By Silver Kayondo…

Recently, the New Vision reported that the Petroleum Fund held by Bank of Uganda has so far received a deposit of $63 million (about Shs212 billion) from the business activities of oil companies accruing from VAT, income tax and signature bonuses. It was further reported that an additional $244million (about Shs821 billion) is expected to be injected into the fund.

This is a positive development and a right step towards operationalisation of the Oil and Gas Revenue Management Policy 2012 and compliance with the Public Finance Management Act 2015. However, there are a few curves that need to be straightened. One of these relates to auditing procedures and mechanisms of the Fund.

According to Mr Joseph Hirya, the director of the audit office of the Auditor General, there are challenges resulting from secrecy of key documents relating to the books of accounts received from the Finance ministry and this has jeopardised a comprehensive audit of not only the Fund, but also the oil sector.

Project audit and evaluation is a very vital component of public revenue management. Poor investment management may result in wasted resources and corruption. The risk is increased further if fund collection and investment are scaled up rapidly in the face of macroeconomic and institutional absorption constraints without proper records and comprehensive auditing mechanisms to guarantee transparent and accountable revenue management systems.

Ex-post evaluation is in many developing countries a missing feature of public revenue and investment management systems, as are adequate asset registers. Registers and inventories are necessary to maintain and account for payments received, expenditures and disbursements made.

These should be subject to regular internal and external audits.

Within the legal framework of Section 60 of the Public Finance Management Act 2015, the Accountant General is mandated to maintain proper books of accounts and proper records of the Petroleum Fund and must submit semi-annual and annual financial statements to the Minister of Finance, Secretary to the Treasury and the Auditor General by February 15 and August 31 respectively.

The Oil and Gas Revenue Management Policy speaks to the policy consideration behind the creation of the Petroleum Fund. Ordinarily, the oil and gas revenues should, like all other government revenues, be deposited in the revenue account of the Consolidated Fund, and allocated in accordance with normal budgetary process.

However, due to the need to help crystallise public support in building a resource buffer for the future; given the complexity of accountability for multiple petroleum revenue streams and to provide an easy and transparent way to present and manage the stocks and flows of oil revenues and the anticipated challenges that management of these revenues pose, it was deemed fit that oil and gas revenue must be managed under a transparent and segregated arrangement distinct from the Consolidated Fund, into which all revenues directly attributed to petroleum activities are deposited.

Furthermore, it was envisaged that in order to align the activities in the oil and gas sector with existing financial management requirements, a new chart of accounts will be introduced and will be used by all companies engaged in the petroleum sector. This will define the cost recognition and accumulation policies to be used for determining cost/profit oil and the allowable expenditures/deductions.

All transactions involving oil and gas revenues to the government must be made transparent by expanding the content of the budget documents to include annual budget estimates, the long-term oil revenue projections, the medium term fiscal framework/medium term expenditure framework, a detailed explanation of the long-term fiscal strategy and its assessment, an estimation of the government’s non-oil sources of financing, and the share of the budget appropriations allocated to priority spending.

It is also part of the policy framework that the Auditor General will audit the Petroleum Fund twice in a given financial year and submit audit reports to Parliament. The audits must include audited and reconciled data on oil revenues, production, sales and prices. Therefore, the need for all the relevant data and information to be availed to the Auditor General is of very crucial importance if Uganda is to realise the desired resource governance and accountability structures.

This is why the management of the balance of the Fund is to be integrated into the government assets and liabilities framework. The balance sheet of the Fund is consolidated with other Government financial operations into a statement of assets and liabilities that is audited and presented within a prescribed period to Parliament.

The statement includes information on public debt and asset liability position hence the need for detailed and comprehensive auditing procedures.

In light of the pronounced volatility of the oil price and evidence that government consumption in developing countries is pro-cyclical, there is additional motivation for sticking to the established framework governing the Petroleum Fund.

With the establishment of the department of asset management within the Finance ministry to coordinate the activities of the Fund and the need to craft a sustainable investment strategy for the petroleum proceeds, there will be increased disclosure requirements on the status of the Fund.

The earlier we resolve this, the better.

Mr Kayondo is a legal consultant in International Finance and Investment systems based in Pretoria, South Africa.

Contact; lawyerkayondo@gmail.com

This article was first Published in the Daily Monitor Newspaper