Can Uganda achieve intergenerational equity in the use of oil and gas resources?

YES. From a published paper entitled ‘Accelerating Growth and maintaining Intergenerational Equity using Oil resources in Uganda,’ presented by researchers from the Economic Policy Research Centre (EPRC), Makerere University, in Kampala on 10th December 2013. It is possible.

A paper by Lawrence Bategeka, a Senior Research Fellow at EPRC and Joseph Mawejje a research analyst at EPRC, suggests things Uganda should do right to avoid the resource curse and ensure that the benefits from oil accrue equally to the current and future generations.

The two researchers argue that with a robust legal regime, strong independent institutions, transparency in government operations, communication, prudent public financial management, and responsible environmental management practices, intergenerational equity in respect of use of oil and gas resources is possible.

However, the situation in most Africa countries, is that discoveries of significant oil resources has invariably been associated with a ‘natural resource curse’ with “Dutch Disease” as one of the major explanations for it.

Although there are arguments of ‘no such a thing as a natural resource curse as you cannot have abundant resources and you say it is a natural resource curse. It is a governance curse,” said Professor Julius Kiiza of Makerere University.

Bategeka, who presented the research findings says the various interest groups likely to compete for oil revenues foreign oil companies; high level government officials and politicians, who govern the country.

“The interaction of these groups is important for intergenerational equity as regards oil revenues; it must be within a good institutional framework and transparent, says Bategeka.

The paper focuses on three issues: resource, oil revenue and environmental management. It explains the legal and regulatory framework - the National Oil and Gas Policy, which proposed three key institutions; Directorate of Petroleum in Ministry of Energy to provide monitoring and policy direction, The Petroleum Authority – as regulator of the sector; and the National Oil Company – to manage the commercial aspects of the petroleum activities on behalf of the state.

It also presents the laws to make the National Oil and Gas Policy operational, which include the Petroleum (Exploration Development and Production) Act 2013; the Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Act 2013 as well as the Public Finance Bill (2012); it has a special chapter on management of oil revenue, within the framework of the national budget.

To carry out this perception study several relevant documents were reviewed, there were visits to the Lake Albert oil Graben and interviews of key players in the sector.
For Uganda’s readiness in terms of resource management, the paper says there is not yet enough geological capacity for oil exploration and extraction; no transparency in procurement processes; land Rights and social equity are still lacking and there is conflicting legislation.

Specifically for revenue management it recognizes the immense macroeconomic, fiscal and governance challenges associated with management of windfall revenues.

However, so far the discussion has mainly focused on creation of sovereign wealth funds while there is inadequate focus for public finance management and there are just too many government accounts; even the Accountant general can open even more says Bategeka.

Meanwhile, the IMF wants a Single Treasury Account for the oil which should be easier to manage and a little more transparent.

The paper suggests more transparency in oil activities; signing onto EITI and making Production Sharing Agreements (PSAs) public.

For the Fiscal and monetary policy management it suggests the non-oil deficit as a fiscal anchor and managing the exchange rate trend (beyond volatility) to ensure that non-oil exports remain competitive.

To properly manage the revenue, the tax revenue base should be broadened as this could be made worse because of oil revenues. So deliberate actions are needed to widen the tax revenue base, says Bategeka.

They also advised that Uganda government should not engage in any borrowing to be secured on the basis of expected oil and gas revenues. Currently, donors would want to cash into the oil money and are persuading the Uganda government to frontload infrastructure development using foreign aid!

The paper points out that the rules that govern the Petroleum Fund are still not clear; its objectives are not precise with questions of whether is it a stabilization fund or an investment fund?

There is still a big debate on revenue expenditure options like is it necessary to spend on infrastructure or spending on supporting performance of the non-oil productive sectors -agriculture and manufacturing- and building the production capacity of the economy?

There is adequacy of the existing legislation on revenue management. The paper argues that because of the anticipated size of oil revenue, volatility of oil revenue, and exhaustible nature of the resource, a separate bill for petroleum revenue management is needed.

Management of the Petroleum Fund needs review to specify details on where the PF accounts are to be located and the governing body of the fund. Should it be Bank of Uganda?

The petroleum investment policy is very open by the provision in section 59(c), which allows the Minister to invest oil money in “any other qualifying instrument prescribed by the Minister”

About environmental management in oil production, it is said that the extent to which oil and gas development negatively affects the environment depends on; the size of extractive activities; sensitivity of the location of each activity; technology used, impact on the environment and on bio-diversity as well as institutional capacity for environmental protection.

Ensuring that oil benefits current generations as well as future generations requires deliberate environmental management says the study.

Lawrence Bategeka, Senior Research Fellow at EPRC

 

 

 Joseph Mawejje a research analyst at EPRC