National Oil Company loopholes

By Magelah Peter Gwayaka

Legal framework should provide for proper funding and accountability mechanisms for all oil revenues

Since the confirmation of commercially viable quantities of oil in Uganda in 2006, a lot of debate has gone into answering two important questions: What will be the role of the State in the sector and how will citizens benefit? Through the Oil and Gas Policy and the Petroleum Exploration Act (upstream law), the government decided to start a National Oil Company (NOC), which will be charged with managing Uganda’s  interests in the oil and gas sector. Under the National Oil and Gas Policy and the upstream law, the NOC will be charged with handling the State’s commercial interests in the petroleum sub-sector; managing State participation in petroleum activities; marketing the country’s share of petroleum and developing the country’s expertise in the oil and gas sector among other functions. The Public Finance Bill, 2012 on the other hand, gives the NOC a role of collecting and marketing the petroleum revenues received in kind.

From the above roles, it is clear that the NOC will be an important player not only in Uganda’s oil and gas sector but also in driving the economy. In fact one can argue that failure of the NOC to achieve its intended purpose would result into failure of the country to benefit from oil resources.

The idea of having a NOC in Uganda can be seen as an attempt to balance the State policy of privatisation, which to many did not go well, and nationalisation or having national control of strategic sectors of the economy where the State will play a role. Indeed, many countries across the world have tended to keep an interest in strategic sectors of the economy to be able to maximise the benefits from those sectors. Here, the State runs commercial companies that compete with other entities in the sector with the aim of protecting State interests and maximising benefits. Many State-run petroleum or mining companies have gone on to become some of the biggest players in their countries and internationally. Some examples, including Chinese National Offshore Oil Company (CNOOC) of China, PetroBras of Brazil and StatOil of Norway, have developed into big commercial entities that have taken up several projects across the world. Such companies have not only earned income for their home countries but also provided employment for citizens as well as technology transfer. Uganda’s NOC should therefore be a seen as a company that will grow to compete at international level with other companies.

Because of the desire to have a company that can compete at local and international level and the belief that the government has been a bad business player, Parliament, in the upstream law, provided that the NOC should be run on business principles and would be incorporated under the Companies Act with government owning 100% shares. However, in making the law that established the NOC, Parliament omitted making provisions for funding and accountability of the NOC. Ordinarily, a law that creates an institution must provide for how such an institution should be funded and how such an institution should account for the State resources it receives or manages.

This omission from the law means it is not clear how the NOC would get starting capital and any other form of funding to run its businesses as well as how it would in future account for the management of State interests in oil.

As Parliament debates the Public Finance Bill 2002, it is therefore important for Parliament to consider making provisions for funding, accountability and auditing of the NOC by providing specific provisions in this Bill or by moving to amend the upstream law. Specifically, Parliament should provide for the process of making and approving annual budgets for NOC, which should be part of the ministry’s annual budget and appropriated by Parliament. Parliament should also give the Auditor General Powers to audit the NOC as well as mandating the NOC to make its transactions public through submission of annual reports on performance to Parliament. This will bring the management and oversight of the NOC in line with other government agencies/departments and to ensure transparency in the sector.

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The author is a lawyer and a researcher with the Advocates Coalition for Development and Environment (ACODE)

Contact: pmagelah@gmail.com