One of the salt mines in Uganda

One of the salt mines in Uganda

Will the Mining and Mineral Bill, 2019 address transparency and accountability gaps of the mining sub-sector in Uganda?

In August 2020, Uganda formally joined the Extractive Industries Transparency Initiative (EITI). This requires Government and IOCs/Mining companies to disclose all agreements and contracts. Under the EITI framework, companies publish information on their payments to Government and the latter publishes its receipts from the companies. In turn, this is expected to enhance transparency and accountability and ensure that extractives revenues benefit the citizens. It is expected that Uganda will publish the first EITI report in February 2022 (18 months from the time of joining EITI).

Despite the good steps to enhancing transparency and accountability in the extractives sector, specifically the mining sub-sector is still facing numerous challenges. Firstly, the sub-sector is still not well organized and has no streamlined transparency mechanisms that would enable proper management of resource revenues accruing from the sector. Indeed the outdated mining act 2003 and the delayed Mining and Mineral’s bill 2019 seem not be solving transparency gaps that have for long affected the sector. In fact, it is not clear as to whether EITI implementation in Uganda will solve the challenges if the legal and policy frameworks that are not improved and aligned to the EITI principles.

The challenges of the mining sector that are hindering transparency and accountability in Uganda include;To begin with, Mining Policy 2018, and Mining Act 2003 and the current mining and minerals bill 2019 are not explicit on mining revenue management and so is Public Finance Management Act (PFMA, 2015). Whereas petroleum revenue management is explicitly provided for in section VIII of PFMA, 2015, mineral revenue management is not provided for neither mining law nor PFMA. It is important to note however, that the draft Mining and Minerals Bill, 2019 proposes the establishment of mineral buying and auctioning centers across the country. This will guarantee artisanal and small-scale miners transparent and competitive selling prices and, to their advantage, cut out the middlemen who buy their minerals at prices much lower than the market price. The mineral buying and auctioning centers will ensure that the taxes and revenue realized from the mining sector will be collected by the responsible authorities, in the process minimizing current revenue leakages.

Gap relates to limited effort by government agencies to collect adequate mineral royalties. For instance, the Office of the Auditor General’s (OAG) report of 2019, indicated that the Ministry of Energy and Mineral Development collected UGX 10,503,398,902 in respect of mining royalties. However, a review of reports from the Customs and Excise Department of Uganda Revenue Authority (URA) indicated that Government should have collected UGX 70,193,258,898 in royalties, using the applicable rate of 5% from gold, tantalum and tungsten.

The following weaknesses in the assessment of royalties have been experienced;

  • The Ministry of Energy and Mineral Development (MEMD) relies on declarations from the mining companies in form of monthly production returns, which are not independently verified. There is high risk of under reporting of mineral production volumes. There is no permanent presence of Government Mines’ Inspectors to confirm production figures declared which creates a potential risk of under declaration of production by mining entities.
  • The MEMD has not set up weigh bridges on the major routes where bulky and expensive minerals such as pozzolana, limestone and other metals are transported.
  • There is lack of coordination between the various Government institutions, and the failure to share the collected data. As a result, the Ministry of Energy and Mineral Development cannot institute a proper verification mechanism.
  • Also failure by the Local Governments to track or collect revenues from the exploitation of Development Minerals.
  • The presidential directive of 2017 instructing gold miners to stop paying royalties also undermines revenue collection efforts. Under the Mining act 2003, gold attracts 5% royalty.

Other risks though not easy to verify due to limited data is the fact that there is a lot mineral smuggling across neighboring countries like Rwanda, Tanzania, DRC, Kenya among others. The establishment of the Mineral Protection Police to avert the smuggling claims has defeated the purpose. There are unverified allegations in press reports against the Police Minerals Protection Unit (PMPU) accusing them of extortion, human rights violations, corruption and other injustices. This suggests that this Unit is not adequately performing its role of supporting the enforcement mandate of Directorate of Geological Survey and Mines (DGSM).

Policy recommendations

  • For proper implementation of EITI, there is need to expedite the mining and minerals bill 2019 to align it with EITI principles.
  • There is need to reinstate the 5% royalty on gold mined within Uganda and 1% royalty on gold imported within the country
  • Adhere to and implement the Regional Certification Mechanism (RCM) as per ICGLR guidelines and ensure effective implementation of EITI.
  • Local Governments with support from MEMD in partnership with mining companies should establish weigh-bridges within their districts to take stock of all bulk minerals exiting their borders for purpose of verifying declarations by the companies and the royalties due to central government, districts, communities and land owners
  • Amend the Public Finance Management Act, 2015 to cater for the fiscal collection and management of mineral revenues alongside petroleum revenues. Better still enact a stand-alone Mineral Revenue Management law or put in place mineral fund to effectively manage mineral revenues.
  • A Minerals Enforcement Agency be created under the Mining and Minerals Bill, 2019. It should be adequately trained and placed under the guidance and supervision of DGSM.
  • Expedite the Mining and Minerals bill 2019 and provide for the regulation of the exploitation of Development Minerals and subsequent collection of the resultant revenues.

In conclusion, the mining sub-sector has great potential of contributing to economic growth and poverty alleviation through mineral exports, local consumption, manufacturing, employment generation and diversification of the economy. Exploitation of minerals and materials will provide vital resources needed to fund the backlog of infrastructure investments, essential social services and addressing Uganda’s core macro-economic aspirations. All these aspirations can easily be achieved so long as greater transparency and accountability of the resource revenues are practically achieved especially with the strict implementation of EITI in Uganda. This will require effective enabling legal and policy frameworks to be in place as well as effective implementation.