Following the oil money: How much has it done?

At any Oil and Gas revenue workshop, economic experts will always weigh in on how Uganda should better utilise its oil revenues. So far, the argument has been that Uganda invests the money in infrastructure and social services like education, health and to focus on improving the traditional sources of income like agriculture to avoid the infamous Dutch disease and rent seeking. However, as we plan how to use the money, how much oil money has entered Uganda’s economy since the discovery of the resources? The Daily Monitor oil reporters,Isaac ImakaandFrederic Musisi, look at how much money has so far come in, and what it has done.

Oil producing countries mainly get oil money in form of signature bonus, training fees, annual surface rentals, data purchase, permit fees, withholding taxes, capital gains tax, value added taxes and royalties.

Most of the money is paid directly to governments in form of taxes but oil money also comes into the economy through payments to local labour, through corporate social responsibility (CSR) expenditures, and through payments to the local service providers.

This story will ignore the $1.5 billion (Shs3.9 trillion) paid by Total and Cnooc respectively to Tullow on the farm down– that money did not enter the economy, because it was Tullow’s.

At the onset, it is important to note that apart from CSR expenses, most of the money spent by the oil companies in their quest for oil will be paid back as recoverable cost.

The Auditor General will audit the total recoverable cost and the oil companies will recoup their expenses through a percentage of the oil produced called cost oil.

In its submission dated November 9, 2011 to the parliamentary committee investigating the oil sector, Uganda Revenue Authority gave the total amount of revenue collected so far from all the oil companies as $449 million (Shs1.6 trillion). The money was got as capital gains tax and stamp duty when Heritage sold its interests to Tullow oil plc.

URA also reported that it received tax payments from subcontractors exclusive to the petroleum sector amounted to Shs149b.

The subcontractors include those with offices in Uganda and offering services exclusively to the petroleum sector.

The Energy ministry also reported a $4 million (Shs11.6 billion) non-tax revenue collection from signature bonuses, permit fees, data purchase from over four years over ten year period.

According to the oil ad hoc committee’s report, the government revenue collection from oil totals to Shs1.8 trillion– mainly from non-tax revenues, stamp duty, and capital gains tax.

Oil companies on the other hand say they have injected an extra Shs10 trillion in the economy bringing the total figure to Shs11.8 trillion.

UK’ Tullow Oil PLC (Uganda) takes the biggest chunk of the Shs10 trillion with a Shs7.3 trillion investment since 2004. The company, however, spent $1.45 billion (Shs3.8 trillion) of its current investment on the acquisition of Heritage oil’s Ugandan interest. This means it has so far directly injected $1.35 billion (Shs4 trillion) in Uganda.

Of the Shs10 trillion, Total and Cnooc say they have injected $600 million (Shs1.5 trillion) and $500 million (Shs1.3 trillion) respectively in the economy.

The money and the lack of transparency in government
The last time anything was communicated about the whereabouts of the oil money collected by government was when Bank of Uganda Governor Emmanuel Tumusiime Mutebile told Parliament that the President had used the money to buy fighter jets. Since then, secrecy and confidentiality has mired the sector as regards revenue collections.

Currently, Bank of Uganda maintains four categories of oil revenue related accounts: Uganda Revenue Authority – Tax Collection (USD), Government of Uganda-Oil Revenue Account (USD); Government of Uganda-Oil Revenue Account (UGX) and the ministry of Energy and Mineral Development (MOEMD) Non Tax Revenue (NTR) that holds Non-tax related oil revenue (UGX) alongside other non-tax revenues.

However, all those will be replaced by a petroleum fund, into which shall be paid all petroleum revenue, which accrues to government.

That notwithstanding, the lack of transparency and the continued refusal by government to sign up to the Extractive Industry Transparency Initiative (EITI) which challenges it to declare what it gets from the sector calls for a question whether Ugandans will easily know what government gets from the oil– even before the demand for better usage of the revenues starts.

The lack of openness on the government side, in an environment where oil companies claim to be willing to publish what they pay makes it hard to juxtapose the figures from the two sides and easily follow the money.

“Government recording of oil revenues is largely different from the way companies do it. If what they agreed on is not known to the public then it becomes difficult to ascertain the missing links,” Mr George Boden, a Global Witness-campaigner, told journalists at a recent oil and gas discussion.

A Shs10 trillion injection?
Oil companies claim to have injected Shs10 trillion strewn over a 10-year period, although from the presentations from the three biggest players shows that most of the money has been spent in the last five years.

With a Shs10 trillion injection from one nascent sector with over Shs5 trillion of that injected in the last five years, Uganda’s economy, according to the African Development Bank Economic outlook, grew by 4.4 per cent in 2012, the lowest in 10 years.

Does this mean that oil, as a sector or a resource, has a light footprint?
Total and Cnooc failed to share with this newspaper how and where their money has been spent so far but in its country report launched a fortnight ago, Tullow says it has spent $4.8 million (Shs1.2 billion) on social investments.

This includes two schools in Kaiso Tonya village worth $600,000 and a $2 million investment that Tullow says it has spent on a health centre V in Buliisa District. The oil company has also spent $150,000 on Kyehoro Health Centre II since 2007.

Tullow also claims to have spent $600,000 (Shs1.5 billion) as a discretionary investment to support the opening of an enterprise centres in Hoima in partnership with Traidlinks, a not-for-profit specialist in enterprise and market development.

This initiative, Mr Conrad Nkutu, the Tullow Corporate Affairs manager says, has helped over 2,000 farmers get advice on how to use compensation funds, access seeds and market.

Oil investments

Tullow’s investments
Total investment since 2004: $2.8 billion
Acquisition of heritage oil’s Ugandan fields: $1.45 billion
What remained in Uganda is $1.35 billion
Investment in exploration and appraisal from 2009 to 2010: $ 343 million
Investment in exploration and appraisal between 2004 and 2008: $395 million
Investment in exploration 2012 and 2013: $267 million
Payments in 2012
Corporate taxes: $142 million
VAT, PAYE, Withholding tax and other government payments: $33 million
Local suppliers: $47.5 million
Payroll for Ugandan employees: $44 million
Social investment since 2012: $12 million
Social investment 2012: $4.8 million
Education
Masters scholarship in Engineering and geology
Five students at Makerere University: $190, 000
Africa gifted foundation: 100 students aged 14-16. Total cost: $50000
Medical services
Kyehoro health centre II since 2007: $150,000.
Discretionary investment to support the opening of an enterprise centre in Hoima: $600,000

Total’s investment in Uganda since 2012: $600 million (Shs1.56 trillion)
Cnooc’s investment in Uganda since 2012: $500 million (Shs1.3 trillion)