How Shs700b oil fund was blown quietly
What you need to know:
Accountability. The oil money was appropriated by Parliament to the Finance ministry, raising queries on accountability for the fund.
After depleting the Petroleum Fund, government is now looking for other options to plug gaps in its pre-election year.
Between 2017 and 2019, with the blessing of Cabinet and Parliament, Finance Minister Matia Kasaija withdrew a total of Shs770.3b from Petroleum Fund and channelled the money to the Consolidated Fund.
The oil money was appropriated by Parliament to Finance what other Ministry of Finance officials called “spending pressuresm,” raising questions about the accountability of oil money and the statutory role of the Petroleum Fund.
Although Mr Kasaija and his team have for the last three financial years been relying on the oil fund to finance budget gaps, Section 59(3) of the Public Finance Management Act (FMA), 2015, as amended, ring-fences oil revenues to financing infrastructure and development projects only.
Since the oil money was taken to the “pool,” it’s not clear whether the Shs770.3b was spent in accordance with the PFMA, 2015. The Office of the Auditor General has also raised similar concerns. In particular, the Auditor General, Mr John Muwanga made it clear that the Fund is not a Medium-Term Expenditure Framework for budget financing.
Julius Mukunda from the Civil Society Budget Advocacy Group (CSBAG), a non-profit organisation that was founded in 2004 to bring together civil society organisations, explained that the issue is not about using the money properly. He said oil is supposed to help the country build infrastructure and is supposed to be a buffer for Uganda.
“Our untamed appetite to spend is an indication that we will never manage oil money very well,” Mr Mukunda said.
“We need to amend the law and seriously ring-fence the use of oil money, the current provision is that Parliament can appropriate and they have appropriate everything from the Oil Fund... We need to put a certain percentage for appropriation so that we can have some money investment purposes. The way things are, there is no evidence that the oil money has gone into infrastructure development.”
President Museveni recently said oil money would be invested in infrastructure, especially dams. He has also dispelled fears that Uganda’s oil resource could end up as a curse just like it is in some African countries.
Ministry of Finance officials insist that they broke no law and reminded critics that the Petroleum Fund has two objectives; financing the budget and saving/investment for the future generations through appropriations to the Petroleum Revenue Investment Reserve (PRIR).
Although Mr Henry Musasizi, the chairperson of Parliamentary’s Finance Committee, told Saturday Monitor that the Oil Fund has “zero balance,” Planning Minister David Bahati and Accountant General Lawrence Ssemakula disputed this narrative and insisted that “there is some little money” in the Petroleum Fund but cannot be appropriated.
“We pick money with authority from Parliament,” Mr Bahati said, adding: “The MPs appropriated everything and the Auditor General has issued reports on the same….oil money was used to finance budget activities. It is not true that we have zero balance, we have some little money about Shs70b and we don’t want to exhaust it.”
Where is the money?
The Accountant General, who is responsible for the accountability of oil funds, explained that in budget financing, Petroleum Fund, is one of the financing components and, therefore, he was unable to specifically point out how much of the oil money went to infrastructure.
“We finance the Budget from local revenues, borrowing and petroleum fund, totaling to the equivalent of the Budget…so the Petroleum Fund becomes one of the financing component, specifically you will not say we put oil money in the Consolidated Fund, or that it went to this and that,” Mr Ssemakukula explained.
“The only thing you can do, is to relate…how much was infrastructure cost relating to petroleum, then you oil roads, airport project and you will find that it’s far more than the Shs200b we picked from the Oil Fund, but if you ask where is the oil money, you can’t see it because it’s swallowed in the bigger pool, and it goes in the basked…this is the general rule that we use in budget support.”
Mr Ssemakula added: “We’re investing more [in trillions of shillings] that we get from the oil fund and because we have not started oil production, the little money that goes into the oil fund is what we get from surface rentals, prospective fees, training fees but the biggest was the capital gain we got from Heritage, otherwise there is no much inflow into that fund, that’s what people should understand.”
Asked whether it makes economic sense to keep oil money intact, Mr Ssemakula said: “That’s the decision that we find difficult at finance, do you keep that little money or do you go out and borrow? You see the irony. We need to balance the two. We expect this fund will grow when we start selling oil but we haven’t started selling oil and, therefore, the fund is not as big as it should be.”
At the beginning of this financial year in July, government was banking on replenishing the Fund with Capital Gains Tax payment of $167m (about Shs610b) off the Anglo-Irish Tullow Oil farm down transaction to French Total E&P and China’s Cnooc. The deal collapsed in late August.
But in the current Financial Year, the government had budgeted to withdraw Shs445b from the Petroleum Fund to finance the budget. Previously, they picked Shs125.3b and an additional Shs200b for the same purpose. But in the new Financial Year (2020/2021) Mr Ssemakula said, there will be no money picked from the Petroleum Fund since what’s there is “very little.”
The Finance Committee of Parliament has since ordered Treasury officials in the Ministry of Finance to provide the details of the expenditures from the Consolidated Fund. Last week, the Auditor General sent his latest audit report on the expenditures from the Petroleum Fund to Speaker of Parliament.