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Avoiding the Resource Curse: Spotlight on Uganda Oil

Can new SEC disclosure rules help bring transparency to Uganda’s oil sector?

This piece originally appeared on the Huffington Post.

Nestled near the end of the Wall Street Reform and Consumer Protection Act (HR 4173) is Section 1504, two and half pages of text that aim to bring much needed transparency to the extractive resources industry, especially its operations in the developing world.

President Obama's recent speech on international development to the UN General Assembly highlighted the role of transparency and accountability as ways to improve government institutions. The financial reform bill provides one such mechanism by strengthening business and government accountability in the extractive sector.

The law requires domestic and foreign companies that submit annual reports with the Securities and Exchange Commission (SEC) to publish annually how much money they pay to U.S. and foreign governments for extracting oil, gas, and minerals.

Why does this matter?

<p>the Working Paper on Uganda and the SEC Rules</a></p>

the Working Paper on Uganda and the SEC Rules

This type of disclosure is critical. Lack of transparency around transactions between extractive industries and governments can lead to corruption and mismanagement of both resources and the associated revenues. The result, all too often, is the so-called “resource curse”: a paradox in which countries abundant in natural resources enjoy less economic growth and poorer development outcomes than countries with fewer natural resources. By requiring transparency around how much companies pay to foreign governments for these valuable resources, SEC disclosure will empower public interest groups to track funds more accurately and hold governments accountable.

Given its great potential, what impact will this law have in practice? Uganda, one of Africa’s newest petro-states, could provide a first test case.

Uganda and the Shadow of the ‘Resource Curse’

Uganda, a country rich in natural resources, is building a foundation for a progressive democracy. For example, it is one of a handful of countries in Africa that grants its citizens the right of access to information. But the discovery of oil in 2006 has some advocates concerned that Uganda may still fall victim to the “resource curse”.

The oil discoveries in the northern part of Uganda’s Albertine Rift spurred significant investment by foreign oil companies. As of 2009, over $700 million has been spent on oil exploration in the region. Companies have so far drilled only three of the nine exploration blocks, but have already found more than two and a half billion barrels of oil, raising high expectations for when full production begins, as early as this fall.

A Lack of Transparency

As oil production and extraction ramp up in Uganda, local NGOs have campaigned to gain access to Production Share Agreements (PSAs), the contracts between governments and resource extraction companies that dictate what percentage of revenues will go to the government. PSAs provide critical information which NGOs can use to calculate production amounts and track revenues.

However, the Ugandan government has refused to make these public, claiming that doing so would undermine the government’s negotiating position in allocating the remaining oil exploration blocks.

Since 2007, journalists have filed at least three pleadings in Ugandan courts over the release of PSAs—two in magistrate courts and one in the High Court. In the first case, heard in February of 2010, the Magistrate ruled in favor of the government by declaring that the PSAs are confidential documents based on an interpretation of the country’s Access to Information Act. In pleadings to the High Court in 2010, Greenwatch (a public-interest environmental law NGO) argued that it needs access to the PSAs in order to assess oil project impacts on the environment and public health to protect citizens’ Constitutional right to a clean and healthy environment. This case is scheduled to be heard shortly.

Help from the SEC?

Given these developments in Uganda at the national level, civil society groups in Uganda may need to look to the international arena for legislation such as the Dodd-Frank Act to gain transparency around the oil sector. The SEC rule-making period, which lasts until April 2011, will be critical in determining how the Act will play out on the ground.

Tullow Oil, the major oil exploration company with concessions in Uganda, is listed primarily on the London Stock Exchange and does not file annual reports with SEC. Tullow, however, is seeking to sell one-third of its shares to Total S.A., a French extractives company, and another one-third of its shares to the China National Offshore Oil Company (CNOOC), which are both registered with the SEC and file annual reports.

If the SEC rule-making process establishes regulations that cast a wide net, it will help Ugandan civil society get the information they need to hold their government accountable. WRI and partners will continue to track these issues and collaborate on how to build capacity of advocates, local NGO leaders and parliamentarians to learn how to acquire this information from the SEC. Only then can this new U.S. law help shift the balance of power from the government of Uganda to its citizens, and enable civil society to use this data to work with the government to improve environmental governance.

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