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Address to Parliament
by
H.E. Yoweri Kaguta MuseveniPresident of the Republic of Uganda
On Oil
Parliament - 10th February 2012
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H.E. the Vice President,
Rt. Hon. Speaker,
Rt. Hon. Prime Minister,
Hon. Leader of the Opposition,
Hon. Ministers,
Hon. Members of Parliament,
Ladies and Gentlemen
I greet all of you and I congratulate you all upon entering
the New Year.
On the 6th of February, while in Kasese during Tarehe Sita
celebrations, I made two points:
i. The NRM/NRA fought a resistance war and won it
without a reliable source of arms; and
ii. The NRM inherited a Government with ruined
economy and without money but within a short time
repaired that economy.
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It may be those qualities of ability to build great things
with scarce resources that moved the Alurs to give me
the nickname of Jalukunga the one who nurtures things
to maturity. Even the Bakiga had given me the praise
name of Ruhemba-Ogwenjura the one who successfully
makes fire using wet firewood. This praise is not just for
me as a person but for the whole NRM.
During the phase of the armed struggle, we moved at a
much faster pace. We had a lot of problems lack of
arms, lack of food, lack of drugs, lack of clothes,
indiscipline within the forces, etc., but we solved those
problems systematically until we won victory in 1986.
That phase of the resistance was building on the
foundation of the earlier phase of 1971-1979. The 1971-
1979 phase was also building on the foundation of the
earlier phases of the peoples struggles in Uganda such
as Kabalega and Mwanga resistances, Bataka Movement,
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Nyangire Movement, Musaazis struggles of 1940s, the
Student Movement in the 1960s, etc.
Actions in the armed struggle phase were faster because
we had tight rules in the form of the Code of Conduct and
the Operational Code. Our strategy was correct and it
was supported by appropriate institutions and tight rules.
When we captured power in 1986, we had to share power
with new civilian forces in the form of the expanded
National Resistance Council (NRC). Using the closed
sessions of the NRC, we would develop prior harmonized
positions and come to the Legislative Chamber when
everything had been agreed. We were, therefore, able to
move a bit fast, acrimonious debates in the NRC
notwithstanding. We were able to deal with many
controversial issues such as the chasing ofmafuta mingis
out of the Asian houses, liberalizing the control of foreign
exchange away from the monopoly of the Bank of
Uganda, liberalizing the buying of coffee and cotton away
from the monopoly of Coffee the Marketing Board (CMB)
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and the Lint Marketing Board (LMB), reduction of the civil
servants, reduction of the army, the restoration of
traditional leaders, etc. Infrastructure was tackled with
the increase of electricity generation from 60 MW to 380
MW, the repairing of the major roads, etc.
With the introduction of the 1995 Constitution, however,
decision making process slowed down and indiscipline in
the political class increased. This led to a number of
strategic mistakes, one of them being the sabotage of the
electricity development programme by delaying Bujagali.
These mistakes cost our country dearly. Between 2005
and today, the country has squandered 1,500 billion
shillings (1.5 trillion shillings) on subsidizing electricity.
This does not include the cost to industry through the
need to buy standby diesel generators which are always
very costly. Through external interference, there was
also a delay in the equipping and professionalization of
the UPDF by insisting on a smaller budget as a condition
for external financial support. This caused the prolonging
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of the suffering of our people in Northern Uganda on
account of Konys terrorism and the continued damage
by the Karimojong cattle-rustlers within Karamoja and
also in the neighbouring districts.
We, therefore, got into a situation where the NRM was
forced to make mistakes on two strategic issues by
internal indiscipline and external pressure. This was in
the area of electricity and security as already pointed out.
In 2001, I could no longer tolerate the sabotage to
national security caused by the under-funding of the
army. I called an emergency Cabinet meeting in Gulu.
We decided to cut 23% from the budget of each Ministry
to cure this mistake. Using the savings, we bought
helicopter gunships and other equipments that should
have been bought in 1991 when we reduced the Army
from 100,000 to 40,000 but which were not bought
because of external pressures. By 2003, we had started
turning the tide against the terrorists. The battle of
Apopong in Teso, in August 2003, was the turning point.
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That was the end of Kony terrorism. That strategic
mistake was finally cured.
The strategic mistake on electricity took longer to cure. It
was only in 2006, soon after the elections, when I
proposed the setting up of the Energy Fund, using our
own money, that we began addressing that mistake.
Previously, we had relied on endless begging from
outside for funds to build the dams. The begging itself
was further complicated by the internal sabotage by the
indisciplined political elements whom the external
benefactors were only too eager to listen to. By setting
up the Energy Fund, we were now able to build these
dams ourselves if it was necessary although we
continued to welcome external financing, if available.
The usual games did not take long to manifest
themselves. Some old man claimed to be the
personification of the Bujagali spiritand the spirit was
objecting to the building of the dam. Some of the
lenders started procrastinating using frivolous excuses
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they must consult civil society, etc. Who is civil
society? These are some individuals in the employ of
foreign NGOs. How can these be civil society? I
understand civil society to mean people who are living by
their own means not employed by Government. This
means industrialists, farmers, hotel-owners as well as
workers in the private sector, etc. Why should people
working for foreign governments that fund the NGOs be
regarded as civil society? Fortunately, by this time, a
contractor had already been selected. We, therefore,
released US$ 75 million to them from the Energy Fund as
bridge financing to start building the dam straight away.
If they would not start, we would kick them out and build
the dam ourselves using our own money. That is how
Bujagali started on schedule this time.
The first turbine has now been commissioned. All the
turbines will be ready by July 2012. With Bujagali, we
shall not have load-shedding for the next three (3) years
because the deficit of 135 MW at peak hours (between
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6.00 pm and 11.00 pm) will be more than covered by the
250 MW Bujagali will produce. The Energy Fund has not
only helped us to kick-start Bujagali on time. Using the
Energy Fund money, we have contributed to the following
projects:
A. Construction of evacuation and distribution lines for the following
small hydropower projects:
1. Mpanga Small Hydropower Station 18MW (Mpanga-Kamwenge-
Kahunge-Nkingo)
2. Mpanga Small Hydropower Station 18MW (the construction of the
33/132 kV, 2x20 MVA sub-station and switching station)
3. Buseruka Small Hydropower Station 9MW (Buseruka-Hoima line)
B. Construction of priority rural electrification projects :
1. Sironko-Nakapiripirit-Amudat
2. Katakwi-Moroto with T-offs to Matany and Lorengedwat
3. Ngora-Kobwin
4. Lwala-Kaberamaido-Kobululu-Amolatar and Kelle Port
5. Lwala-Otuboi-Acinip
6. Lwala-Dokolo
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7. Kitgum-Palabek
8. Lira-Apala
9. Lira-Aloi
10. Ibanda-Kabujogera-Kamwenge
11. Muhanga-Kamwezi
12. Kakumiro-Birembo-Nalweyo
13. Bukwiri-Kyankwanzi
14. Kayunga-Busaana
Therefore, today, we are emerging from the two strategic
mistakes imposed on us by external forces and theindisciplined elements with the political class delaying
the equipping of the Army and the delaying the the
development of electricity.
When you had the oil debate here in this Parliament on
the 10th and 11th of October 2011, you were about to
involve us in a new strategic mistake delaying the
conclusion of the oil agreements which had been
discussed by very competent people for a very long time.
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However, when the NRM Caucus met in Kyankwanzi after
it rectified this position and, later on, the Rt. Hon.
Speaker Rebecca Kadaga clarified to me that the
resolutions you passed did not affect the old agreements
or on-going negotiations. Let me, again, take you
through the oil story: I first got involved with the
Mwitanzigye (L. Albert) oil on 10th of February 1986.
Some two White men from Shell BP came to see me at
the old State House, Entebbe. They told me that there
were signs that there was petroleum in the Mwitazingye
(L. Albert) area and that the previous Government had
been about to conclude an exploration agreement with
Shell BP. They now wanted to conclude the agreement
with us. I told them to go away so that I consult with the
concerned departments. I would call them back after a
few days. I called people from the Ministry of Minerals,
led by Mrs. Janet Opio who was the Permanent Secretary
of the Ministry of Natural Resources. The team included
the late Saul Mboijana who was the Ag. Commissioner of
Geological Survey and Mines Department and
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Kabagambe-Kaliisa who was the Oil Project Coordinator. I
asked them whether they knew anything about
petroleum. They said they did not. Later I asked the
Ministry of Finance and Planning if anybody in Uganda
knew anything about oil. They said: Yes, there was an
expert on oil in the Bank of Uganda (BOU), they said. I
called the expert from the BOU. The expert was a
Ghanaian whose expertise was on account that he was
the one that would handle the import papers for
petroleum products into Uganda. You cannot imagine the
disappointment and consternation I had. I called back
the Shell people and told them that I could not proceed
with the agreement because I had nobody on my side
that knew anything about petroleum. I called the people
in the Ministry of Minerals and told them to recruit
graduates of chemistry, physics, geology and send them
for Masters Studies in Petroleum.
Once I had taken those strategic decisions and given the
turbulent times Uganda and the Region were going
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through, I forgot about the issue until later when the
students had come back and we had formed the
Petroleum Unit in the Ministry of Minerals. At some
stage, a group known as Petrofina from Belgium was
negotiating with us and the Government of Mobutu in
Congo about that oil. I even went to Gbadolite to see
Mobutu in Congo about that oil. However, Petrofina was
crippled by the riots in Kinshasa in 1991 because their
equipment was looted. At this time, I looked for Shell BP
because I now had my people who had come back with
qualifications in petroleum studies. Shell BP was no
longer interested. It seems that with the opening up of
the Soviet Bloc, they had huge oil fields in those areas
and were no longer interested. That would not have been
a problem; the problem was that they told me a lie - that
they were sure there would be no oil in that area. Why
were you anxious to come in 1986? I could not get an
answer from them.
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The following companies came in:
Licensee Date Issued Area
1. Fina Exploration B.V March 1991 Entire Graben
2. Uganda General Works and Engineering Co. Feb 1995 Albert Basin
3. Heritage Oil and Gas Ltd. Jan 1997 EA 3
4. Hardman Resources (U) Ltd. Jan 1997 EA 2
5. Hardman Resources (U) Ltd. Oct 2001 EA 2
6. Heritage Oil & Gas Ltd. and Energy Africa July 2004 EA 1
7. Heritage Oil & Gas Ltd. and Energy Africa Sept 2004 EA 3A
8. Neptune Petroleum (U) Ltd. Sept 2005 EA 5
9. Dominion (U) Ltd. July 2007 EA 4B
We, therefore, must salute our scientists who did all this
work. The first well sank by Heritage in Semliki in the
year 2003 was a disappointment. It contained a lot of
carbon dioxide. The Europeans of Heritage panicked. I
even, myself, I almost panicked. Our scientists were
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resolute and insisted that there was oil. Even now, they
insist that there may be oil even in that Semliki well,
carbon dioxide notwithstanding.
The first productive well was struck on the 6th of January
2006 by Hardman Resources at Mpuuta Oil Field in Hoima
district. Since that time, out of 64 wells drilled, 58 have
found oil which is a 90% success rate. It is estimated that
having explored in only 40% of the potential area, we
have confirmed 2.5 billion barrels. Exploration in all the
other areas will be done when licenses are awarded
through competitive bidding once the Petroleum
Resource Management legislation is enacted.
When the first successful well produced oil, discussions
started on the way forward. There were attempts to tell
me that Uganda should quickly agree to a Pipeline for
export of crude oil. I asked: How about a Refinery to
produce petrol for our use, diesel, kerosene, HFO and
other bye-products? Some people tried to tell me that
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Refineries do not make money. My question then was:
Why do those who build Refineries build them? Are they
Mother Theresas working for philanthropy? They could
not answer this. When I visited Iran, in May 2009, I asked
the President there whether they had Refineries and
why? He said they had nine (9) and they were building
another seven (7)!! Yet here we were being discouraged
from building even one!! Unbelievable! Eventually, our
people hired a group known as Foster Wheeler which said
that the Refinery project is very profitable in Uganda and
it has an NPV of US$ 3.2 billion at 10% discount rate and
an IRR of 33%.
Foster Wheeler also found that a Pipeline for exporting
crude oil alone, would have an NPV of US$ zero at 10%
discount rate and an IRR of 10%. In other words, a
Pipeline would be much less profitable than a Refinery
partly because our crude oil is waxy and needs to be
heated all the way to Mombasa.
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Right from the exploration period, our officials had
reached agreements with the oil companies concerning
what are called Production Sharing Agreements (PSAs).
The logic here is that the host country either does not
have the money or, if she has the money, she is not
willing to risk it in drilling to confirm the existence of the
oil which may not be there or may be there in small
quantities that are not economic. Remember, our
scientists had said the oil may be there by the use of
aero-magnetic survey, gravity survey and seismology but
they had not drilled to confirm their suspicion. The oil
companies specialize in this aspect of the business. They
put forward their money to drill the wells for the better or
for the worse as they say in Christian marriages. If the oil
is found, they share in the oil until they recover what they
put in and, thereafter, they continue to take a smaller
share in recognition for their initial investment. In our
case the PSAs our people signed go as follows in
summary:
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i. An agreed exploration work programme and a
budget to execute the work. In other words, the
government obligates oil companies to drill a
number of wells or carry out surveys over a
specified area and within a defined timeframe.
This helps to monitor the exploration work and
monitor expenditure.
ii. An obligation to return part of the licensed area
(called relinquishment) on renewal of the
exploration period.
iii. Government is entitled to a Royalty on gross
production.
iv. Government is also entitled to a participating
interest or share of the National Oil Company
which is paid for initially by the licensed oil
companies.
v. An allowance for companies to recover the verified
investment cost which recovery is caped at not
more than 60% of gross oil production after
deduction of royalties. This means that the costs
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to be recovered by the oil companies have to be
verified as bona fide expenditure. Secondly, unlike
other businesses where companies recover their
costs from all revenues generated up to 100%, in
the oil business the companies are allowed to
recover up to 60% annually in order to allow for
some of the oil to remain for government to take a
share early. The oil that remains after recovery of
costs is called profit oil.
vi. Production sharing of profit oil for both
government and the oil companies.
vii. Taxation of the licensees profit oil.
Before the recovery of their costs, the oil companies will
be taking 74 barrels out of every 100 barrels produced.
After the recovery of their costs, the oil companies will
take 42 barrels out of every 100 barrels produced. This is
just sharing the barrels produced. It does not include
taxes which are at 30% of barrels taken by the
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companies and does not include royalties which are
between 5% and 12.5% of the gross production before
cost recovery. It also does not include equity by the state
oil company which would also earn dividends of 15%out
of the joint venture with international oil companies. If
you include the tax, the royalties and the dividends and
assuming we are producing at 200,000 barrels per day,
the total government share will be equivalent to 152,326
barrels out of every 200,000 barrels produced which is
76.2%. These agreements were signed before there was
certainty that there was, indeed, oil. Our people could
not have attracted those oil companies without these
types of agreements. Now that it is confirmed that we
have the oil, we shall be able to negotiate for higher
government shares from the beginning. Indeed, these
were the agreements of 2001. The later ones are much
better.
The benefits I have enumerated above do not include the
capital gains tax i.e. the tax of 30% the government
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levies on companies when they sell their shareholding as
Heritage sold to Tullow two years ago. You remember
the oil companies tried to play games on that but we told
them that that tax was not negotiable. They paid us US$
430 million in taxes, which we put in this years budget
for building Karuma dam. The Banyankore say:
Ekihambo kirakutambire kikubanza obutuutu the
pumpkin plant that will save you from hunger starts by
giving you the small pumpkin fruits; then, you know that
it will give you even the bigger ones. We are now able to
move on building Karuma dam fast without the circus we
normally go through of begging money from outside.
In the legislative proposals that the government is
sending to you, we shall propose that oil money should
never be squandered on consumption. Oil is a finite
resource which will dry out tomorrow. It must be used to
create durable capacity. Oil money should not be used
for importing cars, perfumes, travel, etc. It should only
be used for developing cheap electricity from hydro
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sources, solar sources, wind sources, the biomass and
nuclear energy in their order of urgency and affordability.
First to be developed will be all the all the hydro sites
along the Nile and its tributaries. This should give us
about 4,000 MW (Ayago, Karuma, Murchison, Ararang,
Isimba, the many mini-hydros on other Nile system
Rivers, etc). We must research in the solar and the wind
potential. We develop the energy from the biomass and
electricity from HFO, gas and some crude oil in the short-
run. In the long run, we are going to develop nuclear
energy using our abundant uranium which I have refused
to export. Nobody will export uranium from Uganda as
long as I am the President of this country. Why should we
donate fuel to light the neighbours house while our own
is in darkness (kizikiza, omwirima)? What sort of wisdom
is this? We are training our scientists in nuclear energy
for peaceful purposes already.
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The second area I propose for the use of the oil money is
in the area of transport infrastructure especially the
railway and some of the roads.
The third area for which we should use our oil money
should be in the area of scientific innovation and
research. This money should be used to build the
infrastructure for scientific research in government
universities and research centres such as UIRI, NARO, etc.
The oil money should also be used to give capital to our
scientists to commercialize their innovations. Some
aspects of irrigation could also benefit from the oil fund
especially the strategic irrigation schemes around Mount
Rwenzori, Mountain Elgon, the Kigezi Bufumbira hills,
the Agoro hills and in the areas around the Nile River that
can easily be irrigated without using too much pumping.
With cheaper energy sources, we may be able to irrigate
more distant parts that are not near the rivers such as
Karamoja.
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With the four strategic factors in place now i.e. security in
the whole country, enough electricity, an educated
population and the signing of the oil agreements, the
NRM has regained the strategic initiative more or less
like in December, 1985, when we, finally, had the
manpower and the weapons to capture Kampala and
defeat the reactionary regimes. We now have the
security, the electricity, the educated human resource
and the money to transform Uganda our long time-held
wish.
I, therefore, call on the NRM leaders and supporters and
all the other well intentioned Ugandans to work together
and take advantage of this new constellation of factors.
You all can be pioneers (historicals) at this new threshold
of transforming Uganda into a middle income country inthe next few years.
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Lately, we have been having controversy on two issues of
the so-called stabilization clause and whether we should
automatically build both a Refinery and a Pipeline of
crude. The stabilization clause aims at compensating oil
companies if the Government, through tax measures,
causes a substantial loss of economic benefits to oil
companies. We had no problem with that except we had
to be precise about the definition of the words: loss of
economic benefits. The oil companies wanted to keep
those words vague. We refused. We insisted that the
words loss of economic benefits must be scientifically
defined. We wanted the use of NPV as the yardstick for
that definition. The oil companies refused. Hence, there
was a stand-off until the oil companies relented and we
used the NPV as the yardstick for defining the loss of
economic benefits. I wish to advise the House that the
two licenses which were issued to Tullow was to
compensate for the time lost (2 years), while discussing
the tax issues as well as the oil and gas
Commercialization Strategy and Plan with the Company.
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The licenses are for periods of six months and one year
maximum. On the issue of having both the pipeline and
the Refinery, the companies, in the end, accepted our
formulation which insisted on going for the Pipeline in
addition to the Refinery if the economics are right in
other words, we must be sure about the amount of
money the Pipeline companies are going to deduct from
the price of oil per barrel and the other economic benefits
the Government would forego would have to be
computed. The main overt argument by oil companies
for a crude pipeline is the fear that there may not be
enough market for refined products (petrol, diesel,
kerosene, HFO, PVC) within Uganda and within the
Region!!
However, the real interest of oil companies in exportingcrude oil are, obviously, the bye-products and the jobs,
that go with them as well as the reluctance to invest in
local refining, preferring to use refineries abroad that are
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already built. This is a good agreement as a start. It
gives a reasonable share to the Government; it avoids the
mistakes one finds in other oil producing countries such
as the flaring of gas which means destroying that great
resource that can be used for generating electricity,
making the urea fertilizer and making steel; we have
insisted on a local Refinery; we have a tightly defined
stabilization clause; and the Pipeline will be built if the
economics are right. Future agreements are going to be
more favourable and the ones signed after 2004 are more
favourable than the ones of 2001 which I have described
here.
Continuing to procrastinate, on the other hand, would not
have been good for the country. First of all, we are losing
time. We need the oil money to develop ourinfrastructure. Secondly, we do not want our partners,
the investors, to think that we are unreliable partners.
The longer the delays went on, the more money the oil
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companies were losing by, for instance, having
employees whom they had to pay and yet work was not
starting. If you give somebody conditions and he fulfills
them, then, you must fulfill yours. You should not cause
the NRM Government to be paralyzed in that area or,
indeed, in any other area. The people involved in this
area are very capable people. Many of them are, indeed,
the pioneers of this very industry.
There is also another factor. The Chinese Minister who
visited me recently raised one point which all of us should
bear in mind. He pointed out that in 20 years time oil and
coal prices are likely to go down because at that time,
cleaner sources of energy will have been perfected.
What are these cleaner sources of energy? They are:-
solar energy, wind energy, nuclear energy, etc. Hepointed out that each day the world receives from the
sun an amount of energy that is 50 times the amount of
electricity generated in the whole world for one year.
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Another scientist had told me of this sometime ago. We,
therefore, need to be aware of all these factors so that
we do not, again, miss this window of opportunity.
There was one aspect of the oil business that I had notbothered with. These are what they call auxiliary
services: Cooking, transporting and guarding other than
by the Police etc. This aspect came up during our
discussion in Kyankwanzi. These aspects are being
addressed in the proposed legislations.
More important is the training of oil scientists and
technicians in the country. At the beginning of the
programme of exploration in 1986, as I told you, we
trained our initial batch of scientists at Imperial College
London, the university of Aberdeen as well as in India,
Norway and USA. We also trained technicians in different
places. We are now training our technicians at Kigumba.
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The director, Dr. Kwesiga, was looking for 20 billions
shillings to ensure that it is well equipped. I will ensure
that they will get this money. The universities are also
starting petroleum courses. Every aspect is, therefore,
being looked at.
A renown Petroleum Consultancy Company called IHS
Energy based in Cambridge Massachusetts in USA
regularly publishes rankings of the Petroleum Fiscal
regimes worldwide. In the publication of 2010, out of 114
countries analyzed, Uganda features with 76 points out of
114 points in terms of having fiscal terms (Royalty, cost
recovery, State participation, production sharing and
Income Tax) that are favourable to the country. Ghana
had a ranking of 58 points and Trinidad and Tobago 68
points. Only countries like Malaysia, Iran, Nigeria, Qatar,Algeria, UAE-Abu Dhabi, Venezuela, Egypt, Bahrain, Syria
and Iraq had much better rating (above 90) because they
are mature oil producing countries.
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The systematic fight against corruption will continue in a
scientific way. There are four positions that will help us
to get rid of corruption. These are: the Permanent
Secretary in the Ministries, the Chief Administrative
Officer (CAO) in a District, the Town Clerk in a city or
town and the Sub-county Chief in a sub-county.
Constitutionally, these are the people that control money,
contracts and personnel. On the 26th of January, in
Kapchorwa, I said that we needed 2,000 Musisis in the
whole of Uganda and that would be the end of corruption.
The politicians should be examples to the civil servants
by not involving themselves in corrupt schemes even
when it is the duty of Accounting Officers to manage
money.
I cannot end this address by not cautioning you about the
environment. I have flown over Eastern Uganda a
number of times recently. Whenever I do so, I get
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worried about two things: the cutting of trees and the
drying of swamps for the growing of swamp rice. Early in
the next financial year, I want to call a conference on this
issue. The cutting of trees carelessly means, among
many hazards, that there are no wind breaks. The wind,
if not slowed down by trees, becomes so strong that it
dries plants much faster and I think, it also interferes with
the pollination of plants and crops and, therefore, lowers
yields or harvests. Transpiration, on the other hand, is a
process when water is sucked from the soil and put in the
atmosphere by plants. Swamp grasses do this a lot. That
is why West Nile has more rain than Karamoja although
they are on the same latitude.
Apparently, it is because of the swamps of Southern
Sudan and the forest in Congo. To destroy these swamps
for the growing of swamp rice or growing Irish potatoes
as they do in Kabale and a few other districts is very
short-sighted and should be discussed before it is too
late.
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It is irresponsible to pretend to talk about Mabira when
real dangerous damage is going on all over the country
and on a massive scale. Why cant all the families plant
hedges around their farms using mulberry trees which
can also be fed to silk-worms to produce silk or plant
colleandra which can be used as animal fodder and also a
nitrogen fixer so that they act as wind-breaks. Let us
discuss this issue before it is too late.
I thank you very much.