Setting Up Uganda’s National Mining Company to Boost Sustainable Development
Key messages
- A Natural Resource Governance Institute survey of national mining companies (NMCs) provides useful lessons for the newly established Uganda National Mining Company (UNMC), as the Ugandan government and UNMC Board of Directors work to operationalize the company.
- With a limited commercial mandate, UNMC could play a valuable role in unlocking Uganda’s mineral potential by investing in geological surveys and co-financing exploration to derisk projects for experienced exploration companies.
- A cautious approach would be beneficial, given the considerable opportunity cost of using public funds and the risky nature of exploration, especially in the early years as the company builds experience.
- UNMC could learn from other NMCs that have struggled to benefit from minority state equity and reconsider these plans. If it continues to seek minority equity, its strategy for negotiating shareholder agreements and dividend rights will be critical and could involve guaranteed dividends or preferred shares.
- Regardless of UNMC’s mandate, a clear funding model, along with strong management, oversight and transparency policies and implementation mechanisms, is essential for enabling the company to successfully contribute to Uganda’s sustainable development.
The Government of Uganda recently established UNMC as part of its effort to increase the contribution of the nascent mineral sector to sustainable development. In November 2024, the Ministry of Energy and Mineral Development appointed the Board of Directors to begin operationalizing the company.
To support this process, we have compiled the experiences of other NMCs. Most of the more than 62 other NMCs around the world have a commercial mandate to manage the state’s majority or minority equity participation in mines. Operational mandates are less common, primarily because most NMCs lack the technical or financial capacity to efficiently operate mines. While some governments have assigned both regulatory and commercial mandates to NMCs, most have separated these roles to avoid conflicts of interest and reduce the risk of corruption.
National mining companies across the world
NMCs can help the government exercise greater control over the sector, speed up technological and human-capacity development, address market failures, generate additional revenue, and ensure responsible mining. Some NMCs have successfully achieved their objectives as well as long-term profitability. However, many face significant weaknesses or struggle to fulfill their mandates. NMCs that have a controlling interest in or operate mines often suffer from high costs and weak revenue generation. Those with minority or non-controlling equity in mines have also generally experienced financial disappointments. Unless a government mandates dividend payments, majority shareholders can retain earnings, reinvest profits, or shift profits to offshore subsidiaries or other related parties, thereby lowering dividends on state equity.
NMCs can also play a role in production-sharing arrangements if a government chooses to receive its share of production in kind, taking physical delivery of the minerals. While production sharing has been rare in the mining sector, it is increasingly being considered, including by Uganda. Production sharing can help mitigate some transfer pricing risks; however, for some countries, it has generated new challenges related to transportation, warehousing and negotiating sales contracts.
A few NMCs invest further along the value chain in smelting, refining, and other downstream activities. However, many of their projects have been unprofitable and have failed to stimulate the establishment or expansion of other sectors. NMC involvement has generally not changed the reality that access and proximity to mineral deposits play only a small role in determining the feasibility of moving along the value chain.
The challenges faced by several NMCs have been compounded by investments in non-core activities without the requisite expertise, and by suboptimal funding models. NMCs often retain an excessive proportion of revenues and fail to distribute dividends to the government. Many NMCs are also overindebted or borrow on unfavorable terms, increasing state liabilities.
The global experiences of NMCs offer valuable lessons for UNMC on how it can contribute to growth of the minerals sector and sustainable development of the country. Based on these experiences, this report outlines ten recommendations for the Ugandan government and UNMC’s Board of Directors.
- Set a clear, limited mandate focused on addressing market failures to unlock Uganda’s mineral potential.
- Reconsider paying for non-controlling equity in a mine’s development and operational phases.
- Carefully consider production sharing, including UNMC’s capacity to do so.
- Invest in value-addition activities only where they align with a clear, evidence-based strategy.
- Limit non-commercial and non-core roles.
- Allocate start-up capital based on a realistic plan, budget and assessment of opportunity costs.
- Allow only the retention of revenue from own investments and set a high payout ratio to government.
- Engage experienced consultants to support setting up UNMC to align with its mandate.
- Ensure parliament reviews operations and finances and approves large investments, and that external auditors conduct annual audits.
- Require the highest standards of transparency.
