West: Uganda all set to triumph over ‘oil curse’

As Uganda gets ready to start producing oil, the country’s programme is attracting the interest of key Western stakeholders who see it as an opportunity for Africa to reverse the chaotic experience that gave birth to the term “oil curse.”

The country is being viewed as a test case and its success or failure in establishing a transparent and economically sustainable programme will have far reaching implications for the future of the oil industry on the continent.

Sources say that, at the highest levels, the government has demonstrated a determination to ensure that Uganda’s oil programme makes a clean break with the negative legacy of the industry in Africa by making the resource work equitably for the country’s peoples.

The EastAfrican has learnt that there is a rising excitement among the donor community about the progress Uganda has made, not only in putting in place a governance regime for managing oil wealth but also in ensuring that the resource does not result in the kind of economic distortions that would eventually work against the country.

“Our programme has generated a lot of interest because, unlike other countries that first discovered oil in Africa, we have a blueprint for managing it in a transparent and sustainable manner,” Finance Minister Syda Bbumba told this paper.

Ms Bbumba’s remarks were supported by several Western commentators who said that, in their experience in Africa, they have not seen so much effort go into preparing a regime to ensure that the discovery of oil does not turn into a disaster for the country.

“Given the continent’s experience with oil discoveries, your first fears are naturally about accountability in the management of the revenues; but even if you had a transparent and accountable system, there is also the danger of oil resources resulting in economic distortion,” one commentator said.

Citing Nigeria and Angola as examples, Western experts say the sudden infusion of oil money into the national economy tends to tempt the political class into making massive investments in infrastructure, which then trigger a spike in inflation.

At the same time, the pull of oil wealth diverts attention from other critical sectors of the economy, such as agriculture, leading to their collapse.

Uganda, which has recently confirmed deposits that have been described as potentially the largest onshore oil fields in Africa, has tried to steer clear of these pitfalls by designing a National Oil and Gas Policy that sets the rules for disclosure and investment of all revenues from its hydrocarbons.

Working closely with Norway, Uganda has adopted a model that will see oil revenues go into a separate account at the Bank of Uganda.

Oil companies will deposit all government revenues into this account by electronic funds transfer and the public will have unfettered access to information regarding transactions on this account.

Moreover, the bulk of the money will be carefully invested in alternative assets to create a sustainable stream of future wealth. It is only earnings on these investments and a small portion of direct oil revenue that will be used to finance recurrent and development expenditure.

The 2008 Oil and Gas policy proposes a new law to regulate the payment, use and management of petroleum revenues in order to create lasting value. To ensure collection of revenues and their proper use, the government is to publish the revenues received from oil and gas activities regularly.

It will put in place a sustainable asset in the form of a Petroleum Fund to store revenues not used in the national economy.

Norway is training accounting officers from the Auditor General’s Office, the Uganda Revenue Authority and the Ministry of Finance, who will handle the oil proceeds, said a ministry source.

The policy designates the Uganda Revenue Authority as the agency responsible for collection of oil revenue, which will then be channelled to the Ministry of Finance to manage budget allocations.

The Bank of Uganda will manage the Petroleum Fund. It will also ensure that inflation is kept to at a minimum by influencing positive movements of interest rates and creating incentives for the development of other sectors.

Uganda’s current import bill for petroleum products is in excess of $400 million per annum, constituting over 15 per cent of the total import bill.

Additional reporting by Michael Wakabi