About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Wednesday, August 29, 2012

Can MPs improve oil contracts? Part I

We should be suspicious of parliamentary interventions in lucrative government contracts because they often make a bad situation worse

Recently, President Yoweri Museveni ordered government of Uganda officials to sign oil Production Sharing Agreements with companies. This was in spite of a resolution by parliament stopping all new agreements. Many Ugandans are rightfully sick and tired of corruption and genuinely suspicious of the executive. They support parliament in its self-proclaimed fight against the problem. Yet I am much more inclined to side with Museveni on signing PSAs.

The signing of oil agreements is important as a signal that investment in the sector can begin. This allows companies interested in investing in downstream and upstream activities feeding into and from the industry to bring in money. For many countries, this leads to increased employment and economic growth. In Ghana, upon signing the agreements, economic growth was 20 percent that year. In Equatorial Guinea, it was 30 percent. The challenge for Uganda actually is to examine the benefits against the costs of delaying these contracts through protracted parliamentary investigations.

I have been a journalist in Uganda for almost 18 years now; my first major story was published in The Monitor in January 1994 when I was a first year student at Makerere University. This has been a fulfilling practical craft given my love of storytelling. It has also been an intellectual journey; my interest in the complexity of social phenomenon has taught me to reflect. So I see a mismatch between the theory of democracy as presented in textbooks and the reality of its outplay in the politics I cover as a journalist.

For instance, democratic theory teaches us that when exercising its functions, parliament seeks to hold the executive to account. It seems theoretically obvious that in passing a resolution suspending signing oil contracts, the House was trying to check any abuses the executive could have made. Yet from my experience, such democratic contestations are often driven by more complex motivations. Even when well-intentioned, they often produce results at odds with the proclaimed purpose. In the case of most government contracts I have covered, these contests undermine the state’s ability to negotiate better deals for the country.

Many Ugandans genuinely believe this parliamentary intervention will stop the corruption of the executive in oil contracts. This faith is largely because many people want to have hope in the destiny of Uganda. Yet my experience shows parliamentary intervention is more likely to make the situation worse. The oil barons who come to Uganda are not fools. They have worked in many other African countries and beyond. They know that Uganda’s 9th parliament is not simply made of selfless MPs tirelessly fighting for the public good. They also know that even when MPs feel for their country – and many do – they also have personal interests.

For example, oil companies know that many MPs are today heavily indebted from last year’s campaigns. Many more are looking for an opportunity to raise money for 2016 elections. Just as many want to make money to supplement their income and improve their lives. The companies probably know the cost of buying off parliament. In 2005, it cost Museveni Shs 5m per MP to amend the constitution and remove term limits – the worst political decision in 25 years. In 2010, it cost him only Shs 20m per MP to support the Traditional Leaders’ Amendment Bill.

During the heated oil debate in October last year, these same MPs claimed that Tullow had paid bribes worth Shs 24 million Euros; that is Shs 73 billion. If an oil company used it to bribe MPs, each would get Shs 200 million. Anyone who knows our MPs would tell you that few can resist such an amount if offered as a bribe. Therefore, if Tullow can pay Shs 24 million Euros to only two ministers as alleged but not proved, it can raise more to buy off the necessary number of MPs to get its way. The only difference is that it would have to negotiate a worse deal than what is on the table.

Of course there are MPs who would stand on principle and refuse payoffs – whatever the amount. I know some of them – and actually they are the least vocal and most thoughtful in these debates. These are often flexible in their views and tend to be pragmatic precisely because they understand the hidden motivations of their colleagues. Those who make the most noise about graft are often passionate in their beliefs but flexible in their morals. I have covered their theatrics for the last 17 years and learnt many lessons. All too often, the manifest efforts to hold the executive to account are actually the mechanism to leverage the constitutional power of parliament to force bidders to go bribe MPs too.

It is difficult to separate the cause from the effect of parliamentary inquiries. For example, do MPs deliberately summon bidders to the House in order to extort bribes i.e. is it all premeditated? Or is that when a given parliamentary committee summons bidders to appear before it, genuinely seeking to hold the executive to account, it also ends up getting caught up in the same position as the executive of being offered lucrative financial inducements? It could be either or both depending on the circumstances. However, whatever the subjective motivation, the outcome is always the same – to shift the bribing from the executive to parliament. And often, the deal for Uganda gets worse, not better whenever parliament intervenes.

So the problem for oil companies is not that they cannot get their way with our MPs. From a business point of view, the problem is the time it takes for most investors to get their way. This is because once matters go to parliament with its multiplicity of players, the coordination costs of getting a deal escalate. For example, it takes a lot of time to manipulate and then buy off the diversity of legislators. And this creates uncertainty especially given the early posturing by the MPs on such matters. Investors calculate all these and build them in the contract price. Thus, rigorous parliamentary intervention in such contracts does not improve the benefits to the citizens. It largely lines up the pockets of MPs and worsens the deal for Ugandans – or when there is parliamentary gridlock, the deal dies completely.
To be continued next week.

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