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Be clear on royalty-sharing with cultural institutions

Directions to oil wells in Buliisa District owned by Tullow Oil

Directions to oil wells in Buliisa District. Cultural institutions in the district expect to be treated as entities in their own right in the sharing of royalties from oil production.

The provisions on royalties, if not properly handled, will cause conflicts between the recipient districts, local governments and the cultural or traditional institutions.

By Peter Magelah

One of the important provisions in the Public Finance Bill, 2012 that is being debated in Parliament is Clause 71 which provides for sharing of royalties. This will determine how revenues from royalties will be distributed and shared with local governments and cultural institutions.

The Bill proposes that seven percent of the royalties from oil and gas will be shared with districts located in the petroleum producing areas. It also provides that the districts may share part of this royalty with cultural institutions within the districts.

Parliament has also recommended that only one percent of the royalties meant for districts can be shared with cultural institutions.

But the provisions on royalties, if not properly handled, will cause conflicts between the recipient districts, or even between those districts and their local governments and between districts and resident cultural or traditional institutions.

From the onset, it is not clear what the purpose of awarding royalties is. This should be made clear since it will enable Parliament and the public to understand what share is appropriate for a particular area. Government should explain or justify why districts will receive seven percent of royalties and not an amount lower or higher than that.

Many district leaders have already argued that the seven percent is too little. This argument is normally given in comparison to sharing of other royalties from natural resources such as minerals and national parks where districts are entitled to seventeen and twenty percent respectively.

Yet the recent proposal by Parliament to grant one percent of the share entitled to districts to cultural institutions means the share of districts will further be reduced to cater for cultural institutions.

But even when it comes to the actual sharing of the royalties, the Bill makes it difficult for cultural institutions to access the funds.

According to the Bill, the cultural institution will access such funds after the district has resolved to give the funds to the cultural institution. This resolution has to be approved by the Minister of local government after consulting the Minister in charge of culture. This means even when the district wants to give a share of royalties to the cultural institution, such a share can only be given if the two ministers agree.

It is also not clear what procedure districts will have to follow to make a resolution to award royalties to a cultural institution. This will provide challenges and possible conflicts in districts where there are more than one cultural institutions or where there is a dominant tribe that pays allegiance to a particular cultural institution.

On the other hand, government policy focuses on spending oil and gas revenues on infrastructure and development projects. This may leave out cultural institutions since they do not have the mandate to develop infrastructure other than culture related infrastructure. This provision is likely to make it difficult for cultural instructions to access funds from royalties since the funds are tagged to things that fall outside their mandate.

Another important aspect that should be considered is how cultural institutions are going to account for the public funds once received. At present, there are no accountability or audit mechanisms for most cultural institutions. In fact some cultures are such that you cannot call the cultural institution or its leader to account. It will therefore be difficult for the institutions to receive such funds unless government sets procedures and processes so that the funds are accounted for and expenditures audited.

Finally, by sharing royalties with only districts, government is bound to leave out other autonomous and semi-autonomous local governments within the oil producing areas. For example, sharing with districts will leave out sharing the same resources with cities and municipalities which according to the Local Government Act are self-accounting bodies that receive funds directly from central government and are not technically under districts.

Parliament should therefore make it clear that all self-accounting local governments located in the oil districts are entitled to a share of royalties from oil and gas as well.

Peter Magelah is an Advocate and Researcher at the Advocates Coalition on Development and Environment (ACODE)

editor@oilinuganda.org