Oil and corruption in Uganda: the foreign donors’ plight

If this had been the UN, we might have sent a strongly worded statement to the Norwegians. They were absent from a forum in the heart of Africa on the corrupting effects of oil, an affliction for which Norway, more than any other nation, seemingly knows the cure.

It wasn’t the UN – it was a workshop on the Ugandan oil sector at a hotel in Kampala. But Norway’s absence from the foreign donors gathered there seemed to underscore the challenge they face to figure out how to help Uganda make the best of its oil wealth. If all the stakeholders on the donor side can’t come together and grind out a cohesive strategy to coax the power players in government not to misuse oil money, where do they begin?

The problem, which I think donors understand but can’t do much about, is that in Uganda and elsewhere in Africa corruption doesn’t begin or end with oil. It has long been part of the fabric of political society to make an extra buck. But a shift in mentality takes more than just a few years to happen. The enabling mechanisms of corruption in the oil industry – illicit revenue flows, opaque license allocations, to start with – get moving more quickly than a new way of doing business in the chambers of government. Affecting a change in attitude will require the commitment of not only the current donor community, but probably the next generation too. By that time Uganda’s modest oil reserves will be long gone.

But let’s say for a minute that the donors are able to come together and present a unified front. What incentive will the government have – or not the government but the executive, which is subject to few checks and balances – to listen to the donors and follow management models set by Norway or Botswana? The Europeans could withhold aid to try to force the hand of the executive, but it doesn’t really need the money. Foreign aid makes up around a quarter of the government budget right now but cue oil production and that share could plummet to two or three percent. Missing a few drops in the bucket won’t convince the government to clean up its act.

So lest we get bogged down let’s add one more assumption. Say donors are able to figure out how to incentivize reform. What factions of government do they then approach? Some members of parliament are already friendly to anti-corruption efforts, especially the Parliamentary Forum on Oil and Gas, a pressure group of legislators advocating greater transparency. But many of the Forum’s members are marginalized from the body politic for their activism. They now have a relatively safe, sanctioned place to say what they want about the abuse of power but their barbs just glance off the executive’s armor. Other parliamentarians the donors go after to champion the anti-corruption cause might similarly fear being excluded or painted, as the president is fond of doing, as agents of foreign interests.

Instead, the donors should look to influence the institutions responsible for regulating the sector: new bodies like the the national oil company, the petroleum authority and the investment advisory committee; or existing institutions like the central bank, the revenue authority, the environment management authority, or the auditor general.

But there are many ambiguities in whom exactly these institutions report to, especially between the petroleum authority and the energy minister, who seems to figure along every link in the chain of management. How can donors be sure that the institutions themselves are independent? None are insulated from political interference. It’s difficult to legislate against this kind of interference anyway, even more so when there’s no great tradition of the government respecting laws it writes itself (see: Access to Information Act 2005).

Many at the workshop complained about a lack of transparency in the sector, that a bit more sunshine would make everyone’s job easier. I agree it would be great to know how much the revenue authority has already collected from license fees, royalties, signature bonuses and taxes, where the money is sitting or whether it has been spent and if so on what. Many would also be interested in knowing the exact terms of the production sharing agreements the government has signed with the companies Tullow, Total and CNOOC. But as George Boden from Global Witness pointed out, transparency does not equal accountability. Just because we may eventually know where some of the money went doesn’t mean the government won’t misuse it. If the government doesn’t care to follow its own laws or the best practice of international transparency initiatives like EITI, and the judiciary that might prosecute offenders is in the grip of the executive anyway, what loopholes can the donor community exploit?

The value of real technical assistance shouldn’t be overlooked. The government needs to have an information base that it can rely on if it decides to make the system run better. This can range from getting a decent geological survey in place to support in future contract negotiations. Corruption in the national oil company could be mitigated by a minority private sector flotation, like Statoil, Petrobras and Ecopetrol have done, subjecting the company to investor oversight. I know the idea has been floated in Uganda but it’s not clear whether it has reached the nerve centers of government.

But all of this requires political will. The executive has to want to comply with global best practice for anything to happen. Perhaps I’m pessimistic but I don’t see this desire coming through ‘positive engagement’ from the donors, whatever that means. The government needs to feel some pain in order to change.

By that I mean nothing sinister – they just need to be shamed globally, economically, embarrassed into doing things the right way. Foreign companies won’t help Uganda extract its oil if it hurts their reputation to do so, if their shares drop because they abet such a corrupt regime. That’s power: look at what happened to the Kazakh company ENRC after a scandal broke around their dirty deals in DRC. If Tullow, Total or CNOOC encounter similar difficulties in Uganda it could scare other investors away and the government could be left out cold, or take a shovel and dig for oil itself.

It would help if these foreign companies’ shareholders were better informed about what’s happening in Uganda. If they knew the potential dangers there they might sell, sell sell. Investors would leave and the government might be forced to change. But the foreign donors’ problem is that there’s little they can say to their national corporate champions. DFID won’t wag the finger at Tullow, France can’t scold Total and something tells me China’s not too worried about the scruples of CNOOC.

Maybe it’s up to the EU or other risk assessors to tell investors what’s up. Though even in this scenario, it’s hard to see Uganda being singled out in a global anti-corruption campaign which will influence shareholders. Uganda’s corruptniks still pale in comparison with those in Equatorial Guinea or DRC.

But for now the donors in Uganda, frankly, don’t know where to begin and they have a lot to learn about oil before they do. It won’t help if Norway’s resource experts aren’t at the table to help the others along.

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