If the total worth of Uganda’s oil was to be divided into 100 shares, Bunyoro would be entitled to only less than a share of that worth. Not that it deserves anything more or less. It’s what the (soon to be enacted) law stipulates and going by Austin’s theory, the law is the law. It is the law. Now the Banyoro who have always spoken of “our oil” in reference to what essentially is and should be a national resource under the misguided conception that they own the oil as of right just because a lot of it will be flowing from the sub- region will have to literally swallow their pride and come to terms with the reality at hand.
When the Public Finance Bill is passed into law, the government will be entitled to 93% of royalties from Uganda’s oil revenues and the local governments, some of which are in Bunyoro will be entitled to 7% of those revenues which they may choose to share with the Kingdom.
Clause 73 (4) of the Public Finance Bill provides that each local government may in consultation with the Ministry responsible for culture and the other local governments, agree and allocate a share of their royalty grant to cultural institutions recognized by the Constitution in their localities.
It therefore suffices to note that Kingdom which wanted a 12.5% share in the royalties from the oil revenues will only get less than a percentage of the total revenue. “It is standard practice around the world to award trustees 12.5% of revenues raised from natural resources,” reasoned the Omukama of Bunyoro back then when Parliament was still gathering views on the bill. His reasoning was premised on the fact that the Kingdom is the trustee of all the land in Bunyoro.
But is it really? In Article 244, the 1995 Constitution of Uganda vests with Government, on behalf of all people, the responsibility over any natural resources in, on, or under any land or waters in Uganda. The Constitution also requires the government to consider the interests of the central Government, the Local governments of the areas where the natural resources are discovered and the individual land owners of the land in which the resources are discovered when sharing royalties from resource revenues. The constitution does not have any provision for cultural institutions’ right to share in the resource revenues.
Other laws like the Mining Act of 2003, the Electricity Act of 1999, and the Uganda Wildlife Act of 2000, which have provisions on royalties from natural resources, all specify different sharing arrangements.
For instance, the Mining Act allocates 17 per cent and three per cent of royalties from minerals respectively to the local governments and owners or lawful occupiers of land subject to mineral rights. The Wildlife Act has set 20 per cent of the park entry fees for the local government in which the park is located, while the Electricity Act leaves sharing to be agreed upon by the licensee and the district local government, in consultation with the regulatory authority. None of these laws has a reference to royalty to particular cultural institutions in the sharing of royalties.
In fact, the only reason why the provision on cultural institutions could have be imported into the Public Finance Bill is perhaps because Bunyoro during the time kept asking for a share of the petro- dollars and Omukama Gafabusa Iguru even had to leave his palace in Karuzika, to go to Parliament to push for the compromise. Though he did not get the ultimate 12.5%, at least he should be glad his Kingdom got a share or even more that is if the local governments agree to a subvention (which they will anyway) of their royalties to the Kingdom- speak of getting what you bargain for.
Indeed, if the five districts in Kingdom give only a quarter of their cut to the kingdom, the kingdom may have up to a percentage share in the royalties since the districts in Bunyoro will most definitely produce the greater of chunk of the oil.
How the oil revenues will be shared and why this mechanism was chosen
According to the Oil Revenue Management Policy, 2012, the mechanism of sharing these revenues among the local governments takes into account intra‐regional fairness, level of production and sustainability principles.
Under the principle of intra regional fairness it is sought that local governments within the oil resource rich region should be compensated for the oil- related social costs, irrespective of the stage of oil activities undertaken in the locality.
Besides, the royalty allocated to an eligible local government will take into account the level of production derived from within its boundaries.
But even more important since oil is a finite resource whose revenues are volatile and uncertain and since there is need to protect and encourage non‐royalty revenue collection effort in the oil resource regions, the mechanism for royalty revenue sharing will take into account the need to smooth-en releases to local governments even after oil production ceases.
The exact formula of how the oil revenues will be shared
Accordingly, based on the principles already stated, the formula stipulated in the 6th Schedule of the Public Finance Bill, 2012 derives the royalty share as a function of the sum of the weighted population share and the weighted production.
The equation is LGRS = R/2 * (Weighted LG population share + Weighted LG Production Share) where; LGRS is Individual local government royalty revenue share, LG is Local government and R is Total local government royalty share
R/2 seeks to split the royalty into two halves, with one half to be shared on the basis of population distribution and the other half on the basis of the level of oil and gas produced within the local government boundaries.
The weighted LG population share represents the proportion of the population of a particular local government area to the total population summed up over all the local governments located in the oil rich region.
It recognizes that the entire population within the oil and gas region will be affected by the industry activity regardless of whether their specific localities are in production and therefore must receive some form of compensation.
The weighted LG population share ensures that all eligible local governments within the oil and gas resource region get a share of the royalties irrespective of the stage of activity undertaken.
On the other hand, the weighted LG production share represents the share of output from a particular district in the overall level of production. It seeks to compensate local governments on the basis of level of oil and gas produced within their boundaries.
Once determined, the revenues are transferred to the local governments in the form of block grants through the budget. Local governments will then be required to spend the grant on key areas, including education, health, water, roads and bridges, and production (market infrastructure, pests and disease control).
To take into account the principle of sustainability and to protect the non‐oil revenue efforts, the royalty shares transferred to each of the local governments in any given year must not exceed 100% of their non‐royalty related revenues as per the Oil Revenue Management Policy.
If the royalty share derived from the formula above is in excess of 100% of a local government’s non‐oil revenues, the balance must be held in trust by the Minister responsible for Finance and used to stabilize their future budgets.
“The oil resources when they come, they come for a short term but too much.” Says Peter Lokeris, the State Minister for Minerals “The 7 percent to go to the districts, you have even to make some reserves.”
The Minster says “in fact when we were discussing, the districts were saying the oil grants made to them should be termed as an unconditional grant that is they get it and use what they want.”
However government said no to that suggestion and insisted on the grants being conditioned because the government knew that if it left the local governments to deal with the oil money with no restriction, the government would be opening a can of worms.
“So the issue really is to look at the future generation,” he asserts “because we are spending getting this oil which should be theirs in advance but you must make sure you provide for the future.”