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Shs 2 trillion Oil Revenues Already Spent

Keith Muhakanizi, Permanent Secretary Ministry of Finance

Keith Muhakanizi, Permanent Secretary Ministry of Finance

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.

PRESIDENTIAL HANDSHAKE

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.

UNCOLLECTED FUNDS

“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

Oil.Uganda@actionaid.org