CSOs warn of illicit financial flows in oil and gas industry

As Uganda gets ready for the first oil production projected for 2025, several activities such as construction of the East African crude oil pipeline, central processing facilities, oil refinery and oil roads have started gaining momentum in the oil-rich Albertine region.

However, civil society organisations (CSOs) have warned that failure to manage illicit financial flows (IFFs) will undermine Uganda’s ability to generate the required revenue from its petroleum wealth, something they say will perpetuate underdevelopment and poverty.

Global Financial Integrity defines IFFs as movements of money and value from one country to another that are illicitly earned, illicitly transferred, and illicitly utilsed.

The deputy executive director at Advocates Coalition for Development and Environment (Acode), Mr Onesmus Mugyenyi, says the general assessment is that the country has already lost huge sums of money through tax avoidance schemes.

“Companies operating in Uganda register in tax havens (countries where it is possible to avoid the taxes that would otherwise be payable) or countries where Uganda has signed double taxation agreement,” Mugyenyi says.

The programme associate at Global Rights Alert (GRA), Mr Brian Nahamya, says IFFs are not just a mere threat but a reality.
“Uganda is a very corrupt country, ranked 142 out of 180 countries on the Corruption Perception Index, 2020. In 2011, Members of Parliament alleged that senior members of Cabinet had received bribes from investors in the oil sector,” Nahamya says.

He says Uganda has nine Double Taxation Agreements (DTAs) with countries including Denmark, India, Italy, Mauritius, the Netherlands, Norway, South Africa, the United Kingdom and Zambia.

“How do you curb IFFs with such agreements with detrimental clauses? The Netherlands is one of the tax havens. In 2016, Oxfam exposed Mauritius as one of the world’s worst corporate tax havens. The DTAs have been relied on to restrict or stop countries from levying withholding taxes and this gives a bad deal to Uganda,” Mr Nahamya explains.

The warning comes hot on the heels of a February report by Civil Society Coalition on Oil and Gas in Uganda (CSCO), titled “Illicit Financial Flows Risks Factor in Uganda’s Oil and Gas Sector: A Call for Action,” which revealed that Uganda’s oil and gas sector is vulnerable to several forms of IFFs.

The CSCO report stated that several factors exacerbated Uganda’s IFFs risks, which include major international oil companies currently involved in Uganda’s oil sector being registered in tax havens and some have concealed ownership structures.

Existing Production Sharing Agreements (PSAs) give international oil companies undue advantage over the State to the extent that they contain stabilisation clauses which restrict government from generating additional oil revenues.

Also, the other IFF risk factor, the study found, is that in the country’s oil and gas sector, there is grand corruption, which has been observed to be both systemic and systematic.

Government’s stand
Ms Gloria Sebikari, the manager, corporate affairs and public relations at the Petroleum Authority of Uganda, says combating IFFs calls for a multitude of approaches and unified efforts of both local and international partners.

“The Ministry of Finance, Planning and Economic Development is renegotiating some of the existing DTAs with some countries ahead of the much anticipated oil production.

“There is a joint tax information exchange initiative under the African Tax Administration Forum (ATAF) and the Organisation for Economic Cooperation and Development (OECD),” Ms Sebikari says.

She adds that Uganda joined the Extractive Industries Transparency Initiative (EITI) last year, where the government is committed to enhancing transparency and accountability in the disclosure of extractives revenues, including those from the petroleum sector.

The communications director of EITI International Secretariat, Ms Joanne Jones, says member countries are expected to publish amended contracts, licences and agreements with extractive companies.

According to Global Financial Integrity, 2018, Africa is estimated to be losing $50b in IFFs every year. Uganda alone is estimated to be losing Shs2 trillion per year, and it is feared the situation could get worse with the commencement of commercial oil production.

Protests against oil pipeline
An alliance of African and international environmental and human rights organisations are campaigning against  the construction of the oil pipeline.

The environmental and rights activists say the project, stretching nearly 1,445kms, threatens to displace families and farmers and would pose a risk to water resources and wetlands – including the Lake Victoria basin, on which more than 40 million people rely.

However, Ms Sebikari says the project has undergone a rigorous Environment and Social Impact Assessments (ESIA).

“It is true that if not properly managed, major infrastructure projects possess a considerable risk to people, communities and the environment as a result of the adverse impacts of the projects themselves. However, projects the world over are often preceded by ESIAs, which address most of the concerns. The oil pipeline has undergone one of the most rigorous ESIA processes based on the highest standards, which has been approved in line with those standards by the National Environment Management Authority. The studies leading to this approval were shared with the public,”  Ms Sebikari says.

According to a report released by Oxfam International in September 2020, titled “Empty promises down the line,” a human rights impact assessment on the EACOP, reveals approximately 200 households will be relocated to pave way for the project.

The report adds that an estimated 3,200 to 3,500 households will be economically displaced, meaning they will lose land, whereas in Tanzania, 391 households will lose land as part of the priority areas and 9,122 will lose land for the pipeline right of way.

What oil companies say

Ms Aminah Bukenya, the public relations officer at Cnooc Uganda Limited, a subsidiary of China National Offshore Oil Corporation Limited, says her company has always been a firm believer in being a responsible energy company.

“As a subsidiary, Cnooc Uganda Limited obeys the laws, rules and regulations of the host countries in areas where the company operates and our operational protocols live up to the best practices of the industry. We shall continue doing so to ensure the efficient and sustainable development of the oil and gas resources in Uganda, she says.

The Ablertine Graben is currently anchoring key projects in the oil and gas sector, including Tilenga project (Buliisa and Nwoya districts), with an estimated cost of  between $4b and $6b, Kingfisher project (Hoima and Kikuube districts) at  $2b, Uganda Refinery Project at $4b, and East Africa Crude Oil Pipeline (EACOP) Project at $3.55b.

*This story was produced by Daily Monitor as part of Wealth of Nations, a media skills development  programme run by the Thomson Reuters Foundation.