News: Project level disclosures open up Uganda’s opaque oil sector

Source: Winnie Ngabiirwe, Global Rights Alert

This post also appears on ExtractAFact.org

Uganda is on the verge of an oil boom. At least 6.5 billion barrels have been discovered from less than 40% of the country’s oil regions making Uganda’s oil fields the third largest by reserves in sub-Saharan Africa. Once production starts, the revenues from oil are projected to substantially impact the domestic budget. If managed well, the expected oil revenues could transform the economy and dramatically improve living conditions for Uganda’s 37 million citizens, 13 million of whom live on less than $1.90 per day. Without proper management, oil revenues could instead exacerbate poverty by further perpetuating Uganda’s long history of endemic government corruption.

The government of Uganda has been mired by several high-level cases of corruption that deprive citizens of much needed funding for public services, and directly undermine billions of dollars in foreign aid Uganda receives annually. In fact, after one particular instance of embezzlement of funds in the Office of the Prime Minister in 2012, many major western donors temporarily suspended aid to the country. According to a 2013 report by Human Rights Watch, corruption has permeated all levels of government creating a destructive culture of impunity.

Seeking a means through which to address entrenched corruption in the country, the Civil Society Coalition on Oil & Gas in Uganda wrote in 2015 to the United States Securities and Exchange Commission. The group called on the agency to pass a strong rule mandating project-by-project disclosure from US-listed oil and mining companies that would bring much needed information to Ugandan citizens. The idea was enthusiastically welcomed considering that civil society has been largely unable to influence the Ugandan government to provide access to oil sector information despite several attempts.

Despite having a strong Access to Information Act in place, Ugandans lack access to almost all meaningful information regarding the country’s developing oil sector. While the government feigns interest in implementing various extractive industry governance initiatives , it consistently fails to respond to civil society campaigns for increased transparency. Most citizens have virtually no idea how much oil is in the country’s reserves, or how much revenue the government stands to receive from extraction. In fact, citizens’ most steady source of oil information comes from the local newspapers reporting on the latest scandal financed by pre-production oil payments.

Thus, civil society in Uganda enthusiastically welcomed the idea that more information would soon be made available to citizens through the passage of a strong US extractives transparency rule that required public reporting. While the US rule has stalled, the landmark law set a precedent that has been followed by 30 jurisdictions around the world such as the European Union (EU) and Canada. Despite delays with the SEC rule, Ugandan civil society has benefitted in the meantime from company disclosures filed in compliance with the EU disclosure requirements.

The government of Uganda has issued production licenses to Tullow, Total and China National Offshore Oil Corporation (CNOOC). Tullow and Total are both listed in EU markets and are publicly reporting payments under those UK and French laws. However, CNOOC is listed only on US and Chinese stock exchanges. This creates an uneven reporting regime among companies. The US transparency rule would have required reporting from CNOOC, expanding the availability of payment information for Ugandans about companies that will be operating in their country.

Since Uganda’s oil reserves are still in pre-production, civil society has had difficulty identifying the preliminary payments made by oil companies since these payments are even harder to track than production-based payments. The only major sources of publicly available information are the Bank of Uganda Annual Reports which provide incomplete and ad-hoc disclosure on the activities of the national petroleum fund.

However, with the EU disclosures published in 2016, civil society was able to examine the payment information reported by Tullow and Total and compare this information to the payments disclosed in the Bank of Uganda Annual Reports for fiscal years 2015 and 2016 . This information has been used in direct dialogue with government officials as civil society representatives query discrepancies and demand financial accountability using real data, rather than hypothetical figures.

After reviewing Tullow and Total’s 2015 payment disclosures, civil society representatives found $14 million not included in government reports. Unless these funds were part of a prior transfer into the country’s general budget before the full operationalization of the Petroleum Fund, these $14 million in payments could reasonably be deemed to be missing. Equipped with this kind of information, civil society representatives have had much more valuable, in-depth debate with government officials to demand explanation for the missing funds. Civil society groups no longer have to rely on the political will of a government that has clearly demonstrated its disinterest in transparency. In this way, mandatory disclosure requirements on exchanges in major extractives markets are filling a very real void in Uganda and other resource-rich countries by providing information that would otherwise remain secret.

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The relevance of this work was reinforced in January 2017 when it was revealed that Ugandan President Yoweri Museveni approved the payment of nearly $2 million in oil revenues to various government officials as a “reward” for their involvement in a successful lawsuit between the government of Uganda and Heritage Oil. This case was fought for four years, finally ending with a decision in favor of the government of Uganda over a disputed capital gains tax charge of $434 million. While the President’s decision demonstrates flagrant disregard for protocols set in the recently passed Public Finance Management Act , it also provides civil society monitors with important indications of areas of weakness in the current legal framework that could have been manipulated to allow for this sort of corruption.

Civil society can examine whether the Ugandan government is working under a questionable or unrealistic definition of “petroleum revenues” to artificially narrow the revenues that enter the petroleum fund. Alternatively, the statute outlining the permitted uses for petroleum revenues may be opportunistically misinterpreted to allow for corrupt payments. Or, the executive could simply be ignoring the law altogether.

These are the questions that will help civil society make real progress on effectively preventing future corruption in Uganda. Real progress must be based on real data so that civil society can meaningfully engage with Uganda’s secretive government in demanding answers. For the first time ever, newly available project-level disclosures have provided local civil society groups with the information necessary to query government, conduct investigations and demand accountability. Newfound access to payment information gives Ugandan citizens a much needed chance to inform development priorities and ensure that oil revenues lead to tangible positive outcomes for the citizens of the country. With access to this information, civil society is one step closer to opening Uganda’s opaque oil sector up to all citizens in the hopes that newspaper headlines no longer report on the latest government scandals, but instead on how oil revenues are being managed for the benefit of all rather than a few government elites.

Kathleen Brophy contributed to this piece.