PROSPECTS, OPPORTUNITIES, AND CHALLENGES OPPORTUNITIES, PROSPECTS, OIL WEALTH Large quantities of oil were discovered in the Albertine Rift Valley in Western Uganda in 2006. The sound management of these oil resources and revenues is undoubtedly one of the key public policy challenges for Uganda as it is for other African countries with large oil and/or gas OIL WEALTH endowments. With oil expected to start flowing in 2021, the current book analyses how this East African country is preparing for the challenge of effectively, efficiently, and transparently managing its oil sector and resources. Adopting a multidisciplinary, comprehensive, and comparative AND AND DEVELOPMENT approach, the book identifies a broad scope of issues that need to be addressed in order for Uganda to realise the full potential of its oil wealth for national economic transformation. Predominantly grounded DEVELOPMENT in local scholarship and including chapters drawing on the experiences IN UGANDA of Nigeria, Ghana, and Kenya, the book blazes a trail on governance of PROSPECTS African oil in an era of emerging producers. Oil Wealth and Development OPPORTUNITIES in Uganda and Beyond will be of great interest to social scientists and AND BEYOND economic and social policy makers in oil-producing countries. It is AND CHALLENGES suitable for course adoption across such disciplines as International/ Global Affairs, Political Economy, Geography, Environmental Studies, Economics, Energy Studies, Development, Politics, Peace, Security and African Studies. IN Arnim Langer is director of the Centre for Research on Peace and UGANDA Development (CRPD), chair holder of the UNESCO Chair in Building Sustainable Peace, and Professor of International Politics at KU Leuven. Ukoha Ukiwo is a senior lecturer at the Department of Political and Administrative Studies, University of Port Harcourt. AND Pamela Mbabazi is currently the Chair of the National Planning Authority of the Government of Uganda. BEYOND PAMELA MBABAZI (EDS) PAMELA MBABAZI UKOHA UKIWO & UKIWO UKOHA ARNIM LANGER ARNIM LANGER, UKOHA UKIWO & PAMELA MBABAZI (EDS) Oil Wealth and Development in Uganda and Beyond Oil Wealth and Development in Uganda and Beyond Prospects, Opportunities and Challenges Edited by Arnim Langer, Ukoha Ukiwo, and Pamela Mbabazi Leuven University Press Published with the support of the KU Leuven Fund for Fair Open Access Published in 2020 by Leuven University Press / Presses Universitaires de Louvain / Universi- taire Pers Leuven. Minderbroedersstraat 4, B-3000 Leuven (Belgium). Selection and editorial matter © Arnim Langer, Ukoha Ukiwo, and Pamela Mbabazi, 2020 Individual chapters © The respective authors, 2020 This book is published under a Creative Commons Attribution Non-Commercial Non- Derivative 4.0 Licence. The license allows you to share, copy, distribute, and transmit the work for personal and non-commercial use providing author and publisher attribution is clearly stated. Attribution should include the following information: Arnim Langer, Ukoha Ukiwo, and Pamela Mbabazi (eds.). Oil Wealth and Development in Uganda and Beyond: Prospects, Opportunities and Challenges. Leuven, Leuven University Press. (CC BY-NC-ND 4.0) Further details about Creative Commons licenses are available at http://creativecommons. org/licenses/ ISBN 978 94 6270 200 4 (Paperback) ISBN 978 94 6166 309 2 (ePDF) ISBN 978 94 6166 310 8 (ePUB) https://doi.org/10.11116/9789461663092 D/2020/1869/7 NUR: 741 Layout: Crius Cover design: Frederik Danko Cover illustration: Single petrol pump in Uganda, Africa (Dennis Diatel/Shutterstock.com) Contents List of Figures 9 List of Tables 11 Foreword 13 Preface 15 1. Oil Wealth and Development in Uganda and Beyond: Prospects, Opportunities and Challenges 17 Arnim Langer, Ukoha Ukiwo and Pamela Mbabazi Part I — Institutional and Regulatory Framework, Policies and Challenges 2. Uganda’s Oil Governance Institutions: Fit for Purpose? 33 Pamela Mbabazi and Martin Muhangi 3. Courting the Oil Curse or Playing by the Rules? An Analysis of the Legal and Regulatory Framework Governing Oil in Uganda 49 J. Oloka-Onyango 4. Keeping Corruption in Check in Uganda’s Oil Sector? Uganda’s Challenge to Let Everybody Eat, and Not Just the Lucky Few 75 Kathleen Brophy and Peter Wandera 5. Closed but Ordered : How the Political Settlement Shapes Uganda’s Deals with International Oil Companies 103 Badru Bukenya and Jaqueline Nakaiza Part II — Macroeconomic and Fiscal Framework, Policies and Challenges 6. Oil Wealth in Uganda: Analysis of the Macroeconomic Policy Framework 127 Corti Paul Lakuma 7. Oil Revenues and Social Development in Uganda 149 Joseph Mawejje 8. Getting a Good Deal? An Analysis of Uganda’s Oil Fiscal Regime 173 Wilson Bahati Kazi 9. Human Resources and Oil in Uganda : An Analysis of Uganda’s Human Resource Development for the Oil Sector 197 Jackson A. Mwakali and Jackson N.M. Byaruhanga Part III — Other Major Governance Polices and Challenges 10. Environmental Sustainability : An Afterthought or a Key Objective for Uganda’s Oil Sector? 225 Moses Isabirye 11. Land Grabbing in the Albertine Graben : Implications for Women’s Land Rights and the Oil Industry in Uganda 239 Roberts K. Muriisa and Specioza Twinamasiko 12. Expecting Eldorado? An Analysis of Ugandans’ Expectations of Their Country’s Oil Wealth 265 Byaruhanga Musiime Chris 13. The Management of Social Tensions and Community Grievances in the Albertine Region of Uganda 285 Tom Ogwang Part IV — International Comparison 14. Nigeria’s Oil Governance Regime: Challenges and Policies 309 Ukoha Ukiwo 15. Ghana’s Oil Governance Regime: Challenges and Policies 331 Peter Quartey and Emmanuel Abbey 16. Kenya’s Oil Governance Regime: Challenges and Policies 351 Germano Mwabu Part V — A Way Forward 17. Oil Wealth and Development in Uganda and Beyond: Conclusions and Policy Recommendations 375 By Ukoha Ukiwo, Pamela Mbabazi, and Arnim Langer Illustration Credits 387 About the authors 389 List of Figures Figure 2.1: Oversight and Governance Institutions for Petroleum Sector in Uganda 41 Figure 4.1: Uganda’s petroleum revenue management scheme 80 Figure 4.2: Horizontal relationship between the Government and oil companies 81 Figure 4.3: Risks for vertical revenue leakage in Uganda 87 Figure 4.4: Addressing horizontal and vertical risks for corruption 95 Figure 5.1: Uganda’s Political Settlement 107 Figure 5.2: Uganda’s ruling coalition 109 Figure 5.3: A Taxonomy of Informal Institutions: The Deals World 111 Figure 6.1: Estimated Uganda’s production profile 129 Figure 6.2: Uganda revenue profile (Estimates) 130 Figure 6.3: Simulated Impact of Dutch Disease on Uganda’s Economy 135 Figure 6.4: Simulated Impact of Fiscal Rules on Welfare and Growth 142 Figure 6.5: Simulated impact of efficiency of public investment on Uganda’s economy 143 Figure 7.1: Growth and poverty in Uganda 152 Figure 7.2: Proven oil reserves in selected Sub-Saharan African countries, 2015 154 Figure 7.3: Expected government revenues 154 Figure 7.4: Agriculture value added per worker (constant 2010 US$) 156 Figure 7.5: Water for production technologies 158 Figure 7.6: Private sector credit distribution, 3-year average 2013- 2016 159 Figure 7.7: Education expenditure 161 Figure 7.8: Health expenditure patterns 165 Figure 8.1: Royalty rates versus gross daily production 177 Figure 8.2: Additional rates on cumulative production 177 Figure 8.3: Oil profit distribution between the Government and oil companies 179 Figure 15.1: Oil Rents (Percentage of GDP) 335 Figure 16.1: Proven and potential oil and gas fields in Kenya 353 Figure 16.2: Kenya’s national and oil governance frameworks 355 List of Tables Table 1.1: Resource Governance Index Scores for Selected African countries 22 Table 2.1: Resource Governance Index Scores for Selected Countries 39 Table 7.1: Education Service Delivery in Selected East African Countries 162 Table 7.2: Health Sector Outcomes 1990–2015 164 Table 7.3: Health Service Delivery in Selected East African Countries 166 Table 8.1: Oil Revenues Collected 187 Table 9.1: Comparison of Old and New BTVET Systems 212 Table 10.1: Petroleum Issues in Newspapers (2000–2016) 227 Table 10.2: An Overview of Stakeholders in the Oil and Gas Framework 228 Table 10.3: Stakeholder Analysis of Power in the Context of Environmental Impact 231 Table 10.4: Government Institutional Roles and Conflict Identifi- cation 232 Table 15.1: Total Production of Oil in Ghana (Barrels) 333 Table 15.2: Total Petroleum Receipts for Ghana 334 Table 15.3: Breakdown of Total Petroleum Receipts 335 Table 15.4: Allocation of Total Petroleum Receipts by the Govern- ment of Ghana (Mill. US$) 336 Table 16.1: Kenya’s Model for Oil Exploration and Production 360 Foreword Uganda stands at an important crossroad in its history. In 2006, large quan- tities of oil and gas were discovered in the Albertine Western Region of Uganda. Now more than a decade later, Uganda is on the verge of becoming a significant oil producer and exporter in Africa. The people of Uganda are awaiting the moment that oil starts flowing with great anticipation. This is expected to happen around 2021/22. And while Ugandans hope and pray that their country’s oil wealth will soon translate into improved social and economic outcomes for them, there exists a widespread sense of unease and concern among the population about whether Uganda is ready for the inflow of large amounts of oil revenues. Given the history of oil exploration and exploitation in Africa, these concerns are not unfounded. Unfortunately, there are cases, both in Africa and elsewhere, that demonstrate that natural resource wealth, if mismanaged, will not be the route to development Eldorado but will produce the opposite result of poverty in the midst of plenty. However, the negative political, social and economic impacts of oil wealth—a situation also known as the ‘resource curse’—is not inevitable, as some countries with credible governance of the oil-producing class have shown (e.g.