Sunshine rule set to shine light on oil & mining in Uganda

Source of Article: OXFAM

Most of Uganda’s minerals remain in the ground, making it a unique and important time for Ugandan citizens and civil society to put new global transparency rules to the test.

When Uganda announced the discovery of commercially viable oil reserves in 2006, local reactions were mixed. Many were excited about the potential of the new government revenue stream to bring investment and rapid development to the country. Others were skeptical that the oil would lead to widespread prosperity given the country’s history of graft, endemic misuse of public funds, and the poor track record of other resource-rich developing countries. Recent actions in the US andEuropean Union, though, mean Ugandans are guaranteed more information about how much the government receives from this emerging sector.

Which is great news, and oh so needed.

According to 2012 World Bank World Wide Governance indicators, Uganda lost $286 million annually from corruption. Bribery, embezzlement and graft persist from local levels of government to the highest executive offices. Most notably, in 2012 the Office of the Prime Minister was alleged to have stolen 12.7 million dollars in donor funds intended for recovery programs in war-torn Northern Uganda.

In light of this history of corruption, Ugandan civil society has repeatedly called on government to adopt transparency mechanisms for the management of public finances, particularly in the country’s oil and mining sectors. The government has begun sharing more information regarding oil and mining developments, yet critical pieces of information such as contracts, production sharing figures, and company payments to government have not been made public. This opacity presents a serious risk for extractive sector revenues to be mismanaged and diverted from much needed public services.

In fact, even though oil has yet to leave the ground in Uganda there is already evidence of mismanagement of pre-production revenues. So instead of seeing the benefits of oil revenues in the form of school repair or a stronger electrical grid, Ugandans learn about oil money in the headlines of local newspapers detailing the latest scandals.

With the emergence of new sources of information, such as the disclosures mandated by the European Union, Canada and the long-awaited US Securities Exchange Commissions (SEC) rule to govern the implementation of the Dodd-Frank Wall Street Reform Act’s Section 1504, local civil society can more effectively monitor extractive industry revenue to help ensure that profits are used for the benefit of Uganda’s citizens.

The European Union laws are already producing public data relevant to Uganda. Tullow Oil reported a $36 million capital gains tax payment while Total, the French company, has reported its 2015 license fee payments.

These new disclosures are especially vital for Ugandans living in the regions where resources are being extracted. Currently, oil and mineral-producing districts in Uganda are entitled to a certain percentage of production royalties. This is good, and very important – but because local and national authorities have limited capacity to monitor the actual outputs of sites around the country, it’s extremely difficult for the government, let alone citizens, to hold companies to account.

For example, based on Uganda’s Ministry of Energy and Mineral Development’s 2012-2013 annual report, the government monitored less than one percent – or fewer than 10 of the 873 – operational mining sites in the country. Not only that, but local governments have no mandate to inspect mine output, and thus have no access to data on mining output in the areas they oversee and represent. Thus, no one knows the volume of minerals that leave the mines daily, weekly, or annually. And that’s a problem for government officials and citizens alike.

In this system, there is little to no accountability and officials fear that companies may be under-reporting or misrepresenting their outputs to decrease their tax liability. As a last resort, local governments have tasked sub-county clerks with counting the amount of trucks filled with minerals that go by every day from each mine site to roughly estimate outputs.

Project-level company reports disclosed under the new SEC rule will improve access to payment information for communities and local governments in oil and mineral-producing districts. With this information, local communities can track payments made by a company for projects in their area and ensure that communities get the royalties they are owed.

Since most of Uganda’s oil and minerals haven’t been extracted, the disclosures come at a critical moment. Hopefully, company disclosures will shift the norms of the opaque operating environment in Uganda and help citizens push their government in the same direction. Access to payment data provides citizens more leverage to advocate for domestic transparency measures, and deters potential mismanagement of funds using actual, rather than hypothetical payment information.

With these important benefits of the Dodd-Frank disclosures in mind, civil society groups in Uganda wrote to the SEC in 2015 supporting strong reporting rules for Section 1504 to shine a light in Uganda’s oil and mining industries. And now, a year later, with the SEC rule passed, civil society actors and citizens can prepare to hold their government accountable to using the resources in service of inclusive economic growth and poverty reduction in Uganda.

By Kathleen Brophy (a Research Assistant for Extractive Industries at Oxfam America.)