A Broad Overview

Presentation to Journalists By Shem Byakagaba Managing Consultant Lantern consult International
23rd April, 2013

Shem Byakagaba on Public Fin Bill 1

Oil is a unique, finite resource with a lot of positive and negative impacts on the socioeconomic equilibrium of a country. It needs special regulation. The user cost is critical to the design of both the resource extraction path and the utilization of proceeds from oil

Shem Byakagaba on Public Fin Bill 2

Article 244(1) states that; Subject to clause (2) of this article, Parliament shall make laws regulating: a. The exploitation of minerals, b. The sharing of Royalties, c. The conditions of payment of indemnities arising out of exploitation of minerals and d. The conditions regarding the restoration of derelict lands.

Shem Byakagaba on Public Fin Bill 3

Art 244(2) provides that: “Minerals and mineral ores shall be exploited taking into account the interests of the individual land owners, local governments and the Government.” NB: Section 43 of the 2005 Constitutional Amendment Act vested petroleum in the Government of Uganda on behalf of the people.

Shem Byakagaba on Public Fin Bill 4

Section 5(1) lays down the guiding principles in the development of the oil and gas in Uganda; a) Using finite resources to create lasting benefits b) Efficient resource management c) Transparency and accountability d) Competitiveness and Productivity

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 The

objective of an appropriate Revenue management law should be to ensure that oil revenues are

fairly, equitably and progressively

shared between critical stakeholders like the Government, the Companies, and the private sector
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The management of some natural resources is the responsibility of local governments. The Local Governments Act specifies the relationship between the central government and local governments, including the sharing of government revenue.

Shem Byakagaba on Public Fin Bill 7

However, the law predominantly focuses on the sharing of tax revenue and the formula government uses to allocate this revenue to district governments in the form of conditional and unconditional grants. The Local Governments Act does not recognize, in the fiscal sense, the region of origin of natural resources. Hence, it is largely silent on the issue of derivation funds.
Shem Byakagaba on Public Fin Bill 8

The Act under Section 98(2) provides for the sharing of royalties between central government, local governments and owners or lawful occupiers of land subject to mineral rights in the manner specified in the Second Schedule to the Act. Under the Second Schedule, the distribution of the 3 percent royalty is as follows: central government receives 80 percent; local governments receive 17 percent and the owners or lawful occupiers of land subject to mineral rights are entitled to 3 percent. The Mining Act therefore, provides the strongest precedent to the proposed derivation formula for the oil and gas sector

Shem Byakagaba on Public Fin Bill 9

The Act restored to traditional rulers assets and properties previously owned by them or connected with or attached to their offices but which were confiscated by the state. The Act restored full estate or interest to traditional rulers as they enjoyed before the 1967 Republican constitution, and at least as much as was previously held by the Uganda Land Commission.

Shem Byakagaba on Public Fin Bill 10

Revenue management should ideally focus on the following :
 Saving

for the future generation  Achieving economic stability  Responsible and beneficial spending and investment

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 Stabilization

stabilize the economy during volatile periods  Inter-generational funds-a saving for the future generation
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Funds - meant to

12

Why does oil Revenue management matter?

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• •


• • •

Large scale production started: 1972 Oil revenue collected in 2010: $44 billion Proved barrels remaining: 6.7 billion GDP per capita: $97,255 Education spending: 16% of budget Rural population without access to clean drinking water: 0%

Norway

Critical features
Shem Byakagaba on Public Fin Bill 14

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• • •

Large scale production started: 1872 Oil revenue collected in 2010: $19 billion Proved barrels remaining: 7 billion GDP per capita: $6,832 Education spending: 11% of budget Rural population without access to clean drinking water: 29%

Azerbaijan

Critical features
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Norway-

Investment

Azerbaijan- Consumption!!

Shem Byakagaba on Public Fin Bill 16

How did Norway, Chile, Indonesia and Malaysia transform their resources into wellbeing?

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Prudent macroeconomic management
Public investment in human capital and infrastructure (through „investing to invest‟)

Creation of good business environment, including political and policy stability
Access to financing and working with the private sector to spur investment Relatively open trade and open investment policies
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Chile & Indonesia

Malaysia
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Could these be our municipalities after oil?

Shem Byakagaba on Public Fin Bill 20

YES, we can transform

Shem Byakagaba on Public Fin Bill 21

The Government passed the oil and gas revenue management policy in February 2012. It focuses on:

1) Assessment and Collection of Government Oil and Gas Revenues 2) Oil Revenue and Inter Governmental Fiscal Transfers 3) Macroeconomic Policy Management 4) Fiscal Rule for Managing Oil and Gas Revenues and 5) Oversight and Controls

Shem Byakagaba on Public Fin Bill 22

The Bill provides for

1) Establishment of a petroleum Fund with the full responsibility under the minister! 2) Collection and deposit of all petroleum revenue to be made into the petroleum Fund 3) Withdraws from the petroleum Fund to be granted by an appropriation Act certified by the Auditor general
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4)

5) 6)

Financial assets from the petroleum fund should not be encumbered through pledging, committal or loan, etc Government should not borrow money from the petroleum Fund Reporting to be done with the involvement of the Accountant General, the Minister, and to Parliament not later than the 30th of September

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7)
8) 9)

Establishment of a petroleum investment reserve Bank of Uganda to manage the petroleum Investment reserve Appointment of an investment advisory committee

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 Schedule

six provides for sharing of revenue from royalties depending on the level of production but the Local governments taking 7% at most  The bill amends the Public Finance and Accountability Act and the Budget Act
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Four main components Royalties Cost recovery Profit oil Income tax

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Oil revenues are:
Volatile Can

damage other industries Are finite Can lead to political instability

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The Dutch disease
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Investing in economic diversification  Health  Education  Infrastructure (e.g. electricity; roads; telecommunications)  High-potential sectors (e.g. financial; tourism; agriculture)

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1.

2.

3.

The minister is vested with too much power The Bill amends by implication many other laws including the budget Act and the Public Finance act without due regard to the details and implications The capacity and independence of institutions like the BOU, URA, Accountant General and Auditor general are not addressed

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4.
5. 6.

Parliament‟s oversight on all key decisions is required Share for land owners & cultural Institutions is not catered for Petroleum Revenue management law should be separate from general Public Finance to address 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 avis investment What investment should Uganda prioritize?

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Wish you God‟s Blessings

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