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Presentation to

Journalists

ByShem Byakagaba

Managing ConsultantLantern consult International

23rd April, 2013

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A Broad Overview

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Oil is a unique, finite resource with a lot ofpositive and negative impacts on the socio-economic equilibrium of a country. It needsspecial regulation.

The user cost is critical to the design of boththe resource extraction path and theutilization of proceeds from oil

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Article 244(1) states that; Subject to clause (2)of this article, Parliament shall make lawsregulating:

a. The exploitation of minerals,

b.The sharing of Royalties,

c. The conditions of payment of indemnitiesarising out of exploitation of minerals and

d.The conditions regarding the restoration ofderelict lands.

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Art 244(2) provides that:Minerals and mineral ores shall be exploitedtaking into account the interests of theindividual land owners, local governments

and the Government.

NB: Section 43 of the 2005 ConstitutionalAmendment Act vested petroleum in the

Government of Uganda on behalf of thepeople.

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Section 5(1) lays down the guiding principles inthe development of the oil and gas inUganda;

a) Using finite resources to create lastingbenefits

b)Efficient resource management

c) Transparency and accountability

d)Competitiveness and Productivity

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The objective of an appropriateRevenue management law shouldbe to ensure that oil revenues arefairly, equitably and progressivelyshared between criticalstakeholders like the Government,the Companies, and the privatesector

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The management of some naturalresources is the responsibility of localgovernments.

The Local Governments Act specifies therelationship between the centralgovernment and local governments,including the sharing of government

revenue.

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However, the law predominantly focuses onthe sharing of tax revenue and the formulagovernment uses to allocate this revenue todistrict governments in the form ofconditional and unconditional grants.

The Local Governments Act does notrecognize, in the fiscal sense, the region of

origin of natural resources. Hence, it islargely silent on the issue of derivationfunds.

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The Act under Section 98(2) provides for thesharing of royalties between centralgovernment, local governments and ownersor lawful occupiers of land subject to mineralrights in the manner specified in the SecondSchedule to the Act.

Under the Second Schedule, the distribution

of the 3 percent royalty is as follows: centralgovernment receives 80 percent; localgovernments receive 17 percent and theowners or lawful occupiers of land subject tomineral rights are entitled to 3 percent.

The Mining Act therefore, provides thestrongest precedent to the proposedderivation formula for the oil and gas sector

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The Act restored to traditional rulersassets and properties previously ownedby them or connected with or attached totheir offices but which were confiscated

by the state. The Act restored full estate or interest to

traditional rulers as they enjoyed beforethe 1967 Republican constitution, and at

least as much as was previously held bythe Uganda Land Commission.

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Revenue management shouldideally focus on the following :

Saving for the future generation

Achieving economic stability

Responsible and beneficial

spending and investment

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Stabilization Funds- meant to

stabilize the economy duringvolatile periods

Inter-generational funds-a

saving for the futuregeneration

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Why does oil Revenuemanagement matter?

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Norway Critical features

Large scale productionstarted: 1972

Oil revenue collected in2010: $44 billion

Proved barrels remaining:

6.7 billion GDP per capita: $97,255 Education spending: 16% ofbudget Rural population without

access to clean drinkingwater: 0%

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Azerbaijan Critical features

Large scale productionstarted: 1872

Oil revenue collected in2010: $19 billion

Proved barrels remaining: 7billion

GDP per capita: $6,832 Education spending: 11% ofbudget Rural population without

access to clean drinkingwater: 29%

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Norway- InvestmentAzerbaijan- Consumption!!

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How did Norway, Chile,

Indonesia and Malaysiatransform their resources intowellbeing?

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Prudent macroeconomic management

Public investment in human capital andinfrastructure (through investing to invest)

Creation of good business environment,including political and policy stability

Access to financing and working with theprivate sector to spur investment

Relatively open trade and open investmentpolicies

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Chile & Indonesia Malaysia

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http://localhost/upload.wikimedia.org/wikipedia/commons/a/a7/Stgo_Abril.jpg

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Could these be our municipalities after oil?

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YES, we can transform

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The Government passed the oil and gasrevenue management policy in February2012.

It focuses on:1) Assessment and Collection of Government Oil

and Gas Revenues2) Oil Revenue and Inter Governmental Fiscal

Transfers3) Macroeconomic Policy Management4) Fiscal Rule for Managing Oil and Gas Revenues

and5) Oversight and Controls

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The Bill provides for1) Establishment of a petroleum Fund

with the full responsibility under theminister!

2) Collection and deposit of allpetroleum revenue to be made intothe petroleum Fund

3) Withdraws from the petroleum Fundto be granted by an appropriation Actcertified by the Auditor general

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4) Financial assets from the petroleum fundshould not be encumbered throughpledging, committal or loan, etc

5) Government should not borrow money fromthe petroleum Fund

6) Reporting to be done with the involvementof the Accountant General, the Minister, and

to Parliament not later than the 30

th

ofSeptember

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7) Establishment of a petroleuminvestment reserve

8) Bank of Uganda to manage thepetroleum Investment reserve

9) Appointment of an investmentadvisory committee

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Schedule six provides for sharingof revenue from royaltiesdepending on the level of

production but the Localgovernments taking 7% at most

The bill amends the Public

Finance and Accountability Actand the Budget Act

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Four main componentsRoyalties

Cost recovery

Profit oil

Income tax

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Oil revenues are:Volatile

Can damage other industriesAre finite

Can lead to political instability

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The Dutchdisease

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1. The minister is vested with too muchpower

2. The Bill amends by implication manyother laws including the budget Act and

the Public Finance act without due regardto the details and implications

3. The capacity and independence ofinstitutions like the BOU, URA,

Accountant General and Auditor generalare not addressed

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4. Parliaments oversight on all key decisions isrequired

5. Share for land owners & cultural Institutionsis not catered for

6. Petroleum Revenue management law shouldbe separate from general Public Finance toaddress uniqueness of petroleum

GOD BLESS

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How do we avoid the Dutch disease? Discuss the appropriate revenue sharing in

light of our local context

Discuss saving for the future vis avisinvestment

What investment should Uganda prioritize?

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Wish you Gods Blessings

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