Finance ministry officials fail to account for Shs1 trillion petroleum fund

Thursday March 9 2017

Opposed. Mr Keith Muhakanizi (left), Secretary

Opposed. Mr Keith Muhakanizi (left), Secretary to the Treasury, and the Minister of Finance, Mr Matia Kasaija, appear before Parliament last month. PHOTO BY ERIC DOMINIC BUKENYA 

By Solomon Arinaitwe

Kenneth Mugambe (Director of Budget): We have distributed a three-page document and I have points I have to make before I take members through. I want to give a brief highlight and the Accountant General will go into the specifics of the revenues. The first point I want to make is to indicate that there are two key things regarding revenue in the Petroleum Fund. There is money which came before the Public Finance Management Act 2015. Before that time, the resources were managed by the Public Finance and Accountability Act 2012. In terms of the inflows, there is money which came from Uganda Revenue Authority (URA) but there was also money which came as non-tax revenue which was collected by the Energy ministry.
Table 1(a) indicates the money which come as oil revenue prior to the PFMA. That money came in dollars through Ac Number 003300328400001.The table indicates the details regarding the money. On July 21, 2011, $449,000 came as a result of the sale of Heritage to Tullow. On April 26, 2012, $171,000 came as a result of the sale of Tullow to CNOC and Total. In addition $462,000 came as result of the interest earned and there was a debit of bank charges of $100. That is a total of $621,000 which is equivalent to Shs1.6 trillion
Fred Turymahweza Tumuheirwe (Rujumbura County): Clarification. You need to report the figures in US dollars
Abdu Katuntu (chairman): At what exchange rate? These were just two transactions
Mugambe: We can provide the exchange rate.
Katuntu: We need it. If we get this thing wrong, we will be in trouble as a country. This is the most important part of this probe and we need to get this figures right. I received a letter from URA. On the 28th the commissioner general of URA wrote to me and the letter says: “Reference is made to our written submission in regards to the ongoing investigation. Upon perusal of the same, we have noted that an error was made in the figures. The figures quoted in the response is $383m as supposed to $313m which translated to Shs748b. This is to request that the records be corrected to reflect the same.” So even the figures we had originally have been corrected.
There is another letter I saw this morning from URA. It reads: “This is to correct an error which was mentioned in our earlier letter. This is dated 27th but it is referring to a letter dated 28th. URA has so far collected both tax and non-tax revenue amounting to Shs1.7 trillion from August 2010 to July 2016.That is why we really need all our figures Mr PS because you can see we are having conflicts of figures. We have already sent auditors to the Ministry of Energy because there was a conflict between BoU and the Energy ministry.
Keith Muhakanizi (Secretary to the Treasury): Directive taken but I just want to make a very clear clarification so that we can understand each other. Money received goes to accounts in BoU. They are the ones who can talk about that money authoritatively. The one who can talk about that money authoritatively is the Accounting Officer and Bank of Uganda. I just want to make that very clear. Nobody else can talk about that money authoritatively. I am talking about the exchange rate and what have you. In my view, people who have that authority should be the Accountant General and BoU.
Katuntu: But when we talk of the Accountant General, we are talking about the ministry of Finance?
Muhakanizi: I agree but nobody else has authority to make those numbers except myself, the Accountant General and our bankers [BoU]. I just want to make that point very clear.
Katuntu: We get the point but we would like to trace that money from the source? That is why URA is the one that deposits the money.
Muhakanizi: Once money has been deposited, they cannot talk about it. They can talk about how much was collected. There are two accounts. Once money has reached BoU, the only person who can talk about it authoritatively are speculators. The rest are speculators.
Katuntu: We are looking at the source of the money. We are also going to look at the agreements and find out how much money was supposed to be collected? There is evidence we have about the farm down of Tullow. We want to know whether those who negotiated had the authority to negotiate a tax down. Once a tax has been imposed by the law, does URA have the authority to negotiate it down? People have to answer questions about that farm down. Can we go back to Mr Mugambe? When are we having the exchange rate? And we want it in writing.
Mugambe: By Friday. But I wanted to make clarification. This money is received in dollars. It is transferred to the account in dollars. So the exchange rate of that day may just be exchange rates. We are not converting this money into shillings.
Katuntu: This money is received in dollars. URA transfers the money in dollars. How does the exchange rate come in?
Muhakanizi: We have two periods. Post March 2015 under the new law, every coin we get in dollars is kept in dollars. Before all money that came to BoU would be transferred to shillings. We get a lot of money in dollars from donors, budget support etc. But ultimately the money is translated to shillings for government to spend. These are two periods that we need to understand.
Katuntu: We get the point but when you look at Table 1, we are talking about post PFMA?
Muhakanizi: It is pre-PFMA.
Katuntu: Then we need the exchange rate. Can we proceed?
Mugambe: Table 1(b) shows the money that was collected by the Ministry of Energy is equivalent to $10m which approximately is Shs30b. Those resources were collected by the Energy ministry. On page two, we have table 1(c) which shows the movement of the money from the dollar account to the shillings account and that is where the exchange rate will apply. It is essentially the same money which is in Table 1(a) moving from the shillings account.
Table 2 shows how the resources were spent. The resources were spent on energy projects. That is Karuma and Isimba. Government made a policy that in order to ensure effective utilisation of oil resources, the funds would be utilised for infrastructural development. The funds have accordingly been utilised to finance projects under the energy and mineral development sector. According to Table 2, the above revenue was spent on the following project related costs. Karuma and Isimba hydro power projects, Karuma and Isimba project works supervision by the Uganda Electricity Transmission Company Limited, Uganda Electricity Generation Company Limited, Energy ministry and construction of power transmission lines under Uganda Electricity Transmission Company Limited. In total Shs1.6 trillion was spent. These are the resources that were collected by URA and the non-tax revenues.
Katuntu: You should have indicated clearly how much has been spent on Karuma and how much has been spent on Isimba? You have just lumped them together. We want the details of how much has been spent on Karuma and Isimba for all the three financial years.
Muhakanizi: Director-Budget, Karuma and Isimba were negotiated at the same time as one project. When we were paying the money to China, the 15 per cent and the insurance, were we paying separately or it was once? That is very important.
Katuntu: That is not in accountability. These are two projects. How do you reflect them in your books?
Muahakanizi: In the beginning it was one project. What is important would be for us to say that we paid 15 per cent to China. We can do that one.
Katuntu: Get us the details. What do you mean by supervising of Karuma and Isimba projects?
Mugambe: These are the resources given to UEGCL as the project managers for the supervision.
Katuntu: We need to get ab it more details on this.
Mugambe: We can provide details showing how much went to UEGCL and for what?
Turyamuhweza Tumuheirwe: (Rujumbura County): You said that government made a policy decision about oil resources, could we have a copy of the policy document you referred to so that we can confirm that money went to these projects as per that policy?
Muhakanizi: You want a policy document where the government made a decision that money should be spent on infrastructure?
Katuntu: Can we also have the details of construction of power lines under UETCL? All this should be in by Friday when you come for the exit meeting.
Mugambe: The total is Shs1.6 trillion. That is the money that was collected prior to the enactment of the PFMA.
Matia Kasaija (Finance minister): These are my documents but its good that we clarify each other. When you look at Table 2, it is Shs 1.642 trillion and Table 1C, the revenue is Shs 1.612 trillion. There is a difference. It should be explained. You can explain it.
Mugambe: On Page 1, Table 1A and Table 1B, if you add Shs 1.6 trillion, but the Shs30b…
Katuntu: Are you talking about adding the Non Tax Revenue which is $10m and you add it to the Shs1.4 trillion, you will come to Shs1.6 trillion?
Mugambe: Yes. You come to Shs1.642 trillion.
Katuntu: It balances zero?
Mugambe: Yes.
Katuntu: You just spend exactly. Are you sure this is not book balancing. I find that strange. This is a very serious matter.

Investigations. Katikamu South MP Abraham
Investigations. Katikamu South MP Abraham Byandala poses a question to Finance ministry officials before the Committee on Commissions, Statutory Authorities and State Enterprises (Cosase) on Tuesday. PHOTO BY ERIC DOMINIC BUKENYA

Muhakanizi: The numbers are too good to be believed by even myself. But if we disagree, that is what the Auditor General should confirm.
Mugambe: If you look at what is in 1 A and B, it balances with what is in Table 2. However, the cost of the project is higher than the money which came from the oil revenue. It is not that the project cost was exactly equivalent. Essentially what it means is that government got additional money from other sources to implement the project.
Katuntu: Do you want to tell me that by the time the PFMA came into force, all the revenue had been spent?
Mugambe: No. The reason being that by the time, If you noted it is 2013, 2014 and 2015/16. During this financial year, it is when the law came into force. There are revenues that had been received prior to the enactment of this law and they were part of the UCF.
Muhakanizi: You have confused us. Let me put it the other way round for clarity purposes. Before the PFMA, we were operating separate accounts. As of March 2015, was the money on that account already finished? If not, what was the balance? Did you transfer it to the Petroleum Fund?
Mugambe: As of March 2015, the balance was Shs 1.3 trillion. It is on Table 1C.
Muhakanizi: When did we open the Petroleum Account?
Mugambe: We opened the Account in June 2015.After reconciliation, this balance was transferred to the Consolidated Fund.
Katuntu: Why? It had been ring-fenced because this money was supposed to be the opening balance of the Petroleum Account. We had already ring-fenced this money as government. Cabinet and Parliament, including Finance. You close this account on June 30, 2015 and it has a balance of Shs 1.3 trillion and we are creating a new fund by law. Shouldn’t this have been the opening balance of the Petroleum Fund?
Muhakanizi: There is a time lag to the time when the President assents and when we get the law. We have to put some operational procedures of that account. That took us about one month. In the meantime, we transferred the money to the Consolidated Fund. What we can confirm is that since we opened the account properly, all the money that had not been utilised is on that account. It does not mean that if the President has the law, we have the law and we operate with it. You can only say that you people, one month was too long. That we can debate.
Katuntu: Let us not go into the procedures. We shall lose out on the substance and this has to be explained. This is going to be one of the big issues in Parliament. The decision had been taken by government and we all agreed to that decision that this money had been ring-fenced. You transferred it to the Consolidated Fund but after sorting out that problem, did you transfer this money to the Petroleum Fund?
We do not want this money to be used for consumption, including bonuses. It is possible that the Shs6b for the handshake came from the Consolidated Fund from the oil revenue. On that we would disagree very strongly. There is money from the oil revenue and it is not on the Petroleum Fund. Where is it? This money has to be explained. If it has been used on some other thing then we have a problem.
Muhakanizi: Money that come before March 2015 was put in the Consolidated Account. It is money that came after March 2015 that we did not touch at all.
Katuntu: You have not answered the question. The question is where is the Shs 1.3 trillion that was on the closing account as of June 30, 2015? Where is it?
Muhakanizi: I was explaining why we put it on the Consolidated Fund. Legally, the money that came before as revenue became part of the Consolidated Fund by law. It is the money that came after March that was not touched.
Katuntu: Our own interpretation of the law is that once we opened the Petroleum Fund, all unspent money which had been ring-fenced would be transferred to the Petroleum Fund. And thereafter, for you to access it, you come to Parliament as provided by the PFMA. If you understood the law differently and then this money went to the Consolidated Fund and went into consumption, then there is going to be a big conversation about this.
Sitting suspended for five minutes to allow Finance team consult.
Kasaija: That balance came in before the law came. According to what they are explaining to me, that money was already part of the Consolidated Fund and therefore, it could have gone…..
Katuntu: Just stop there. That money or the revenue could have been part of the Consolidated Fund but had been ring-fenced.
Muhakanizi: That is correct. It was part of the Consolidated Fund, but ring-fenced. So you are correct, it wasn’t part of the Petroleum Fund.
Katuntu: Of course, the Petroleum Revenue account comes into force after the enactment of the Public Finance Management Act.
Muhakanizi: Thank you very much
Katuntu: That is when this account comes into force.
Muhakanizi: Exactly.
Katuntu: However, at a policy level, we have all agreed that oil revenues were ring-fenced. When they close this account, we have this Shs1.3 trillion which has to be utilised on the infrastructure projects as directed by government.
Muhakanizi: You are correct. A decision had already been made to use this money for infrastructure as part of the Consolidated Fund account.
Katuntu: Of course money was always in the Consolidated Fund account.
Muhakanizi: Yes
Katuntu: We continued using it for infrastructure, which we should account for; Karuma and Isimba and related transmission and that is what we should account for.
Katuntu: Can I ask one question? Was this Shs1.3 trillion used for infrastructure projects?
Muhakanizi: Yes
Katuntu: Okay, we shall now need the evidence of the utilisation of this Shs1.3trillion?
Abraham Byandala (Katikamu North): I was just trying to tell the history of this committee. That we aren’t trying to hang anybody, if you made a mistake, say I made it. We all understand it, we say okay, finish we go. Because, if we don’t understand the mistake and we say it was genuinely made, it will be more difficult on the floor of Parliament.
It will be bwana Matia trying to find it out. But it isn’t a big deal. It was an operational mistake, we accept it and we move on, instead of trying to fight, that these people want to hang me.
We aren’t going to hang anybody, because if the thing was ring-fenced, what was the purpose of ring- fencing. And to saying it was used on infrastructure, it was in the next budget. How do we know that that one wasn’t different from what you put there? So I think agreeing on having made a small mistake makes life easy, there was a small slip here, the money wasn’t stolen, let us move.
Katuntu: Hon Matia as you know, these questions you will have to answer them. My view is, you will have to clarify on where this money is. My thinking could be the thinking of the majority of members, especially those who were in the 9th Parliament who were there when we were having this famous debate on oil and gas, which culminated into the enactment of those three laws; the downstream, midstream and upstream.
We spent two months. I used to sit with the minister of Energy up to 3am and we were supposed to report the next day. You know what we went through to have those laws in place and our interest then I am sure you remember, was to make sure we don’t go wrong with the oil resources.
And as a result of that, we were with the President on the same page about ring-fencing this revenue. We had two months debate about it.
Kasaija: Let me see where we are not getting each other. When the Public Finance Management Act was passed, around March 2015 we were operating an account in which we were depositing the oil revenues wherever they came from. When the law came into force, there was a balance on that particular day, am I right?
So the committee is saying, when that law came into place, you opened a petroleum reserve account. You should have transferred that money that day.
That is a simple matter. There is a balance at the time the account and my technical people are saying that money wasn’t ring-fenced yet, which I don’t doubt because the law itself…
Katuntu: No
Kasaija: Just hold on. In the petroleum law, we had talked about the revenue from oil being ring-fenced. Am I right?
Katuntu: You see the law, actually it isn’t about policy but the law, because the fund that had been created was specific and you didn’t have to open an account specifically.
Continues tomorrow

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