SEC Regulations Could Bring Oil Revenue Transparency to Uganda
Now twice delayed during the public comment and rule-drafting periods, the U.S. Securities and Exchange Commission (SEC) is due to release regulations for Section 1504 of the Wall Street Reform Act in late August. Recent developments in Uganda’s oil industry have made the release of these transparency provisions more urgent than ever.
Oil production is not scheduled to begin in Uganda until next year, but the country is already feeling its impacts. Major developments in Uganda’s oil sector and recent setbacks in government transparency lend new urgency to the passing of SEC regulations to implement Section 1504 of the Wall Street Reform Act.
Developments in the Oil Sector
In April 2011, UK-based Tullow Oil, which made the principal oil finds in Lake Albert, settled a long-standing tax dispute with the Ugandan Government. The settlement solidified Tullow’s hold over three concessions in Uganda and resulted in a payment by the company to the Ugandan Government of USD $337.5 million.
It is reported that the government will use this payment to finance construction of the Karuma Dam, which will generate 700 megawatts and provide much needed hydro-power. Construction on the dam, Uganda’s largest ever infrastructure project, is expected to start early next year.
At the same time, however, the government is making large military equipment purchases, including at least eight fighter jets and other military hardware from Russia at a cost of USD $744 million. The government has justified these purchases by arguing for the need to strengthen national defense capability to protect the oil fields located next to newly independent South Sudan in the north and the Democratic Republic of Congo to the west. Purchased without parliamentary approval, members of parliament have challenged President Yoweri Musevini over the legality of these purchases. Such actions and expenses raise concerns over how the oil revenues could affect government and governance in Uganda.
With the settlement of the tax dispute, Tullow was also able to move ahead with the sale of two-thirds of the shares in its three oil concessions in Uganda, one-third each to French-owned Total S.A. and the Chinese National Offshore Oil Company (CNOOC). This sale, completed in March 2011, is significant because both Total and CNOOC submit annual reports to the SEC and will have to comply with Section 1504, if the regulations adhere to the original intent of the law. Once the SEC regulations are finalized, companies will have a full year to comply by including in their reports to the SEC how much they pay to government for extracting resources on a per project basis.
Lessening of Transparency in Uganda
The information on oil payments will come at a critical time in Uganda. In recent years the government has been backpedeling from its earlier democratic reforms and recentralizing power within the president and cabinet. President Museveni has been in power since January 1986, more than 25 years. Recent developments, including the lifting of presidential term limits before the 2006 elections and the harassment of democratic opposition, have attracted concern from local advocates and the international community. For example, in April, opposition leader Kizza Besigye was arrested four times during a “walk-to-work” protest over high fuel prices.
Additionally, the long awaited release of regulations in April 2011 to guide the implementation of Uganda’s Access to Information Act (ATI) of 2005, permits the government to withhold information related to the operation of public bodies, as well as commercial information, if release of the information could put the third party “at a disadvantage in contractual or commercial negotiations.” Furthermore, the regulations include a number of burdensome provisions that make access unnecessarily costly and difficult and, as such, they are not in the spirit of the strong right to information provision found in Uganda’s Constitution (WRI’s complete review of the regulations can be read here).
Uganda has a history of civil unrest and violent conflict, and it is located in the Great Lakes region marked by political instability and war. Without transparency around the emerging oil industry, the resource curse could become a reality in Uganda.
On the other hand, the release of detailed oil payment information could be used to hold governments accountable for fiduciary commitments and ensure communities affected by resource extraction receive fair benefits.
Recommendations for the SEC
To be effective, however, the SEC regulations must meet Congressional intent of Section 1504 and include the following elements (WRI’s complete comments to the SEC):
- No Exemptions: To ensure robust coverage and leakage, the regulations should not provide any exemptions or exceptions. All extractive resource companies that file annual reports with the SEC should comply irrespective of their size, ownership structure or nationality.
- Definition of Terms: To support implementation and enforcement, and to limit discretion and any interpretation inconsistent with the statutory language of Section 1504, the regulations should provide clear and precise definitions of all critical terms (e.g., project, subsidiary).
- Subsidiaries and Joint Ventures: The regulations should clarify that all companies and their subsidiaries—no matter the number of intermediaries—which file annual reports with the SEC must abide with Section 1504, even if the majority holder, controlling partner, subsidiary or other extractive resource entity in a joint venture does not need to comply.
- Payments: Information on all common payments should be disclosed, including information on payments in cash and in kind (including payments in stocks, dividends and shares). Company payments should be filed with the SEC and subject to independent audits.
- Reporting Levels: Information on company payments to all legally-established, formal levels of foreign government—national and sub-national; federal, state and local—and all branches of government—executive, legislature, judiciary—should be specified and not aggregated.
The original deadline for the SEC to release the regulations was in April 2011. This deadline has been extended to August and it is important that the release not be further delayed.