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CRAFTING an OIL REVENUE-SHARING MECHANISM for UGANDA: a Comparative Analysis

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CRAFTING an OIL REVENUE-SHARING MECHANISM for UGANDA: a Comparative Analysis CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA: A Comparative Analysis CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA A Comparative Analysis Wilson Winstons Muhwezi Arthur Bainomugisha Fred Ratemo Greg Wainnier ACODE Policy Research Series No. 30, 2009 CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA: A Comparative Analysis Published by ACODE P.O Box 29836, Kampala Email: library @acode-u.org, [email protected] Website: http://www.acode-u.org Citation: Muhwezi, et.al, (2009). Crafting an Oil Revenue-Sharing Mechanism for Uganda: A Comparative Analysis. ACODE Policy Research Series, No. 30, 2009. Kampala. © ACODE 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. ACODE policy work is supported by generous donations and grants from bilateral donors and charitable foundations. The reproduction or use of this publication for academic or charitable purpose or for purposes of informing public policy is excluded from this restriction. ISBN 978997007060 CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA A Comparative Analysis Wilson Winstons Muhwezi (PhD) Arthur Bainomugisha (PhD) Fred Ratemo Greg Wainnier ACODE Policy Research Series No. 30, 2009 CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA: A Comparative Analysis Table of Contents LIST OF ACRONYMS ............................................................................................. v ACKNOWLEDGEMENT ....................................................................................... vii 1. INTRODUCTION ............................................................................................. 1 1.1 The objective of the study ...........................................................................................2 1.2 Justification for carrying out the study .......................................................................2 2. THE BASIS FOR OIL REVENUE SHARING IN UGANDA ........................................ 6 2.1 Background to Oil Exploration in Uganda ...................................................................6 2.2 Implications of oil on social and political landscape in the Albertine regio .............8 2.3 Oil and macro-economic management ......................................................................9 2.4 Emerging issues in relation to revenue sharing.........................................................9 2.4.1 Expectations of economic boom .................................................................................9 2.4.2 Policy and legal requirements for revenue sharing ..................................................9 2.4.2.1The Petroleum (Exploration and Production) Act (1985) ......................................10 2.4.2.2The Constitution of the Republic of Uganda (amended in 2005) .........................10 2.4.2.3National Oil and Gas Policy (2008) .........................................................................11 2.4.3 Legal basis for sharing oil revenue ...........................................................................11 2.4.4 The basis for revenue sharing claims by Cultural Institutions and Local Governments ....................................................................................................................................12 2.4.5 Likely conflicts over revenue sharing .......................................................................12 2.4.5.1National Level conflicts ............................................................................................13 2.4.5.2Local Government level conflicts ............................................................................13 2.4.5.3Community level conflicts .......................................................................................13 2.4.5.4Policy and legal related conflicts ............................................................................13 2.4.6 Politics and oil revenue sharing ................................................................................14 2.4.7 Lessons from other national resources revenues ....................................................15 2.5 Priority issues for consideration under proposed oil revenue sharing ...................16 3. EXPERIENCES OF OIL REVENUE MANAGEMENT ............................................... 17 3.1 International policy on Oil resources ........................................................................17 3.2 Defining ownership of oil resources .........................................................................18 3.2.1 National ownership of oil resources .........................................................................18 3.2.2 Regional ownership of oil resources .........................................................................18 3.2.3 Shared ownership ......................................................................................................19 3.2.4 Private ownership ......................................................................................................19 3.3 Examples of Oil Revenue sharing mechanisms .......................................................19 ii CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA: A Comparative Analysis 3.3.1 Full centralisation of oil revenues ............................................................................19 3.3.1.1 The Norwegian Petroleum Fund ............................................................................20 3.3.1.2 The Chad Petroleum Revenue Management Programme ....................................20 3.3.2. Full decentralisation of oil revenues........................................................................21 3.3.3 Definite oil revenue sharing .....................................................................................23 3.3.4 Limited Revenue Sharing .........................................................................................23 3.3.5 Extensive Revenue Sharing ......................................................................................23 3.3.6 Special/negotiated and ad hoc revenue sharing arrangements ...........................23 3.3.7 Sharing on basis of taxation .....................................................................................25 3.3.8 Delegated or assigned formula ................................................................................26 3.3.9 Direct distributions to citizens ..................................................................................26 3.3.9.1The case of Alaska ....................................................................................................26 3.3.9.2 The case of Libya .....................................................................................................26 3.4 Examples of sharing Non-Oil revenues.....................................................................27 3.4.1 Non-oil revenue-sharing experience in Uganda .....................................................28 3.4.1.1 The Revenue Sharing Program in the Wildlife Sector ...........................................28 3.4.1.2 The Revenue Sharing Program in the mining sub-sector .....................................28 3.4.2 Non-oil revenue-sharing experience from outside Uganda ....................................28 3.4.2.1 The case of National Development Plan in Botswana ..........................................29 3.4.2.2 The case of the Mineral Development Fund in Ghana .........................................29 3.5 Conclusions on experiences and lessons for Uganda ..............................................30 4. PROPOSALS FOR OIL REVENUE SHARING FOR UGANDA ................................. 33 4.1 Definition of revenue sharing for Uganda ................................................................33 4.2 The principles for Oil revenue sharing in Uganda ....................................................33 4.2.1 Securing equitable development ..............................................................................33 4.2.2 Addressing heritage attachment ..............................................................................34 4.2.3 Addressing ethical considerations ............................................................................34 4.2.4 Application of the “Theory of Economic Rent” .........................................................34 4.2.5 Application of “The Cost Reimbursement Theory”...................................................34 4.2.6 Addressing international obligations ........................................................................35 4.3 Sources of revenues to share – Production Sharing Agreements ...........................35 4.4 Proposals for revenue sharing ..................................................................................36 4.4.1 Policy considerations .................................................................................................37 4.4.2 Revenues sharing options .........................................................................................38 4.4.2.1 Sharing royalties .....................................................................................................38 4.4.2.2 Local Authorities taxation of the oil sub-sector ....................................................38 iii CRAFTING AN OIL REVENUE-SHARING MECHANISM FOR UGANDA: A Comparative Analysis 4.4.2.3 Establish a Heritage Fund .......................................................................................39
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