WGEI Newsletter Issue No. 12 – August 2018

The content of this newsletter

Introduction

  • About this issue

Need to know

  • New World Bank Manual and other Resources could Increase Transparency in Extractive-Sector Licensing and Assist SAIs During Reviews
  • Watching Every Last Cent: New Tools for Monitoring Oil and Mineral Revenues
  • Real Time Cost Monitoring and Audit Under The Production Sharing Agreement (PSA) In Uganda’s Petroleum Sector
  • Transfer Pricing Risk and the Extractive Industries: A Case Of Uganda

Trainings and Events

  • WGEI Steering Committee meeting, 25th to 27th September 2018
  • Transfer Pricing (TP) Course held in Freetown Sierra Leone from 4th To 8th June, 2018.

Introduction

About this issue: 

Welcome to the eleventh edition of the WGEI newsletter! In this edition of the newsletter, you can read about New World Bank Manual and other Resources could Increase Transparency in Extractive-Sector Licensing and Assist SAIs During Reviews, Watching Every Last Cent: New Tools for Monitoring Oil and Mineral Revenues, Real Time Cost Monitoring and Audit Under The Production Sharing Agreement (PSA) In Uganda’s Petroleum Sector, Transfer Pricing Risk and the Extractive Industries: A Case Of Uganda, WGEI Steering Committee meeting 25th to 27th September 2018, Transfer Pricing (TP) Course held in Freetown Sierra Leone from 4th To 8th June, 2018.
Have a nice read!

Need to know

New World Bank Manual and other Resources could Increase Transparency in Extractive-Sector Licensing and Assist SAIs During Reviews (By US Government Accountability Office)

A new resource from the World Bank’s Financial Integrity Unit is now available and could be of assistance to Supreme Audit Institutions (SAI) when conducting audits using the extractive-industries value chain.[1] The value chain describes the different steps of the development process, from discovery through extraction, to lasting value creation for society.[2] An important step in the value chain is the award of contracts and licenses. The World Bank’s License to Drill: A Manual on Integrity Due Diligence for Licensing in Extractive Sectors (Manual) is a toolkit of recognized concepts, good practices, and efficient options for policymakers and practitioners seeking to implement or improve integrity-screening systems in extractive sectors. The introduction of the manual underscores that, although the causes can be complex, there is widespread agreement that regulatory governance systems lacking transparency and having weak oversight and enforcement institutions facilitate an environment where rent-seeking and corruption thrive. Read More…

Watching Every Last Cent: New Tools for Monitoring Oil and Mineral Revenues (By Isabel Munilla and Kathleen Brophy, OXFAM America)

Every year, mining, oil and gas companies pay hundreds of billions of dollars to governments around the world. However, many countries rich in natural resources fail to translate this resource wealth into economic growth. Between 2010 and 2015, we estimated that oil produced in developing countries alone amounted to about $1.55 trillion in government revenue. But the secrecy around these deals prevents citizens and regulators from tracking these monies to make sure they are spent on reducing poverty. Read More… 

Real Time Cost Monitoring and Audit Under The Production Sharing Agreement (PSA) In Uganda’s Petroleum Sector (By Henry Luwemba Kasule – SAI UGANDA )

A number of fiscal regimes are applied in the Petroleum industry by different countries. It is difficult to evaluate one system over another as countries have specific conditions within them that favor one over another. Uganda as a country employs Production Sharing Agreements. Under these agreements, a company is licensed to undertake all risks involved in petroleum exploration. Should the company be successful, it is entitled to a share of the profit after recovering the costs incurred in the search for petroleum. This regime is good for Uganda as the country does not carry any exploration risk. Additionally, as the petroleum sector requires very skilled labour and specialized technology that was initially not in the country, the companies that were licensed brought with them the necessary skill set and technology.

The petroleum legislation in Uganda allows the government to undertake an audit of all the company’s costs to ensure that only necessary and economical costs involved in the search for petroleum are paid to the company under the cost recovery regime. These are referred to as cost recovery audits. The role of undertaking cost recovery audits is mandated to different institutions in different countries. For some, the National Oil Company undertakes the cost recovery audits, for others it is the Ministry of Petroleum or any other regulator, while for others it is the Supreme Audit Institution. Read More…

Transfer Pricing Risk and the Extractive Industries: A Case Of Uganda (By Godwin Matte – SAI Uganda)

There has recently been significant debate about Uganda’s double taxation treaties with countries like Mauritius and the Netherlands and the amount of revenue lost through these agreements. Much as this is an issue, there is an even deeper underlying problem.

Countries around the world and especially resource rich African countries are grappling with the ever increasing threat of multi-national company transactions. Over 60% of international transactions are between companies within the same group structure, which exposes the countries of operation to the risk of transfer mispricing.

In simple terms, the price at which one company sells to another company within the same group structure is the “transfer price”. This price can be abused through “transfer mispricing”. The “arms-length principle” however requires companies to transact as though they were non-related (Independent). Read More…

Trainings and events

WGEI Steering Committee meeting 25th to 27th September 2018 (By WGEI)

The WGEI Steering Committee meeting will take place in Pretoria, South Africa from 25th to 27th September 2018. The meeting will be attended by members of the Steering Committee and WGEI Observers. The purpose of the meeting will be to discuss the progress made in implementing the WGEI activity plan, and future plans.

WGEI members are encouraged to bring to the attention of the Secretariat any matter that they wish the Steering Committee to discuss at the meeting.

Transfer Pricing (TP) Course held in Freetown Sierra Leone from 4th To 8th June, 2018 (By Godwin Matte – SAI Uganda)

Transfer pricing (TP) is an ever-growing concern for resource rich under-developed countries. The OECD (Organization for Economic Co-operation and Development) and the BEPS (Base Erosion Profit Shifting) project have gone a long way in preparing guidelines and regulations that such countries can adopt in order to tackle this problem. African countries are losing over USD 50 Billion a year to Illicit Financial Flows majorly through TP.

A training workshop on TP in the Extractive industries was held at the Audit Services office in Freetown, Sierra Leone from 4th to 8th June 2018. The training was conducted by transfer pricing experts from SAI Norway and SAI Uganda purposely to enhance the capacity of the audit staff and the relevant stakeholders on the subject.

Sierra Leone produces Iron ore, Rutile, Diamonds, and Gold amongst other minerals on which the economy is predominantly dependent. This increases the country’s exposure to TP risk considering that the majority of the licensed mining companies are foreign multinationals. Read More…

Comments are closed.