Governance of Uganda’s oil, gas and mining sector remains weak

By Julius Barigaba

Despite improvements in the governance of Uganda’s natural resources, its nascent oil and gas sector — as well as that of mining — are still classified as weak, with widening gaps between the laws and practice, that could impact the country’s push for transparency, a new index reveals.

The 2021 Resource Governance Index (RGI) released on September 2, shows Uganda scored 49 points — an improvement by five points in 2017 — in the petroleum sector, while in mining it registered 55 points.

'Failing score'

The index, published by the Natural Resources Governance Institute (NRGI), said the higher score for oil and gas is driven by improvements in revenue transparency, governance of Uganda National Oil Company and reporting on the Petroleum Fund.

“Despite the positive upward trend, challenges remain, placing the governance of Uganda’s oil and gas sector in the ‘weak’ performance band of the RGI,” said the index.

For instance, oil and gas licensing received a “failing” score, hampered by the absence of a cadastre, lack of beneficial ownership rules on public disclosures and the government’s failure to disclose contracts with oil and gas companies.

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The NRGI added that although numerical fiscal rules are documented in a public policy, these are not enshrined in law and there is no adherence requirement or monitoring by the government.

The NRGI is a New York-based not-for-profit organisation, which advocates for good governance in natural resources.

Speaking to The EastAfrican, Paul Bagabo, the Uganda-based senior officer for the NRGI said there are some failings in the licensing process, which the country needs to address in order to build a more transparent sector that is at par with better performing countries.

“Without a publicly available cadastre showing who has the licences for which blocks, and without the disclosure of contracts between the government and companies, we Ugandans are largely in the dark about who has the right to explore and extract oil, and on what terms,” he said.

“We also don’t know who owns the companies with which the government does business, and therefore are in need of laws requiring the public identification of ‘beneficial owners,’” he added.

Mining

Indeed, Uganda is playing catch up with Tanzania, the other country in the region that is rated in the 2021 index, and whose oil and mining sectors scored 55 and 58 points respectively, although it also has many areas to improve to get out of the “weak” category.

Tanzania’s mining sector score increased by nine points since the 2017 index, largely to improvements in the governance of revenue management, but value realisation placed at the lower end of “satisfactory”, while the broader enabling environment placed firmly within the weak performance band.

Coming at a time when Uganda is preparing to take its first transparency test before the Oslo-based Extractives Industry Transparency Initiative (EITI), the index is timely to fill the gaps and inform the government’s first report to the EITI in 2022, Mr Bagabo said.

In August last year, Uganda was admitted to the EITI — the global watchdog of the extractives industry — pending the country’s implementation of standards for full disclosure across five areas, which will lead to its full membership next year.

Moses Kaggwa, the director of Economic Affairs at the Ministry of Finance, who also doubles as the chairman of Uganda’s EITI multi-stakeholder group, said the government is keen to improve its governance.

Rules

However, the 2021 report and index also found Uganda’s governance of local impacts of oil and gas projects to be lacking, citing the inability of citizens to access environmental and social impact assessments without a waiting period and at a fee.

In addition, the report notes that despite improvements to the governance of Uganda’s Petroleum Fund, the laws regarding deposits, withdrawals and investment rules that govern this account, scored poorly.

“A transparent and accountable oil and gas regime would ensure that revenues from oil operations are invested wisely to avoid ‘stranded assets’ as importing countries reduce their appetite for fossil fuels,” said Mr Bagabo.

Despite Uganda’s mining sector being placed in the “weak” performance band, with several challenges, the score also reflects positive features including the existence of an open mining cadastre, reforms in the fiscal regime and robust rules for disclosure and auditing of subnational resource revenue sharing mechanism.

Issues exist within the licensing process and the governance of local impacts, the index notes, adding that the broader enabling environment is also an obstacle to good governance, with the index’s control of corruption subcomponent scoring as “failing.”

Uganda has a variety of mineral deposits but it is the gold sector that has expanded substantially since 2015, with a number of refineries now operating in the country; in 2015 gold exports were valued at approximately $120 million, but by 2019 they accounted for over $1.7 billion, 57 percent of which is all merchandise trade. For petroleum, Uganda discoveries amount to 6.5 billion barrels of oil and 0.5 million cubic metres of gas, mostly located in the Lake Albert region, with confirmed reserves of 1.4-1.7 billion barrels of oil.

This article first appeared in the Daily Monitor.

Photo: NMG