By now, you are probably well-acquainted with the fact that the government of Uganda received a pay-out of $250m from Tullow Oil following a three-year tax dispute.
You are also probably aware that this pay-out came as a result of a unilateral decision by the cabinet, allegedly to save Uganda from a total loss to the country; Attorney General (AG), Fred Ruhindi, was quoted by the press saying that out-of-court negotiations between Tullow and cabinet resulted in Uganda getting nearly less than half of the $473m that the Uganda Revenue Authority (URA) had assessed earlier, a decision the Tax Appeals Tribunal had upheld.
Why in the world cabinet agreed to this unfair settlement still remains a mystery. The AG is reported to have said that because the case against Tullow Oil was not strong enough, and having had a tax income exemption clause in the agreement with Tullow, government thought they might lose the case against the Irish firm in both the High court and the International Centre for Settlement of Investment Disputes (ICSID).
As noted earlier, this reasoning has been greeted with suspicion. In the first place, why did the government accept such exemption clauses in our Production Sharing Agreements (PSAs)? And what steps has the cabinet taken to punish the officials responsible for signing such bad agreements?
Nevertheless, Ugandans need to pick a few lessons.
First, they need to realize that the oil sector still faces grave governance challenges of corruption, dishonesty, secrecy, poor enforcement of laws, lack of regulations and weak institutions including parliament, amidst a strong and bullish executive. These must be urgently addressed if we are to maximize the benefits that oil brings.
The executive also has too much power over the oil sector, with these powers unchecked. The cabinet decision to settle the tax dispute demonstrates this. The minister of Energy, who belongs to the executive and cabinet, negotiated and signed oil agreements with oil companies including Tullow.
The executive again sat with Tullow and decided how much the company should pay in capital gains tax without consulting any other organ, including the Parliament.
Remember, in 2010, through a resolution, parliament recommended to the executive that the oil agreements needed to be renegotiated. That advice, however, was flatly rejected.
Again, in 2012, during the debate of the oil bills, the civil society argued that the powers of granting and revoking licenses and negotiating agreements be vested in the Petroleum Authority, as a technical institution, to safeguard the interests of Ugandans. This too, was rejected. As result, all those powers were retained by the minister.
This means that only the executive wields too much power in the oil sector, and this power is unchecked. Ugandans had hoped that section nine of the Petroleum Exploration Development and Production Act of 2013 would be enforced to operationalise the Petroleum Authority to advise the ministers and cabinet on technical matters of the sector.
But again, the government has not yet put an authority in place. Why is all of this bad for Uganda? Uganda, through the use of her oil resources, is aiming to attain middle-income status by 2040. Ugandans also hope that their lives will improve when the country begins generating the estimated $3bn in revenues per year from the oil for the next 30 years.
These aspirations might not be realised if poor governance in the oil sector remains. With unchecked power and lack of transparency, Ugandans have not been availed with agreements signed by the executive and oil companies, which could ultimately lead to more corruption.
Additionally, a technical sector like oil cannot succeed based on political convenience and quick-fixing. Indeed, in the absence of functioning technical institutions such as the Petroleum Authority and the National Oil Company, the situation can only get worse.
The parliament should use its oversight powers to compel government to urgently put in place oil regulations to enhance the enforcement of the new oil laws and operationalize the Petroleum Authority and the National Oil Company in order to separate oil regulation from the messy politics. If we fail to ensure transparency in the sector from the start, we shall regret why we discovered oil.
Dickens Kamugisha is the chief executive officer, Africa Institute for Energy Governance.