Audit calls for stronger oversight to close gaps in mineral management

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Uganda’s mineral sector is facing significant challenges, as an audit by Auditor General Edward Akol has uncovered a range of institutional deficiencies that threaten the country's ability to manage its mineral resources effectively.

Presented to Parliament, Akol’s findings are part of his broader review of the mining sector. He presented a report titled: Review of the Consolidated Summary Statement of Financial Performance of Public Corporations and State Enterprises for the Year Ended 30th June 2024.

The National Development Plans (NDP) III and IV emphasize the importance of sustainable mineral development for economic growth and revenue generation. However, Akol’s report highlights several key weaknesses that could undermine these objectives, potentially impacting Uganda’s economic stability and future growth.

Key Findings:

Unlawful gold exports

Akol’s audit revealed that gold exports valued at $3.014 billion (shillings 11 trillion) were made without obtaining the required export permits from the Minister of Energy and Mineral Development, as stipulated by the Mining and Minerals Act 2022.

This breach of regulations has not only undermined the regulatory framework but has also resulted in substantial losses to the Government. As of the report, unpaid export levies had accumulated to shillings 68.842 billion.

Outstanding mineral rent fees

Exploration and mining companies owe a total of shillings 439 billion in mineral rent fees, which remained unpaid as of June 30, 2024, contrary to the requirements of Section 50(1.b) of the Mining and Minerals Act 2022). This non-compliance is a significant financial shortfall, affecting the country’s revenue generation from its mineral resources.

Royalty distribution issues

According to Section 180(4) of the Mining and Minerals Act, royalties from mineral extraction are meant to be distributed between the Central Government (70%), Local Governments (15%), Sub-County or Town Councils (10%), and landowners (5%). However, of the shillings 7.05 billion in royalties received, only shillings 3.14 billion (45%) was distributed to the beneficiaries. The remaining shillings 3.91 billion remains unallocated, a clear indication of bottlenecks in the royalty distribution process.

Institutional challenges

Akol’s audit pointed to inadequate enforcement of laws and weak collaboration between key institutions as the main reasons behind these shortcomings. Specifically, the ministry of energy and mineral development (MEMD), Uganda Revenue Authority (URA), and other relevant agencies have struggled to work together effectively to ensure compliance and manage the mineral sector efficiently.

Recommendations

Strengthening monitoring and enforcement

Akol recommended that the Ministry of Energy and Mineral Development enhance collaboration with the Uganda Revenue Authority to improve monitoring and enforcement of export permit requirements.

Additionally, he urged the ministry to institute follow-up mechanisms to ensure that outstanding mineral rent fees are collected promptly and to impose penalties on non-compliant license holders.

Addressing royalty distribution delays

The Auditor General also advised the MEMD to resolve the bottlenecks preventing the timely remittance of royalties to the rightful beneficiaries. Ensuring that local governments and landowners receive their due share of royalties is critical for maintaining trust in the system and supporting regional development.

Tackling illicit financial flows (IFFs)  

As part of broader efforts to strengthen financial governance, Akol also addressed the issue of illicit financial flows (IFFs) in the extractive industry. IFFs are illegal movements of capital across borders have long been a challenge for developing nations, diverting resources away from critical public services and infrastructure.

The coordinated audit on IFFs, which involved institutions such as MEMD, URA, and the Financial Intelligence Authority (FIA), found that while Uganda has made strides in addressing illicit financial flows through improved regulations, more work remains. Key findings from the audit include:

Strengthening legal frameworks

Uganda has made significant progress in updating its laws to curb IFFs, including provisions for transfer pricing, anti-money laundering, and cross-border monitoring. However, Akol emphasized the need for continued refinement of these laws and strict enforcement to prevent tax evasion and money laundering in the mining sector.

Inter-agency co-operation

Akol highlighted the importance of enhanced collaboration between MEMD, URA, and FIA to effectively detect and prevent IFFs. This inter-institutional working arrangement is essential to ensure the sustainable mobilization of revenues from the extractive industry.

Implementation gaps

Despite Uganda’s positive steps, some mechanisms remain underdeveloped. For instance, the Uganda National Mining Company (UNMC) has not been fully operationalized, and the certification process for minerals such as Tin, Tantalum, Tungsten, and Gold (3TG) is not yet complete. These gaps present risks for revenue leakage and the perpetuation of illicit financial flows.

Akol’s audit underscores the urgent need for stronger institutional oversight, better enforcement of laws, and more effective inter-agency collaboration to ensure the sustainability of Uganda’s mineral sector. While progress has been made, there are critical gaps that must be addressed to ensure that Uganda’s mining industry can fully contribute to national development goals and combat illicit financial flow.