The Resource Governance Index Drives Reform in Uganda
In 2021, NRGI published RGI assessment results for 18 countries including Uganda, where it assessed both the mining and oil and gas sectors.
The challenge
The RGI assessment revealed two significant challenges in Uganda’s extractive sector.
First was the absence of fiscal rules governing revenue withdrawals from the Petroleum Fund. Once Uganda begins oil production, the resulting revenues will be deposited into the Petroleum Fund, held at the Bank of Uganda. Withdrawals from the Petroleum Fund will flow to the Consolidated Fund (to finance infrastructure and development). The remaining balance will be transferred to the Petroleum Revenue Investment Reserve (a sovereign wealth fund) to be invested outside the country. Fiscal rules would set guidelines on how much can be transferred to the Consolidated Fund for budgetary spending and how much should be transferred to the sovereign wealth fund. Resource-rich countries without relevant fiscal rules risk that political pressure results in pro-cyclical budgetary spending, which increases or decreases with volatile oil prices. This in turn risks a scenario in which the government fails to save any revenues in the sovereign wealth fund.
Second, NRGI’s assessment highlighted the absence of laws requiring the disclosure of the identities of beneficial owners of extractive companies. Such laws enhance transparency and accountability and mitigate corruption. Without them, Ugandans cannot know who ultimately owns the companies that benefit from extraction, and some extractives companies may evade taxes payments or hide improper relationships with powerful decisionmakers.
With low scores of 55 and 49 (out of 100) in the mining and oil and gas sectors respectively, the RGI results highlighted the pressing need for reforms in Uganda’s extractive sector and the need for greater transparency and accountability to ensure that resource revenues benefit Ugandans.
NRGI’s role
In response to its findings, NRGI recommended several key reforms to the Ugandan government. Among them, NRGI suggested making the identity of beneficial owners of companies engaging in extractive projects publicly available and implementing robust numerical rules governing deposits to and withdrawals from the Petroleum Fund, as well as firm rules governing the investment of oil revenues.
By providing technical assistance and financial support, NRGI played a critical role in driving engagement for these reforms. Between February and June 2022, NRGI prioritized engagement with the Ugandan government to push for the implementation of these recommendations. NRGI staff also met with key stakeholders, including the Ministry of Finance, civil society organizations and media partners such as CSCO, ACME and CSBAG, to develop capacity on transparency and accountability, petroleum revenue management, beneficial ownership disclosure and fiscal rules.
Impact
NRGI’s engagement with the government of Uganda resulted in significant legal and institutional policy reforms. Following a series of strategic meetings between NRGI and the Ministry of Finance, Planning and Economic Development, and in collaboration with the International Monetary Fund, the government of Uganda adopted fiscal rules for petroleum revenue management. The rule adopted by parliament provided that: “A maximum of oil revenue worth 0.8% of the preceding year’s estimated non-oil GDP outturn shall be transferred to the Consolidated Fund for budget operations. The balance shall be transferred to the Petroleum Revenue Investment Reserve (PRIR) for investment in accordance with the Public Finance Management Act (2015) as amended.” (Objective 3 of the CFR 2021-2025).
NRGI’s engagement with the government of Uganda resulted in significant legal and institutional policy reforms.
In addition, following NRGI’s engagement with the Ministry of Energy and Mineral Development and the Uganda National Oil Company, the parliament amended Uganda’s Companies Act to include a requirement for companies, including those in the extractives sector, to disclose their beneficial owners. The successful implementation of these amendments could serve as a catalyst for addressing potential corruption and elite capture of Uganda’s extractive sector.
These reforms are timely, given that Uganda is undergoing a major extractive sector transition, with the government keen to unlock the sector’s potential while avoiding the “resource curse.” NRGI’s analysis provided policymakers and citizens with a measurable lens through which to understand trends in performance and gaps, enhancing transparency and accountability in the extractives sector.
NRGI will continue to engage civil society organizations and other stakeholders to enhance their understanding of the rationale and importance of fiscal rules to better hold the government to account and ensure that the government adheres to the beneficial ownership provisions in the Companies Act.