Kampala, Uganda | THE INDEPENDENT | The Auditor-General John Muwanga has queried the absence of a Petroleum Investment Framework to guide investment of funds under the Petroleum Revenue Investment Reserve in Bank of Uganda.
While presenting his audit report for the year ended December 2019 to Speaker of Parliament Rebecca Kadaga, on Wednesday, Muwanga noted that although government appointed the Investment Advisory Committee (IAC), there is no approved Petroleum Revenue Investment Policy (PRIP) and Investment framework to guide operations of the petroleum revenue.
According to Muwanga, he received an explanation that the appointed Investment Advisory Committee (IAC) reviewed both the Petroleum Investment Policy and the operational Agreement between Bank of Uganda and Ministry of Finance and forwarded them to Cabinet for approval.
He advised government to expedite the approval of the Petroleum Investment Policy and the operational agreement.
Meanwhile, the Auditor General also noted a withdrawal of funds from the Petroleum Fund pointing out a Shillings 200 billion transferred from the fund in the financial year 2018/2019 to the Consolidated Fund as part of domestic financing of the budget.
“However, there was no explicit disclosure of the infrastructure and development projects that would be funded from the petroleum revenues and I, therefore, could not confirm whether the amount was used to finance infrastructure development of government,” said Muwanga.
He added that his office received information that internal discussions on formulating procedures and specific guidance for operations under the Petroleum Fund are still on-going. He cited need to expedite the process of formulating sufficient procedures to ensure clarity in the appropriation of funds from the Fund to the Uganda Consolidated Fund and the Petroleum Revenue Investment Reserve.
Assistant Auditor General in charge of Audit, Keto Nyapendi Kayemba noted that the process of appropriation and eventual transfer of Petroleum funds to the Consolidated Fund is not guided by any fiscal rule but left to the discretion of the Ministry of Finance during the budget formulation process.
Speaker Rebecca Kadaga noted that parliament was to discuss in detail issues concerning expenditure from the Petroleum Fund when it resumes its sittings next week Tuesday.
The Auditor General’s observation comes a week after the Minister of State for Planning David Bahati noted that government had exhausted resources in the Petroleum Fund confirming that a zero budget allocation from the fund to support the coming financial year 2020/2021 budget despite previous allocations.
Government in the previous financial years since the establishment of the Petroleum Fund by the Public Finance Management Act (PFMA), 2015 has been withdrawing money to finance the budget. The fund is overseen by the Bank of Uganda operating on three accounts. The accounts include a dollar and shillings accounts managed at Bank of Uganda and a third account in New York to facilitate investment of revenue. The Fund has two objectives including financing the Budget and saving or investment for the future.
In the financial year 2017/2018, government withdrew Shillings 125.6 billion from the Fund in November 2017 to support the budget and also transferred another Shillings 200 billion to the Consolidated Fund to finance the budget for the financial year 2018/2019. In May 2019, Parliament chaired by Deputy Speaker Jacob Oulanyah tasked government to put in place a Petroleum Investment framework to guide the investment of funds from the Petroleum Revenue Investment Reserve.
The decision followed a report indicating that the fund was not growing since funds therein were used to finance the national budget contrary to provisions of the Public Finance Management Act. It was also reported that the government had not put in place a Petroleum Investment Framework as envisaged in the law.
They then report by Parliament Budget Committee was prompted by government plans to raid the Fund and pick 445.8 billion Shillings to finance the current 2019/2020 budget shortfall. But the report revealed that as of end of December 2018, the value of the Fund stood at 288.7 billion Shillings and that this reduction from 470.4 billion Shillings recorded in June 2018 was due to a transfer of 200 billion Shillings to finance the financial year 2018/2019 budget.
The committee cautioned the government to contain its appetite for the oil funds before production kicks off citing depletion of resources in the Petroleum Fund with no clear indication on what the money is spent on.
The Public Finance Management Act 2015 provides that for the avoidance of doubt, petroleum revenue shall be used for the financing of infrastructure and development projects of government and not the recurrent expenditure of the government.
The summary of Petroleum Fund Inflows and Outflows indicates that the opening balance of the Petroleum Fund was 30.92 billion Shillings on July 1, 2017. During the Financial year 2017/2018, there was an inflow of 121.84 billion Shillings and an outflow of 30.92 billion Shillings transferred to the Uganda Consolidated Fund account.
This implied that the closing balance at the end of the financial year was 121.84 billion Shillings. In the financial year 2018/2019, there was an inflow of 37.51 billion Shillings in the Fund bringing the total balance in the fund at 158.84 billion Shillings.
However, this was further reduced with an outflow of 148.32 billion Shillings transferred to the Uganda Consolidated Fund account.