The Auditor General has raised the red flag over Uganda’s ability to protect its oil revenues, given rampant graft and concerns that the institution formed to manage the country’s earnings from the lucrative resource will not be subject to scrutiny by his office.

At issue is the structure of the Uganda National Oil Company (UGNOC), the state-owned corporation that is expected to receive and manage oil revenue once production starts.

The Ministry of Energy’s proposal that UGNOC be a regular company as opposed to a statutory body, continues to raise questions as to whether the organisation’s operations will receive adequate public oversight.

“My impression was that at the time, they wanted limited oversight,” said the Auditor General John Muwanga, whose bid for UGNOC operations to be directly audited by his office, failed.

The new petroleum law allows UGNOC to operate with relative independence as a private, albeit state-owned company.

It, however, includes official protections such as indemnity for UGNOC’s directors from liability in instances where they are deemed to have acted in the best interests of the company and a raft of other protections that state corporations enjoy.

The government’s position is at variance with recommendations of a report issued by PricewaterhouseCoopers way back in 2011.

According to the PwC report, even if normally a company incorporated under Uganda’s Companies Act has to appoint its own auditors, UGNOC, being a state-owned company, could still be audited by the Office of the Auditor General under the National Audit Act and the Public Finance and Accountability Act.

The two laws have provisions requiring that the Auditor General examine books of account of public corporations.

The minister responsible would then present these books to parliament.

This route, however, is not direct (as it would have been if UGNOC had been created by statute) and loopholes could yet emerge, considering that the proposed national oil company’s articles and memorandum of association have not been made public.

These documents would show when and how the state seeks private funding for the company, a process many fear could facilitate corruption.

READ: Uganda’s new oil law is silent on transparency

Framers of UGNOC envision it as an entity developed “with commercial principles in mind” and benchmarked against similar successful state-run oil corporations like Angola’s Sonangol or South Africa’s PetroSA.

However, the operating environment in Uganda, its history of political meddling and widespread graft are glaring challenges that could undo the best intentions of well-thought-out policies, say anti-corruption campaigners.

The government is presently considering the formation of the board of UGNOC, which is due to be incorporated shortly, to participate in an anticipated new round of licensing for exploration blocks.

PwC, which consulted for government on the issue, has warned in its report, about blurred reporting lines and the risk of public distrust given the record on corruption.

Industry watchers who spoke to The EastAfrican wondered where initial resources for the UGNOC will come from since government finances are currently distressed.

Secondly, they said, if there was private funding of a national oil company — if government fails to raise the necessary revenue — it would be tantamount to private players acquiring equity in national assets.

UGNOC’s operational budget has grown from Ush4 billion ($1.5 million) in 2008, when the oil discovery had just been announced, to Ush35 billion ($13.8 million) this year.

UGNOC is likely to be the single richest entity in the country once Uganda starts commercial exploitation of its oil reserves.

Sophisticated

However, with official graft reaching epidemic levels, Mr Muwanga’s frank assessment of Uganda’s preparedness to manage oil revenues, even in the face of proposed reforms to tighten financial controls, is damning.

It comes against the backdrop of seemingly incessant corruption scandals and is a grave indictment of Uganda’s accountability laws, policies and institutions and their ability to protect the country’s oil revenues.

“Gone are the days of the brown envelope type of corruption. It is sophisticated today, bigger in value and more complex,” Mr Muwanga said in an exclusive interview with The EastAfrican, after issuing perhaps his most damning annual report, detailing millions of dollars lost through theft of public money.

“The most disturbing pattern is that it involves collusion and manipulation of official processes,” he pointed out.

“We need a well-equipped, intelligent and well paid civil service,” he said, adding that the present cast of public officials was “demoralised and poorly paid.”

In a confidential report titled “Strategic Options and Recommendations for the Formation of the Uganda National Oil Company” prepared for the Ministry of Energy by PwC, the audit firm recommends that the government join the Extractive Industries Transparency Initiative (EITI).