Kampala:  Uganda earned sh1.08b from its nascent oil and gas industry even before producing a barrel, unlocking the potential of petrodollar inflows. According to the Ministry of Energy and Mineral Development annual report 2008, the non-tax revenues were in payments for training fees and surface rentals. Revenues also came from the sale of petroleum data to companies interested in exploring for oil and gas in Uganda.

"Success in the industry has attracted in excess of $500m as at the end of 2008," the annual report states. "The Albertine Graben, which is the most prospective area for the petroleum resource, and by the end of 2008, five exploration areas out of nine, was under license."  However, background research indicates that the sh1.08b has not been reflected in the 2009/10 and 2010/11 budgets.

This omission has created fears that the oil revenues may not trickle down to the local population but used to prop-up the so called resource curse.

Although the National Oil and Gas Policy for Uganda 2008 states that agreements will have to be entered into with land owners to cover aspects like compensation for their land surface interests, it is not clear how many land owners have been compensated.

Article 204 of the Constitution of Uganda provides for the decentralistion of the administration of land to District Land Baords. These boards, in accordance with laws made by Parliament hold and allocate land, facilitate the registration and transfer of interests in land and handle other matters connected with land in the respective districts.

Therefore, the districts where oil and gas is explored are entitled to royalty payments that amount to 5-12% of the total revenue generated. Royalty payments are traditionally used to compensate the country for the removal of finite resources such as minerals or petroleum from the land.

In the Mining Act, 80% of state revenue goes to the central government, 17% goes to local governments and 3% goes to the landlords. This is because the oil companies or Government acquire land for pipelines, roads and infrastructure such as wellheads, oil and gas processing facilities and refineries. Fred Kabagambe-Kaliisa, the permanent secretary in the energy and mineral development ministry, said it was still difficult to distribute royalties in some districts.

"In some areas, land is owned communally and this makes it hard to give out the portion the land owners deserve," he said. "But when the land owners agree and endorse receipt of payment, then we pay them. "Efforts to talk to the ministry of finance on why the income is not reflected in the budget was futile as Keith Muhakanizi, the deputy permanent secretary to the treasurer, did not respond to the calls.

Although Uganda's rank of 51st in the Open Budget Index reflects significant strides in budget transparency achieved in recent years, reports about in-year spending remain inaccessible, making it extremely hard for the public to track Government receipts, spending and borrowing throughout the year.

If the oil industry is well managed, it has a potential to generate over $2b every year, an amount that surpasses donor assistance averaged $1.7b per year.

Lack of transparency in the payment and receipt of oil revenues fosters corruption and mismanagement. Although the Access to Information Act was passed, giving the public a right to review information, it restricts disclosure of information that is "commercially sensitive."

Government has refused to divulge the terms and conditions in the production sharing agreements it signed with oil companies. Yet contracts are critical to trace revenues and expenditure. Since NRM came to power in 1986, Uganda undertook ambitious economic and political reforms. These reforms established a legal, administrative and institutional framework to fight corruption.

In spite of initial successes widely heralded by the international community, corruption remains widespread and the country faces major implementation challenges. Irrespective of a series of government anti-poverty programmes like the Entandikwa - a revolving fund given to rural people for development, National Agricultural Advisory Services (NAADS), and the Poverty Eradication Action Plan (PEAP), the programmes failed to yield the desired transformation due to corruption.

PEAP was a broad policy framework paper first formulated in 1995 to eliminate poverty in Uganda, and revised in 2000. The project closed 10 years later, with little positive results. According to statistics, 31% of Ugandans are living in poverty, while 14% of the total labour force of 10 million has no jobs. Corruption and the lack of political will to fight it has crippled Government efforts to fight poverty.

Production sharing agreements determine the benefits, obligations and indeed the transparency of the agreements. If people are to know whether payments and receipts from the oil and gas firms reflect a fair deal, the agreements on which they are based must be transparent.

The recent oil discovery in Uganda could signal an influx of unprecedented wealth for the country.

*  Commentary by Ibrahim Kasita