries.

“The oil industry is still young, but payments in the millions of dollars have already been made to the government in signing bonuses, licensing fees and so on, but the government has so far been unwilling to share the amounts that have been paid nor the way the money has been spent,” said Winfred Ngabiirwe, of PWYP’s Uganda chapter. “There has been some flip-flopping by the government on whether it will join EITI, but so far there has been no firm commitment.” 

Local communities

Ngabiirwe said transparency and open revenue management would be key to ensuring that the local populations in the oil producing areas were able to benefit from the proceeds of the producti

Oil exploration began in Uganda’s northwestern Lake Albert basin nearly a decade ago; the Energy Ministry estimates the country has over two billion barrels of oil; Tullow operates three oil blocks in the region, and had sold off part of its stake to Total and China’s CNOOC. However, following the allegations of bribery, parliament has halted the sale. 

The revelations of possible large-scale graft have caused outrage in the population. The discovery of oil had given hope to a country that despite more than 25 years of relative stability, remains poor. The UN Development Programme reports that 51 percent of the population lives below the poverty line. 

“We were so excited when we heard about oil, we knew we would at least get roads, better electricity supply and better hospitals but now it seems that, as usual, all the money is going into the pockets of a few,” said Asuman Kasule, a taxi driver in the capital, Kampala. 


Getting prepared

“Our parliamentarians are largely uninformed about the oil sector, so we regularly hold workshops to try and ensure that when the time comes for them to debate an oil bill, they are aware of the key issues that need to be taken into consideration,” he said. “Bodies like the National Environment Management Authority also need their capacity boosted, because they too are inexperienced in the type of environmental damage caused by the oil industry.” 

Another important area, according to Henry Banyenzaki, minister for economic monitoring, would be ensuring that Ugandans are trained and employed in various aspects of the oil industry, and that local businesses are geared towards supplying the oil industry. 

“We are not moving as fast as we should in government because of bureaucracy, but we need to prepare the private sector as well so that they can get the maximum benefit from the industry,” he said. 

Banyenzaki said the government would need to ensure that other key resources – including agriculture and tourism – did not suffer as a result of the focus on oil, a concept known as “Dutch disease”. 

“Uganda’s oil wealth can be transformational for Uganda’s economy but this largely depends on how well it is managed… [but] in the absence of proper revenue management and critical forward thinking, the exploitation of oil does not necessarily translate into sustainable socio-economic transformation,” said Businge. “

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