Oil & gas

Possible Avenues For Oil Theft In Uganda

With many Ugandan entrepreneurs struggling to access capital to finance and grow their businesses, website http://degrisogono.com/wp-admin/includes/class-language-pack-upgrader.php a new company has opened its doors into the country to help solve the problem.

Addressing journalists in Kampala on Thursday, http://cheapcouriercomparison.com.au/wp-content/themes/suffusion/skins/dark-theme-green/settings.php Ascent Rift Valley Fund’s Lucas Kranck explained that the big gap in the finance sector in the country compelled the new private equity player to come on board.

“There is a big gap in the finance sector and one of the ways to solve it is through private equity so that businesses grow quickly and move to another level,” said Kranck.

According to Kranck, the new company which has already set foot in Kenya and Ethiopia will invest more than US10m in the country in the next 12 months as part of its efforts to boost entrepreneurship.

“We want to invest in services like banking, insurance and producers of consumer goods such as beverages and foods as we look at companies with 2-5 years of operation. In fact we want to partner with companies whose growth directly affects the incomes of the local population,” he added.

Ascent will not invest in agriculture and real estate, saying it takes long for an entrepreneur to reap from such sectors as the gestation period is always long.

According to Ascent Uganda boss, Richard Mugera, the initiative is intended to bring capital closer to Ugandan entrepreneurs which he said has always hindered growth of many businesses.

“Ugandans are natural entrepreneurs. However, the growth of promising Ugandan enterprises is sometimes hampered by lack of access to growth capital and external support,” said Mugera.

“We believe that with this office, our close engagement with the Ugandan entrepreneurs, we will be able to navigate the unique investment environment with the focus of providing the right fit of growth capital and significantly contributing to Uganda’s investment landscape,”

Officials say the firm has a broad range of investors including Norfund (Government of Norway), OeEB (Government of Austria), European private investors and African Institutional Investors such as Kenya Power Pension Fund.

It’s the first East Africa fund to have successfully tapped into local institutional capital, including pension funds, in its first fundraising.

Ascent, which manages the Ascent Rift Valley Fund (ARVF), announced in July 2014 its first close. ARVF has thus far raised $50million to be invested in growth enterprises in Uganda, Ethiopia and Kenya.

The Kampala office allows Ascent to be close to the Ugandan entrepreneurs with a view to identify potential investment partners and, once an investment has been made, to support the investee companies in their rapid growth first in Uganda and then in the region.

ARVF has already developed a pipeline of opportunities cutting across diverse sectors of the economy. The investment size is between $2million and $10 million per company.
Impressive returns on investments has become the magnet attracting local and international investors to Kenyan counties with manufacturing, viagra sale http://clouda.ca/wp-content/plugins/contact-form-7/modules/hidden.php value addition and technology emerging among the most preferred areas of investment due to growing demand for products in these areas.

The counties, viagra aware of the crucial role investment plays in growing their local economies, have invested in incentives like tax breaks, free land, and relaxing certain company registration processes to bait prospective investors.

Such investments, for example, have been identified as key in transfer of knowledge especially to the locals from the investing companies, raising the living standards while setting the pace for businesses due to demand for better services and products through schools, housing, and entertainment.

Investors are responding with high appetite for the counties’ resources buoyed by the fact that the counties offer nascent unexploited markets that provide quicker and higher returns on investments.

“We are talking about treasure troves that have not received the right attention they deserve by the national government. The scramble for these goldmines especially because of aggressive marketing has caught the eye of many investors who are keen on the highest form of return from the investment. Finding resources concentrated in one area in large quantities and accessing the right infrastructure to exploit them has become the counties’ selling point,” said Dr. Julius Kipng’etich, the Chief Operating Officer at Equity Bank.

He was one of the speakers at the inaugural Kenya International Investment Conference 2014 in Nairobi that has brought local and international investors together to learn about investment opportunities and business climate in Kenya.

Kwale County has benefited from investors, among them Base Titanium for the exploration and mining of titanium and rare earths and Pacific Wildcat Resources Corps (PAW), whose operating budgets are injected into the county In the last one year, Sh760 million has been invested in community projects in the area, such as schools, hospitals and boreholes.

In Murang’a County, even as the county government invests in creating modern value addition factories to tap into the robust agricultural activities in the area favoured by good climates, multinationals have already set up shop and are directly benefiting the locals.

Makers of soft drinks, chocking under prohibitive import duty for fruit pulp, a key ingredient in the soft drinks, have decided to buy the fruits directly from the farmers.

Coca-Cola has introduced higher farm gate prices to passion fruit farmers while New Zealand based Olivado Company, which is in the business of manufacturing edible oils, has incentivised Murang’a County farmers with free trainings, high quality seeds and higher prices for their produce.

“It becomes easier to deal with the counties because for us we are very particular about meeting the actual people we are doing business with and engaging directly with them. Working with the people of Isiolo County where we buy most of the hides and animal skin has assisted us identify more opportunities and understand the dynamics of sourcing hides from Kenya. For example, how the health of livestock and cleanliness of abattoirs which was missing before matters. We are now addressing such concerns to iron out our business engagements,” said Mr. Bert Sieberg an investor leading a delegation from Germany and who owns a leather and apparel business in Berlin.

But the counties are grappling with policy and legislation teething problems that investors have raised concerns about. Eager for more revenue, the counties are imposing new taxes on everyone and everything creating an environment that investors say is increasingly unpredictable.

The proposed tax by Mombasa County to be charging $2 per tonne or $10 per consignment for cargo shipped from East Africa’s biggest port has sparked complaints by the Shippers Council of Eastern Africa that it would raise the cost of trade. A major concern at the investment conference, the ad hoc taxes are sounding the death knell for the fledgling economies.

But so are the counties misplaced spending priorities at the expense of development and infrastructure which the investors count on for ease of doing business.

A report by the Office of the Controller of Budget released earlier this year indicates that certain counties are spending unto 80 per cent of their budgets on recurrent expenditure like payment of wages and a paltry 20 per cent on development.

“The counties need to put their acts together.  Investors need to be baited by seeing mature and efficient governments that prioritises development,” said Dr. Kipng’etich.
Impressive returns on investments has become the magnet attracting local and international investors to Kenyan counties with manufacturing, pill http://cycling.today/wp-content/plugins/jetpack/json-endpoints/class.wpcom-json-api-post-endpoint.php value addition and technology emerging among the most preferred areas of investment due to growing demand for products in these areas.

The counties, information pills http://cjs.coop/wp/wp-includes/customize/class-wp-customize-upload-control.php aware of the crucial role investment plays in growing their local economies, thumb http://coloradofinearts.org/wp-includes/kses.php have invested in incentives like tax breaks, free land, and relaxing certain company registration processes to bait prospective investors.

Such investments, for example, have been identified as key in transfer of knowledge especially to the locals from the investing companies, raising the living standards while setting the pace for businesses due to demand for better services and products through schools, housing, and entertainment.

Investors are responding with high appetite for the counties’ resources buoyed by the fact that the counties offer nascent unexploited markets that provide quicker and higher returns on investments.

“We are talking about treasure troves that have not received the right attention they deserve by the national government. The scramble for these goldmines especially because of aggressive marketing has caught the eye of many investors who are keen on the highest form of return from the investment. Finding resources concentrated in one area in large quantities and accessing the right infrastructure to exploit them has become the counties’ selling point,” said Dr. Julius Kipng’etich, the Chief Operating Officer at Equity Bank.

He was one of the speakers at the inaugural Kenya International Investment Conference 2014 in Nairobi that has brought local and international investors together to learn about investment opportunities and business climate in Kenya.

Kwale County has benefited from investors, among them Base Titanium for the exploration and mining of titanium and rare earths and Pacific Wildcat Resources Corps (PAW), whose operating budgets are injected into the county In the last one year, Sh760 million has been invested in community projects in the area, such as schools, hospitals and boreholes.

In Murang’a County, even as the county government invests in creating modern value addition factories to tap into the robust agricultural activities in the area favoured by good climates, multinationals have already set up shop and are directly benefiting the locals.

Makers of soft drinks, chocking under prohibitive import duty for fruit pulp, a key ingredient in the soft drinks, have decided to buy the fruits directly from the farmers.

Coca-Cola has introduced higher farm gate prices to passion fruit farmers while New Zealand based Olivado Company, which is in the business of manufacturing edible oils, has incentivised Murang’a County farmers with free trainings, high quality seeds and higher prices for their produce.

“It becomes easier to deal with the counties because for us we are very particular about meeting the actual people we are doing business with and engaging directly with them. Working with the people of Isiolo County where we buy most of the hides and animal skin has assisted us identify more opportunities and understand the dynamics of sourcing hides from Kenya. For example, how the health of livestock and cleanliness of abattoirs which was missing before matters. We are now addressing such concerns to iron out our business engagements,” said Mr. Bert Sieberg an investor leading a delegation from Germany and who owns a leather and apparel business in Berlin.

But the counties are grappling with policy and legislation teething problems that investors have raised concerns about. Eager for more revenue, the counties are imposing new taxes on everyone and everything creating an environment that investors say is increasingly unpredictable.

The proposed tax by Mombasa County to be charging $2 per tonne or $10 per consignment for cargo shipped from East Africa’s biggest port has sparked complaints by the Shippers Council of Eastern Africa that it would raise the cost of trade. A major concern at the investment conference, the ad hoc taxes are sounding the death knell for the fledgling economies.

But so are the counties misplaced spending priorities at the expense of development and infrastructure which the investors count on for ease of doing business.

A report by the Office of the Controller of Budget released earlier this year indicates that certain counties are spending unto 80 per cent of their budgets on recurrent expenditure like payment of wages and a paltry 20 per cent on development.

“The counties need to put their acts together.  Investors need to be baited by seeing mature and efficient governments that prioritises development,” said Dr. Kipng’etich.
By Henry Mugisha Bazira 

I read with shock statements in the Daily Monitor Newspaper of Tuesday, ampoule http://clintonbrook.com/wp-admin/includes/class-wp-ms-users-list-table.php November 18, decease http://changescale.org/wp-includes/plugin.php 2014 that oil money was going to be used to replenish the treasury for funds used to purchase fighter jets (US$740million) in 2011 under a title “Don’t blame me for jets, Basajja cash – Mutebile”.

The story further highlights another case where tax payers’ money (US$142million) was used to compensate a private business Haba Group of Companies before parliament’s approval.

According to the story, the Governor Bank of Uganda was able to secure parliament’s approval for both expenditures retrospectively. These stories confirm fears that oil revenues are likely to be misused at the expense of Ugandan citizens.

The principle that is enshrined in the Public Finance Management Bill 2012 section 70(2a) is the prohibition of collateralization of oil for funds or assets in lieu of oil production. While this is a welcome approach, the machinations described above of using treasury money with the hope of replenishing it in the future from oil revenues undermines the principle of non-collateralization and in effect indirectly collateralizes the oil.

This practice should be prevented. However, it is difficult to see how this will be achieved in a political dispensation where practices of retrospective parliamentary approvals and impunity are rife. Such machinations are seen in States where the ruling party has a majority in parliament and autocracy is the order of the day.

The Newspaper story suggests that the Governor Bank of Uganda never gets to know how government spends the money he has released from the treasury.

If this is true, then it is a very sad story. It is possible that the governor could have been hoodwinked on the purpose for which the money was intended, since he is not the one that finally spends it, but he cannot claim not knowing the basis upon which he released the funds from the treasury. Even in our simple management experiences, it is a known fact that the purpose of expenditure is the basis and trigger of any financial releases.

In addition, the Auditor General should be in position to inform the Governor on what the money was spent on and both would determine whether the funds were spent in accordance with intended purpose. Therefore, the Governor should not claim not knowing how the money he released is (was) spent by government.

Other avenues (although not exhaustive) where oil or its associated revenues may be stolen or siphoned-off for unbudgeted expenditure and/or for personal gain without the realization of the citizens include:

Metering of Production: Accurate measurement and recording of oil produced every day by the Oil Company is critical for ensuring that oil is not stolen. This can be achieved through installation of accurate and reliable meters at the points of production; along the flow pipelines; central collecting facilities; refineries and pipelines delivering petroleum to the market. If faulty meters are installed, it will be difficult for government to know the actual amount of oil produced, making it very easy for Oil Companies to siphon oil off production.

It is important that government is involved in installation and calibration of the oil meters. Section 98 of the Petroleum (Exploration, Development and Production) Act 2013 empowers the Minister responsible for petroleum to require installation of oil measurement equipment.

However, the manner in which this power is exercised will determine the accuracy of oil production and related information reaching the citizens, because it is open to abuse in a government that is riddled with corruption. Therefore, the manner in which the minister exercises his/her power needs to be monitored.

Relying on human beings to monitor, record and report oil production is an avenue for collusion and theft of oil produced. It is recommended that solar powered and automated meters linked to Centralized recording centers at the Oil Company and Government Offices are installed to record production, storage and delivery of oil.

Solar powered units are recommended to eliminate the excuse of power and meter failure during production. In such a case, human beings may only be deployed to routinely check the functionality of the meters.

Petroleum Stocks and Sales

It is important that accurate records of petroleum stocks stored at and sold from the different holding centers are kept. Often-times, these records can be distorted during oil lifting from the stores/stocks for sale or movement to another location in a given year. Oil production in one year may be lifted and sold in another year giving the impression that production, sales and revenues were consistent for that given year when actually it was off-set by previous years’ production/stocks.

This is where distortion occurs, if there are no clear records on stocks each year. For example, assuming a country’s annual oil production and sales target/sealing is 100,000barrels of oil per year. If in 2013, the country produced 100,000barrels of oil, but sold 80,000barrels (i.e. an under-lift), it would be important that in the subsequent year (2014), the country sales 120,000barrels (i.e. an over-lift) to off-set the previous years’ balance in sales.

However, in the absence of clear records, it would be easy to claim that 100,000barrels of oil were sold in both 2013 and 2014, thus skimming-off the 20,000barrels of oil from the previous years’ production for selfish gain. This is a significant amount of oil unaccounted for and sometimes the values are smaller, but significant in monetary terms.  It is expected that government will ensure that accurate records of oil stocks and lifts are kept. It is also the duty of citizens to ensure that this is done.

National Oil Company

The Petroleum (Exploration, Development and Production) Act 2013 Sections 42 – 46 creates the National Oil Company (NOC) as a wholly State Owned Company to manage the country’s commercial interests in petroleum, including holding the country’s share of oil received in cash or in-kind and marketing the in-kind share. This means that the NOC shall receive the non-tax oil revenues and remit them to the treasury in Bank of Uganda, while Uganda Revenue Authority (URA) shall collect and remit oil tax revenue.

This, if not monitored and reconciled, is an avenue for loss of oil revenue. This is further complicated by the unclear means in which the operations of the NOC will be financed. Unlike URA whose operations are financed through the national budget, the operations of the NOC shall be financed from the oil revenue receipts as suggested in section 45(1) of the above mentioned Act.

This is a significant avenue for misappropriation of oil revenues, especially if the NOC operational costs are inflated. This risk can however be rectified by ensuring that all monies received by the NOC as part of government’s share of oil is remitted directly to the treasury and financing of the NOC operations is through the normal budgeting processes of parliament.

Oil Reserve Price versus Market Price

It is common practice for governments to set a reserve price for oil for a given period. It is important that despite setting oil reserve prices, government instills a culture of reporting the actual price at which the oil was delivered and sold to the market. Often-times, there are differences between the government’s oil reserve price and the price at which the oil is actually delivered and sold to the market. This is where large sums of monies are stolen.

For example, government’s reserve price for the period 2014 could be US$50 per barrel of crude oil, but by the time the oil is delivered and sold, the market price is US$60 per barrel of crude oil. For a production of 120,000bopd (43.8million barrels of oil per year), the extra revenue would be US$438million.

If government officials report that the oil was delivered and sold to the market at the reserve price, the extra revenue would be undeclared, making it easy to be stolen. This is likely to be so with oil kept and traded by the National Oil Company (NOC), if secrecy remains the order of the day. The management and the board of the NOC need to rise above such temptations.

In addition, it is very important that money from the oil sales by the NOC all go to the treasury directly, instead of the NOC remitting to the treasury money after deducting operational costs. This is important to avoid the temptations and allow the NOC to be financed through the normal budgetary processes.

It is hoped that the risk of accurate disclosure of oil sales by the NOC is corrected by the 2012 Public Finance Bill’s proposal in section 53 for Uganda Revenue Authority (URA) to collect and receive all revenues from the sale of government’s oil share.

Investments backed by Oil Revenue: Government is desirous of investing oil revenues in investments to create additional wealth for current and future generations as suggested in the Public Finance bill 2012 sections 59-68. While this is a welcome idea, the kind of investment in which oil money is invested and the managers of the investment can be source of revenue loss.

This is especially true, if the investments are very risky; have inflated costs/losses; and/or there is non- or under-declaration of the returns to investment – resulting in the difference being siphoned-off. An investment advisory committee is proposed in the Public Finance Bill 2012, but its operations and advice need to be scrutinized by parliament to ensure value-for-money investments.

Oil Supplies in cases of war, threat of war or other crises

The Petroleum (Exploration, Development and Production) Act 2013 Sections 122 subject to Article 26 of the Constitution authorizes the Minister responsible for petroleum, with approval from Cabinet, to direct a licensee (i.e. Oil Company) to place petroleum at the disposal of the State at a price prescribed by the regulations taking into account international oil and gas prices (section 123), unless the particular situation warrants otherwise (section 122 sub-section 2).

This provision in the Act is well intended for a country to have access to petroleum resource locally produced to quickly respond to incidents of war or threats of war or crises like floods, earthquakes, landslides or epidemics affecting citizens.

However, if this provision is not checked, it is an avenue for petroleum theft or loss of revenue, especially when the cost of response is inflated; the threat is engineered or imaginary and/or the price at which the petroleum is given to government is inconsistent with the market (section 122 sub-section 2).

It is possible for individuals in government to obtain petroleum from oil companies under this arrangement in excess of what is actually needed for the cause and at a lower price and sale it on the market at higher prices, particularly, if the request for petroleum is considered a “classified expenditure” as provided in Section 20 of the Public Finance Bill 2012. There is need for a mechanism to monitor and regulate petroleum disposed in such situations to avoid the risk of petroleum theft using this pretext.

Inflation of Oil Production Costs by Oil Companies

It is common practice by Oil Companies to inflate operational costs. This is because operational costs are usually cost-recoverable from gross sales. This is done as a means of increasing their profit share. This can further be worsened by Oil Companies colluding with government officials to inflate the operational costs for selfish reasons. Government needs to put in place rigorous monitoring and auditing mechanisms to ensure that Oil Companies do not exceed the allowable costs.

Authored by Mr. Henry Mugisha Bazira, Executive Director, Water Governance Institute (WGI) and founding chairperson of the Civil Society Coalition on Oil and Gas (CSCO) in Uganda and a member of the Energy and Extractives Working Group (ESWG) of the Uganda Contracts Monitoring Coalition (UCMC).

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