The Petroleum Fund currently has $ 72 million dollars and Shs 10bn on its Shillings account instead of the $709 that was collected
At least Shs 2 trillion oil revenues has already been spent on infrastructure and other energy projects, a report of the Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) reveals. However, the report adopted by parliament last week, does not give details of how and where the money was spent, but the Secretary to the Treasury in a letter, states the money was spent on the construction of Karuma hydro power plant.
One of the terms of reference for the Committee was to establish all revenues received in the Petroleum Fund. Accordingly, during the investigations, the Committee requested the Office of the Auditor General (AOG) to conduct a special audit to establish all revenues received by government in respect of the Petroleum Fund. After the audit, the report notes, it was discovered that so far, government received $709 million dollars in petroleum revenues between 2011 – March, 2017.
“The Committee established that a sum of $709 million dollars which has been ring fenced for infrastructure and energy development, accrued to the sector since petroleum activities started,” the report reads in part. However, as at 14th March, 2017, the Petroleum Fund had only $ 72.5 million dollars on its dollar account and a paltry Shs 10bn on its Shillings account.
“Out of this, $633.7 million dollars (approximately Shs 2.2 trillion) was transferred to the Consolidated Fund [and spent on Karuma hydro power project] while the sum of $72.3 million dollars is being held in dollar account and Shs 10bn Shillings account in the Petroleum Fund.
The Committee report reveals that by the time the Public Finance Management Act came into force in February, 2015, the oil revenue account in Bank of Uganda had a total of Shs 1.36 trillion, which was transferred to the consolidated fund.
In the report, MPs question, why Shs 1.36 trillion was transferred from the Oil Revenues Account in Bank of Uganda to the Consolidated Fund, instead of transferring it to the Petroleum Fund as required by the Public Finance and Accountability Act, 2015, as the fund’s opening balance.
However, in a letter dated June, 24th, 2015, jointly signed by Mr Keith Muhakanizi the Secretary to the Treasury and Mr Lawrence Ssemakula the Accountant General, and seen by our writer, the duo directed the director in charge of Banking at Bank of Uganda to transfer the money, close the account and open a new account in the name of the Uganda Petroleum Fund.
“Prior to the enactment of the PFMA [Public Finance Management Act, 2015], the oil funds on account were earmarked to support the financial year 2014/2015 budget for Karuma hydro power plant, and were released from the consolidated fund and thus need to be refunded to the Uganda Consolidated Fund (UCF),” the duo wrote and further explained, “In order to operationalize the Petroleum Fund, there is need to open bank accounts for the Fund, where all oil revenues received by government from 6th March, 2015 shall be deposited. I authorize you to open a Uganda Shillings (UGX) and dollar (USD) accounts in the name of Uganda Petroleum Fund.”
According to the letter, the principal signatories to the Petroleum Fund are; Mr Keith Muhakanizi, Mr Patrick Ocailap (deputy Secretary to the Treasury), and Mr Lawrence Ssemakula, the Accountant General.
“The Committee recommends close monitoring and supervision of the activities of the petroleum authority and the Uganda National Oil company Limited. The relevant committees of parliament should receive quarterly reports from the Authority and National Oil Company,” the report recommends.
In January, 2017, the Committee chaired by Hon. Abdul Katuntu (Bugweri MP) was tasked to investigate the controversial Shs 6bn reward to 42 government officials for winning a tax dispute between government of Uganda and Heritage Oil and Gas Limited an arbitration tribunal in Landon in 2015.
The gist of the investigation was to establish the legality of the Shs 6bn rewarded to 42 government officials for their effort in winning a tax arbitration case between government of Uganda and Heritage Oil and Gas Limited in Landon.
In 2010, Heritage Oil and Gas Company Limited sold its participating stake in the Albertine Graben to Tullow Uganda Limited at $ 1.45 billion – a transaction that attracted Capital Gains Tax. However, Heritage objected to tax assessments in the Tax Appeal Tribunal and also initiated arbitration proceedings in Landon against government of Uganda under the United Nations Commission for International Trade Law Arbitration Rules, 1976. The company sought a refund of all monies collected as Capital Gains Tax.
In February 2015, the tribunal dismissed Heritage’s application and awarded government of Uganda $ 4 million dollars in costs incurred in defending the application. The committee established that government hired Curtis Mallet – Provost, Colt &Mosle LLP, a British law firm to represent government of Uganda in the arbitration proceedings at a cost of $8.6 million dollars.
Following the victory, the President acting on a request from senior government officials rewarded the 42 officials with Shs 6bn for their contribution.
The committee observes that the selection of the beneficiaries was not all inclusive. ‘For example, Bernard Sanya, the initiator of the tax two assessments was neither on the first list nor the second list of the beneficiaries. According to the report, there was a lot of informality and arbitrariness in the selection of beneficiaries.
“The committee concluded that the Shs 6n reward was contrary to standard practices of rewarding public officers, as provided for in the law. The President’s approval of the Shs 6bn was bonafide. However, it was an error of judgement,” the report reads.
The Committee recommended that all funds paid out of URA account to beneficiaries of the “handshake” should be refunded and all officers who flouted the law should be held accountable.
Responding to the report, Ali Sekatawa, Assistant Commissioner for Litigation, one of the beneficiaries of the handshake threatened to petition court over the report, arguing that the Committee selectively evaluated evidence before it, and thus came to wrong conclusions. He said parliament has no powers to order him to refund the money, since it was not given parliament. It came from URA’s account that had been appropriated by parliament. Parliament unanimously adopted the report.
“The Committee further established that whereas the costs awarded to URA by the Tax Appeals Tribunal and the High Court of Uganda has not been taxed and recovered, up to approximately $ 15 million has not been recovered. The bill of costs is yet to be filed. The International Arbitration Tribunal in Landon did award Government of Uganda costs amounting to $4 million which also remains unrecovered,” the report reads in part.
The report asks the Attorney General to recover the $ 4million dollars as costs awarded by the arbitration tribunal within 90 days from the date of tabling the report. However, Ali Sekatawa says it will be difficult for government to recover the costs from Heritage Oil and Gas Limited, since the company was delisted from the Landon Stock Exchange.
Following the revelations by former Energy Minister, Syda Bbumba, that she signed the Production Sharing Agreements (PSAs) without reading through the agreements, the report recommends that politicians should be barred from signing such agreements.
“Parliament should revisit section 8 of the Petroleum (Exploration, Development and Production) Act, 2013 with a view of amending it and provide for technical people to be signatories to PSAs. All recoverable costs incurred by oil companies should be submitted to parliament quarterly,” he report reads.
Weighing in on the report, Odonga Otto (Aruu MP), said “The good thing we have a report adopted by parliament, so even if it takes 10 years, the beneficiaries of the handshake will refund that money” he said.
By Edward Ssekika
Is a rock found in your land a mineral and therefore vested in the State?
A family in Oyam District has sued the Government of Uganda and Sino Hydro Corporation Ltd for unlawfully crushing ‘its’ rock into aggregate and using it to construct Karuma hydro-electric power dam without compensation, Oil in Uganda exclusively reveals.
In the suit Etot Paul and others Vs Attorney General and Sino Hydro Corporation Ltd, filed in 2015 in the Land Division of the High Court, the family of Mzee Etot wants court to compel Government and Sino Hydro Corporation Ltd – a Chinese company constructing the 600 megawatts Karuma dam, to pay for aggregate derived from the family rock.
According to the family, it all started in 2012, when the Ministry of Energy and Mineral Development decided to compulsorily acquire land near and around Karuma to pave way for the construction of the dam.
“Part of Mzee Etot’s land was among parcels that government acquired for construction of the dam. However, government only assessed the value of the land and development on it without taking into consideration the value of the rock on the land,” family spokesperson told Oil in Uganda.
The family claims that since it owns the land, it also owns the rock on the land, and therefore deserves compensation for the value of the rock.
“Consequently, government unlawfully took over the family’s parcels of land adjacent to river Nile, and handed it to Sino Hydro Corporation Ltd for the construction of the dam,” the plaint reads, further noting that part of the land which also contains a rock is also their property.
Through their lawyer, George Omunyokol, the family claims Sino Hydro Corporation brought a rock crusher and crushed the rock into aggregate that it is using to construct Karuma hydro-electric power dam free of charge.
Omunyokol argues that stones and rocks are not minerals and therefore government should compensate the family for unlawful use of its rock.
“The stone/rock in our clients land is not a mineral because the Constitution excludes it from minerals,” he states in the plaint.
Omunyokol’s argument is premised on Article 244(1) of the Constitution of Uganda that vests the entire property in and control of all minerals and petroleum in government on behalf of the Citizens.
Article 244 (5) of the Constitution excludes clay, murram, sand or any stone commonly used for building or similar purposes. “So, clearly, the Constitution is clear, it excludes stones from minerals,” Omunyokol told Oil in Uganda.
Consequently, the family hired professional geologists to quantify the value of the rock and according to the technical evaluation report seen by Oil in Uganda, puts the value of the rock at $ 6.5million (approximately Shs 22 billion).
According to the geologists, the rock has capacity to produce about 650,000 tons of aggregates. Therefore, at a market value of $10 (about Shs 33,000/=) per ton, the rock is worth $ 6.5 million (about Shs 22bn). Therefore, in the suit, the family wants court to order government to pay $ 6.5 million in compensation.
In addition, the Chief Government Valuer conducted valuation of the entire family property which includes; the value of crops, buildings and land to worth 813million Uganda shillings. These monies have not been paid to date.
Oil in Uganda has established that government withheld payment of the compensation, due to the standoff over the rock.
The family seeks a declaration that the actions of Sino Hydro Corporation quarrying the family’s rock, crushing it into aggregates and using the aggregates for the construction without compensation is unlawful and unconstitutional and seek compensation for the value of the crushed rock at the market rate.
However, the Attorney General, in a Written Statement of Defense to the suit, insists that a rock is a mineral and therefore vested in government and the family is not entitled to any compensation so court should dismiss the suit with costs.
“In respect of the claim for compensation for the rocks found on the suits, the plaintiffs [family] are not entitled to compensation in view of the provisions of the Constitution read together with various provisions of the Mining Act 2003,” the AG argues in the defense.
According to Andrew Karamagi, the legal argument by George Omunyokol is sound since rock is part of land and is not a mineral, hence its value should be factored into the computation for the final value of the said piece of land.
“There is a Latin maxim about land which argues to the effect that cujus est solum ejus usque ad coelum (translated to mean- he who owns the land owns everything above and below it). In mutatis mutandis with the Constitution of Uganda which precludes minerals, it is clear that this rock is on the land and is therefore part of the impugned land,” he told Oil in Uganda.
Last year, Uganda National Roads Authority (UNRA), was embroiled in wrangle with businessman Pius Mugalaasi, over the value of a rock on the Entebbe- Express highway on his land. The Roads Authority was eventually forced to divert the road.
The value of rocks found on land is becoming an issue given the demand of aggregate for various on-going projects. If for instance the court rules that a rock is not a mineral, and therefore a property of the land owner, even when exploited for commercial purposes, will set a precedent that could raise the value of rocky lands.
Report by Edward Ssekika.
In this part two of our artisanal miners’ series, we delve in the lack of a clear tax framework to generate revenues for local governments from artisan mining activities. We analyze the potential amount of money local governments could generate, but are currently losing from Gold mining operations.
The Mining Score Card recently launched by ActionAid Uganda in partnership with Africa Centre for Mining Policy (ACEMP) and National Planning Authority (NPA) revealed that there is a weak reporting practice in the mining sector.
It also revealed that even though the mining sector has a great potential of contributing to economic growth and poverty alleviation in the country; less has been done to harness this.
The office of the Auditor General last year revealed in his Value-for-Money Audit report 2016 that government had lost at least 4.4 billion shillings (approx.1.3 million dollars) in uncollected mineral royalties in the last five years.
Currently, the government has embarked on undertaking review processes to update the relevant mining legislations. A Draft Green Paper on Mineral Policy is before the cabinet for review and the review of the Mining Act 2003 is yet to commence.
One of the proposed amendments is the regularization of artisanal mining in Uganda to legally recognize them; integrate them in formal tax arrangements; enable them qualify for social goods, services and infrastructure and to increase revenues to local governments for proper managements. The consequences of under-regulation of artisan miners have wide ramifications and are far-reaching. It includes artisan miners not having access to social goods, services and infrastructure put in place by government; not being taxed appropriately; being prone to machinations by unscrupulous individuals in authorities; local governments not being able to realize their revenue collection targets; and being exposed to crime and conflicts.
The lack of clear sub-national taxation arrangements for artisan miners and utilization of revenue collected from artisan mining is denying local governments of much needed revenues. This is mainly not due to policy or legislative deficiencies, but more due to policy implementation and legislative enforcement. Busoga region is rich in mineral resources particularly Aluminous clays, yttrium, and rare metals such as gallium and Scandium estimated at $370 billion (about Shs942 trillion) by Kweri Investments, the company conducting Feasibility studies in the region. This wealth as mentioned in Part one; has attracted an influx of immigrants from all over the country and as far as Kenya who hope to tap into these resources.
According to Methuselah Batambuze, Community Development officer Buddaya sub-county, the population at Nabwala mining site before the influx was about 2000 and the indigenous people were into agriculture. He however noted that in 2015, with the discovery of gold in that area, the population increased to over 10,000 people.
Batambuze adds that when the miners were convinced that gold was ‘finished’, some left in search for new mining sites.
“What you are seeing now are trucks taking the tailings to other places where they are processed using cyanide for better results,” he told Oil in Uganda
Majidu Musisi, who took part in the first exploration and exploitation for gold in the area in the early 1990s, says he has been at it for now 10 years and has made on average 4 million shillings a week on bad days and over 20 million shillings on good days.
“I have invested in real estate and own more than 5 commercial buildings in Bugiri Municipality,” subdued Musisi reveals to Oil in Uganda.
‘I have also created employment for all these people you see in this mining site,’’ he added pointing to hundreds of youth digging for gold around the site.
A simple analysis of the money made by Musisi in one week; at a conservative estimate of UGX 4 million a week, he makes UGX 16 million a month and UGX 192 million a year. He then shares this money with the people he has employed which to our surprise do not even add-up to 50% of the money Musisi earns. A miner who works at the pit is paid a minimum wage of UGX. 25,000 a day. This money is not taxed because Musisi, like other artisanal miners, are still regarded as an illegal miner.
According to the Mining Act 2003, royalties are to be shared with mineral producing districts based on a basic revenue sharing schemes. The Second Schedule to the Mining Act stipulates that the central government is to take 80% of royalties collected and then distribute the remaining 20% as follows; 17% to “local governments” and 3% to “landowners or bona-fide occupants of land subject to mineral rights.”
This presupposes that central government would first collect the royalties before the local government can benefit from the contribution, implying that local governments do not have the right to tax/ collect the royalties. This is undermining revenue generation and social goods and services delivery at local government level. A failure on the part of central government to collect the royalties on time in the right amounts and distribute them accordingly to the beneficial local governments further worsens the revenue situation at local level. Consequently, local governments suffer financial deficiencies and stress.
The above cited revenue sharing scheme is common in mineral rich jurisdictions and therefore is a widely acceptable practice. However, whether it is the best practice for central government to first collect the royalties and then distribute them to the respective beneficiary district is not clear. We do appreciate that it is good practice to recognize the rights of landowners and bona-fide occupants of land where minerals are discovered and exploited. It is our opinion that local governments are given right to collect royalties and deduct what is due to them and remit that due to central government.
Our rough calculation indicates that if this money would, however, be taxed and royalties deducted, the district is to take 10 per cent of the revenues in royalties and it would generate about UGX. 19 million to its budget. This revenue contribution would be just from Musisi and assuming there are 100 other miners in Bugiri district making the same amount of money, it would be UGX. 1.9bn hence make significant contribution to the district budget.
According to the Bugiri district Budget Framework paper 2016/2017, the rest of the district’s UGX 21 billion shillings budget comes from government and donor programmes.
Interestingly, Musisi has never paid a single direct tax from the income derived from the sale of his gold to the ever available gold trading middlemen.
Just like in other mining areas Oil in Uganda has visited, the roads to the mining area where Musisi operates are impassable during the rainy season.
“If you are not round here and you want access my mining area, you cannot access it when you are not driving a four-wheeled car,” he warns.
Sadly, even the basic amenities like a pharmacy or clinic are not available for the miners who work there.
Some of these things would be solved through paying royalties as District revenues would increase.
According to Shafic Butanda, the Acting Community development Officer Bugiri District, in the more than 10 years small scale miners have been in Bugiri district, there has never been any contribution to the district budget from them ‘’Even right now we are going for a budget meeting but the briefing papers have mentioned the potential revenues that could be collected from gold mining’’ He adds.
Unfortunately, there has been no government plan to formalise Small scale mining in the country. And in Bugiri district there is no scheme to collect royalties since the law gives those powers to collect revenues to the government, which then shares with the district, the district officers say they were not even aware they could collect taxes from the small scale miners. Mr Shafic Butanda the Acting Community Development Officer says ‘’they will start looking into ways of raising money from the miners’
However, even in this, there appears to be an attempt to raise royalties from small-scale gold miners in the Neighbouring district of Namayingo, where according to the Banda Subcounty Chairperson Oguttu Bonaventure, they collect some ‘’little’ money from the miners at Nakuddi gold mining site. “What we collect is based on the same rates as the trading license for the shops in the sub-county which is still little money,’’ he says.
A Case study on revenue sharing schemes in the mining areas of Kabale and Moroto districts commissioned by Transparency International Uganda in 2015, found that while the districts complained of lack of information and erratic payment of their royalties share from government, even government itself doesn’t have enough information and depends on the disclosures of the miners to collect royalties, which in the case of small-scale miners is nonexistent.
This is because small scale miners are usually individuals who rent portions of land for mining from an individual, with an agreement to share what is found on the ground, this is what happens in Nabwala Bugiri district and Nakudi in Namayingo district. Taxing individuals has always been hard and there is an effort by various civil society organisations including ActionAid Uganda to help small-scale miners in Uganda form associations, help them acquire mining licenses and formalise their relationship with government.
This turn of events according to Mr Shafic Butanda, Community Development Officer of Bugiri district will prompt the district to look at creating a mining policy modelled on the National mining policy ‘’Maybe that way we can also help our people benefit from the minerals in the district,’’ he says.
We recommend that local governments are given right to collect royalties and deduct what is due to them and remit the rest to central government. This way local government will not starve of revenues.
Report by Collins Hinamundi Oil, Gas and Land reporter
Tanzania Government has expressed concern over delays in the development of the Hoima-Tanga crude oil pipeline, Tanzania Minister for Energy and Mineral Development Prof. Sospeter Muhongo has revealed.
Speaking at the launch of the Front End Engineering Design (FEED) study for the East African Crude Oil Pipeline Project ( EACOP) in Kampala, Prof. Muhongo expressed distress stating that the implementation of the project had been delayed for two months.
“We [Tanzania government] are not happy with the speed at which the project is moving. The launch of FEED was supposed to have been done in November, 2016 and I hope that Uganda can fast-track this process with the contractors to ensure that it is completed within the time frame,” he noted.
He argued that the land acquisition in Uganda is complex compared to Tanzania since in the latter; land belongs to government and is vested in the President making it less strenuous for the project.
“The biggest part of the pipeline will be in Tanzania, something that will make land acquisition for the project easy,” he said.
The FEED study; a fundamental step that will provide detailed engineering design for the pipeline, will be undertaken for eight months by Gulf Interstate Engineering, a Houston, Texas based company and is projected to cost $11.5 (about shs 42bn).
According to Hon. Irene Muloni, Uganda’s Minister for Energy and Mineral Development, the study is expected to identify the actual route and technical designs for the crude oil pipeline as well the estimated cost for the project.
Muloni explained that President Yoweri Museveni has issued a directive to her ministry to ensure ‘first oil’ by 2020.
“Due to the presidential directive, both the oil refinery and crude oil export pipeline will be attended to concurrently and the FEED study shows a clear determination of government to have ‘first oil’ by 2020,” she said.
The East African Crude Oil Pipeline Project (EACOP) is speared-headed by Total E&P Uganda Limited on behalf of the joint venture oil companies and will see construction of a 1,445 Kilometer, 24 inch diameter heated crude oil pipeline.
Muloni further stated that preliminary studies have put the cost of crude oil pipeline at $3.55 billion dollars, but the FEED study is expected to establish the actual cost of the project and hence inform the governments of Uganda and Tanzania as well as joint venture companies to reach a Final Investment Decisions (FID).
According to Jean – Luc Bruggeman, Total’s Mid Stream Project Director, the crude oil pipeline once completed, will be the world’s longest heated pipeline and will require six heating stations from Kabaale to Tanga, a heat tracing system; an electrical cable within the pipeline to keep the temperatures at 50 degrees to enable the oil flow, a fibre optic cable for communications and a high voltage power line.
The Governments of Uganda and Tanzania in partnership with the Lake Albert Upstream Partners (Total, Tullow and CNOOC) last year opted for the Hoima-Tanga route after conducting a feasibility study for the LAPSSET Corridor.
Report by Edward Ssekika.
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