policy brief The Norwegian Council for Africa (NCA) Southern and Eastern African Trade Information and Negotiations Institute (SEATINI Uganda)
Implications of WTO Energy Service Negotiations for Resource Rich Developing Countries: The Case of Uganda Karine Kålsås (NCA), Susan Nakacwa, Bridget Mugambe, Munu Martin Luther and Jane Nalunga (SEATINI Uganda)
Norway, a country with a highly developed and internationally oriented energy service sector is in WTO requesting a range of developing countries to liberalize their energy services, both through collective and bilateral requests. The policy Norway advocates towards these countries is quite different from the Norwegian policy on oil management during the 1960s and 70s. For instance, whereas local content requirements were regarded as an important policy tool to secure transfer of technology and competence from the foreign companies operating in Norway to local companies 1, the collective request on energy services in WTO aims at eliminating such requirements in the countries receiving the request. There is a concern that developing countries committing to the request might experience reduced policy space. This can limit their opportunities to use political means to regulate the activities of foreign companies operating in their country and to secure transfer of competence and technology to develop their own sector. Hence, it is timely to ask if Norway’s position on energy services hampers developing countries’ possibility to use the same political means as Norway did to achieve a strong national resource control. And is Norway thus impeding their possibility to achieve long-lasting social and economic development based on a sound management of their energy resources? By using the case of Uganda, a country signatory to WTO and rich in energy resources, we have explored possible implications for developing countries committing to the request.
Introduction WTO’s General Director Pascal Lamy is expecting to see the ongoing Doha-round brought to an end during 2011 2. Intensive negotiations on every subject can be expected and members have to prepare for high pressure to
translated into improved service delivery within the sector. Norwegian interests, both state and private, are involved in hydropower and oil projects in the country. Uganda has not received a request on energy services from Norway. This is however not an argument against assessing and analyzing what consequences commitments on energy services would have for Uganda. Like many other resource rich developing countries, Uganda experiences pressure to liberalize from many actors. The implications discussed in this policy brief are therefore relevant also in other situations, and to other resource rich developing countries. Taking this into consideration we find that it is better to assess and analyze the implications of the negotiations now rather than later. This policy brief is based on the report “Serving the Rich or the Poor? Implications of WTO Energy Service Negotiations for Resource Rich Developing Countries: The Case of Uganda” by SEATINI Uganda and the Norwegian Council for Africa. During the process of writing the report we talked to representatives from different CSOs, trade unions and a manufacturers association in Uganda about their views on liberalization of energy services and oil management in Uganda. We have also examined relevant WTO documents and Ugandan policy documents. The findings and conclusions presented in this policy brief are based on this information.
Negotiations on Energy Services in WTO Norway, together with eleven other countries has within the General Agreement on Trade and Services (GATS) directed demands on liberalization of energy services towards a range of resource rich developing countries 4. In addition, Norway has sent bilateral requests on energy services to 28 countries and is negotiating Free Trade Agreements through The European Free Trade Association (EFTA) 5.
liberalize a vast range of sectors. Energy services is yet to be negotiated
The collective request on energy services within WTO is very compre-
as a separate sector within the General Agreement on Trade and Services
hensive and calls for the full liberalization and deregulation of the energy
(GATS), it is nevertheless one of the types of services that is likely to un-
services sector. This includes the entire chain of activities involved and
dergo liberalization. If energy services are established as a separate sector
increased commitments on market access and national treatment. The re-
within the negotiations, a new international regime will become a fact and
quest also affects services in connection with every energy sector, includ-
the pressure on resource-rich countries to liberalize their energy services
ing oil and gas, coal, renewable energy, electricity and other. It also aims at
3
will increase .
removing restrictions on all four modes of supply 6.
With the recent discovery of oil, the interest of foreign investors in Ugan-
The recipient countries can be categorized as developing countries with
da’s energy sector is steadily growing. This has however not necessarily
vast natural resources, a few of them being in the category of “major
1 Ryggvik, Helge (2010). “The Norwegian Experience: A toolbox for managing resources?”
4 WTO (2006) “Collective request in energy services”
Centre for Technology, Innovation and Culture. 2 ”Doha-runden – mot ”the final countdown””. Nyhet 16.12.2010. http://www.regjeringen. no/nb/dep/ud/tema/handelspolitikk/nyhetsbrev/status_doha.html?id=628804 3 Menotti, Victor 2006, and Herning, Linn 2010.
5 Utenriksdepartementet (2006) ”Boks 2. Hvilke land har Norge stilt krav overfor sektorvis”. Accessed from http://www.regjeringen.no/nb/dep/ud/tema/handelspolitikk/wto/wto--doha-runden/krav_tjenester/9.html?id=275686 11 November 2010. 6 WTO (2006) “Collective request in energy services” and WTO (2010) “Energy services –Background Note from the Secretariat”.
policy brief emerging economies”. LDCs have an exemption from all new commit-
al Oil and Gas Policy (2008). In addition, a Petroleum Bill is soon to be
ments in the services sector and are not amongst the receiving countries
tabled in the Parliament 9. According to critics, there are apparent gaps
of this request. However, Cambodia, Gambia, Lesotho, Malawi, Nepal, Si-
within these policies. Uganda’s National Energy Policy advances for open
erra Leone and Zambia have already undertaken specific commitments to
and competitive markets as fundamental to achieving an efficient and sus-
one or several of the following three sub-sectors within energy services;
tainable energy sector. The Government role is limited and requirements
services incidental to mining, energy distribution, and pipeline transpor-
of local content are not included in the policy.
7
tation of fuels .
The National Oil and Gas Policy and the Petroleum Bill on the other hand,
Requests on energy services
advocates for local content. Foreign companies are for instance required to
Countries behind the collective request:
in the provision of goods and services, and to train Ugandans expected
Australia, Canada, EU, Norway, Japan, Saudi Arabia, Korea, Taiwan, Penghu, Kinmen & Matsu, Singapore and USA.
the limited Government role renders it difficult to enforce these require-
Countries receiving the request: Argentina, Brazil, Brunei, Chile, China, Colombia, Ecuador, Egypt, India, Indonesia, Kuwait, Malaysia, Mexico, Nigeria, Oman, Pakistan, Peru, The Philippines, Qatar, South Africa, Thailand, Turkey and The United Arab Emirates.
give preference to the employment of Ugandans, to use Ugandan entities to replace expatriate staff at a later stage. However, there is a concern that ments 10. The Renewable Energy policy (2007) lays out guidelines on power purchase agreements as being negotiated on a case by case basis. The policy also includes several financial means to promote the development and use of renewable energy, as for instance subsidies, preferential tax treatment, tax exemption, tax rebates, accelerated depreciation, credit enhancement
Norway has bilaterally also requested:
instruments, and grant financing and feed-in-tariffs. Nevertheless, energy
India, Indonesia, Kyrgyz Republic, Nigeria, Kina, Cuba, Ecuador, Egypt, Tunisia, Turkey, Argentina, Brazil, Chile, Gabon, Malaysia, Mexico, Oman, Trinidad and Tobago, Venezuela, Bahrain, Brunei, Kuwait, Qatar, The United Arab Emirates, Australia, Canada, Switzerland and USA.
costs remain so high that Government continues to subsidize power in or-
State of Uganda’s energy sector Uganda is rich in natural resources that translate into opportunities and immense potential for renewable energy, oil and gas extraction. The irony though is that a greater part of the Ugandan population is largely dependent on biomass like firewood and charcoal for its energy sources while a mere 10% of the population has access to electricity 8. The Government of Uganda has on several occasions attempted to solve the electricity problems as well as promote other sources of renewable energy; but these attempts have been largely futile. In the long run, the limited access to electricity has greatly impacted on Uganda’s economy with great effect on the development of small scale businesses, manufacturers and different industries. The continued dependence on biomass has also led to serious environmental destruction.
Uganda’s energy legislation In 2006 oil was discovered in the Western parts of Uganda. The country is in a vulnerable starting phase of oil exploration, even so foreign oil companies have already been licensed to explore the oil reserves. The country’s institutions are weak, the policy environment lacks transparency and there is a lack of capacity when it comes to technological know-how with regard to oil exploration.
der to promote energy consumption.
Possible implications of the request on energy services In this part of the policy brief we will present possible implications for Uganda should they choose to undertake full commitments within energy services in WTO the way it is formulated in relevant WTO documents11. To assess the implications we have used information gathered through interviews with representatives from Ugandan CSOs, trade unions and a manufacturers association
12
and assessed the content of the abovemen-
tioned Ugandan energy policies. The definition of local content is important in order to understand some of the information that follows. Local content requirements are a means to secure national and local spread effects from foreign companies’ activities. By requiring foreign companies to employ local labour, use local and national sub suppliers, engage in joint ventures with local companies, and to transfer technology, resource rich countries can secure employment opportunities and development of related sectors and industries 13. As we shall see examples of, local content requirements are regarded as problematic within the GATS negotiations.
Policy space and democracy Developing countries need space to choose between different policy options for their development strategies. This space is often referred to as policy space. It implies using different policy means over time, and can for instance include restrictions on foreign service supplier’s activities in the country. However, WTO disputes show that undertaking commitments on services in WTO can limit this policy space as national restrictions and
Legislation relevant to Uganda’s energy sector includes the National En-
policy means might be violating GATS commitments. For instance, in De-
ergy Policy (2002), the Renewable Energy Policy (2007) and the Nation-
cember 2010 USA requested WTO Dispute Settlement Consultations on
7 WTO (2010) “Energy services – Background Note from the Secretariat”.
10 Heidi Lundeberg; Ugandan Oil Policy; Developmental Analysis, Policy, bill and contract, 2010
8 Norway’s Official website Uganda. “The energy sector in Uganda”. Accessed from http://www.
11 WTO. 2006. “Collective request in energy services”, WTO. 2006. “Plurilateral negotiations on en-
norway.go.ug/Embassy/Development/Energy-and-Petroleum-Sector/energysectorinuganda/ 12
ergy services” and WTO (2010) “Energy services – Background Note by the Secretariat”. Document
December 2010.
symbol: S/C/W/311. All documents can be downloaded from: http://docsonline.wto.org/
9 The policies can be found at the webpage of Ministry of Energy and Mineral Development: http://
12 Interviews with KACITA, NOTU, UMA, AFIEGO, ACODE and the Norwegian Embassy in
www.energyandminerals.go.ug/. The Petroleum Bill is available at the resource centre
Kampala, October 2010.
of the Parliament in Uganda.
13 Kristoffersen, Berit (2008), Herning, Linn (2010) and Dypedokk, Kristin (2010) “Serving Public or Private Interests? – A Study of Norway’s Oil for Development Initiative in Ghana”.
policy brief China’s subsidies for wind power equipment manufacturers. They believe
the employment opportunities for locals in such activities. For Uganda,
the subsidies are discriminating against foreign suppliers. If China is found
this could mean removing restrictions on some types of services where
to be violating its GATS commitments it means that WTO-members will
commercial presence today is required, as for instance engineering servic-
not be allowed to use policy measures to promote domestic initiatives on
es. An increase of cross border services in the energy sector could further
renewable energy 14.
result in reduced control over services that are important to national con-
For Uganda, a country in the starting phase of oil exploration and in the process of developing necessary legislation and regulations, commitments on energy services could reduce the policy space needed to identify what policy means are best fitted to regulate the sector. Uganda could find that policy means included in the legislation is conflicting with commitments made in WTO. Such commitments are almost impossible to reverse, and may also restrain future Governments’ policy space.
trol in the energy sector such as analysis of geological data, remote control and monitoring of pipelines and pumping from wells 18.
Related industries The energy sector is very capital-intensive and the job opportunities are limited. Job-creation in related sectors is therefore important in order to create spin-off effects contributing to social and economic development in countries rich in energy resources. In Uganda’s Petroleum Bill it is stated
State participation, joint ventures and public-private partnerships (PPPs)
that companies shall give priority to Ugandans and Ugandan entities in
Ugandan trade unions 15 and Uganda Manufacturers Association (UMA)
facturers’ association we spoke to believe this requirement is important to
regard PPPs and state shares as important to ensure public control over foreign companies’ activities in the country. PPPs and joint ventures with the planned National Oil Company are also frequently mentioned in relevant energy policies and the Petroleum Bill as a means to secure national participation in the oil and gas industry. Should Uganda undertake commitments on energy services in WTO, their possibility to secure state participation and transfer of technology and competence through the use of joint ventures and PPPs could however prove difficult. For instance, one of the most important objectives in the request is a “substantial elimination of joint ventures and joint operations requirements”. Other objectives that might work against Ugandan participation in the national energy sector include removing or substantially reducing foreign equity limitations, economic needs tests, and discriminatory licensing procedures. Generally, all restrictions on foreign investment and limitations on foreign capital participation might fall under GATS disciplines 16.
make sure Ugandan companies, when competitive, are used as sub suppliers in the energy sector. However, it could be difficult for Uganda to maintain these requirements should they choose to undertake commitments on energy services in WTO because of the principle of national treatment. It means that a country has to treat all service deliverers the same way and cannot give favourable conditions to local or national service deliverers. Further, with the removal of restrictions on cross border supply of services, domestic companies would have little protection against competition from foreign energy service suppliers.
Promotion of environmental friendly energy The collective request is “neutral with respect to energy source, technology and whether offered onshore or offshore” 19. This principle of technological neutrality was first introduced in GATS Telecommunications in 1996 to prevent the unequal treatment of different communication technologies, for instance between cable and wireless. The principle is vague
Employment “With liberalization Ugandans remain unemployed. Private foreign companies will use their own workers” . - Spokesman - Kampala City Traders Association, October 2010
the provision of goods and services. The Ugandan trade unions and manu-
17
Ugandan CSOs, trade unions and NOTU hope the development of an oil and gas sector will create employment opportunities for the Ugandan people, both within the industry itself and in related sectors. They do however regard liberalization as a threat to job creation for Ugandans. In the Petroleum Bill it is stated that “The licensee shall give preference to the employment of Ugandans with the requisite qualifications, competence and experience required to perform the work”. This formulation is conflicting with the article regarding national treatment and could be contested in WTO. Cross-border supply of services is also requested liberalized in the collective request, implying “substantial reduction of marked
and yet to be tested in the Dispute Settlement Body, the consequences are therefore uncertain. However, extended to the energy service sector there is reason to believe that the principle can have vast consequences. As the principle of technological neutrality is used to prevent the unequal treatment of different technologies, it could be used to contest requirements to use specific types of technologies in the energy sector, for instance to use environmentally friendly over more polluting technology. In Uganda, the share of energy from renewables is targeted to be 61% by 2017. In order to reach this target Uganda has included several financial means including subsidies and preferential tax treatment to promote the development and use of renewable energy in the Renewable Energy Policy from 2007. Should Uganda undertake commitments on energy services in WTO, these financial means could be contested because they are available to renewable energy only and not to fossil energy.
access limitations” and “removal of existing requirements of commercial
Conclusions and recommendations
presence”. This opens up for moving services like technical testing, analy-
The last development on the negotiations on energy services was during
sis, diagnostic, consultancy, engineering and monitoring abroad limiting
the Services Signalling Conference in July 2008, since then there hasn’t
14 Office of the United States Trade Representative (2010) “United States Requests WTO Dispute
16 (forts.)“Energy Services - Background Note from the Secretariat”
Settlement Consultations on China’s Subsidies for Wind Power Equipment Manufacturers”. Accessed from http://www.ustr.gov/about-us/press-office/press-releases/2010/december/unit
17 Interview with Issa Sekitto, Spokesperson, Kampala City Traders Association (KACITA) 19 October 2010
ed-states-requests-wto-dispute-settlement-con 21 January 2011 and Gallagher, Kevin
18 Examples of services are used in the WTO documents from 2006 and 2010.
(06.01.2011).The Guardian: “US should exercise green power”. Accessed from http://www.
19 WTO (2006) “Collective request in energy services”. In addition, a summary of delegation’s
guardian.co.uk/commentisfree/cifamerica/2011/jan/06/china-renewableenergy 21 January 2011.
comments on the negotiations on energy services, including their comments on the principle
15 KACITA AND NOTU
of technological neutrality, can be found in the WTO-document JOB(05)/204. “Energy services
16 WTO (2006) “Collective request in energy services” and WTO (2010) (forts. neste kolonne)
– Information note by the Secretariat”. Dated 22.09.2005.
policy brief been any recorded progress on the negotiations. Though commitments
should be strengthened in line with LDCs development agenda through
on the energy services so far have been limited, some countries have ex-
national consultations with CSOs, trade unions, traders, policy makers
pressed interest in expanding commitments both at sectoral and modal
and the government. Norway’s history on energy resource management
level.
and the importance of local content should also be given more emphasis.
Uganda’s energy sector, if properly managed and exploited, has great po-
References:
tential of fostering sustainable development. But there is need for full commitment and awareness to look at both local and international processes and make good and sound decisions for the country. This also begs for commitment at all levels of the spectrum including citizens, policy makers and Government by providing the necessary policies, policy environment, enforcement and implementation, traits that are lacking at the moment. To achieve this will require adequate policy space. We have found that, despite an already liberal investment policy, it is likely that Uganda will experience reduced policy space should they make commitments to the WTO request on energy services. This could imply not being able to require foreign companies to give preference to the employ-
Herning, Linn. 2010. ”Norske økonomiske interesser og posisjoner innen energitjenester”. Handelskampanjens tekstserie – Hva er norske interesser. Kristoffersen, Berit. 2008. “Gjør som vi sier, ikke som vi gjorde – Norske krav til liberalisering av energitjenester under WTO”. Forum for Utvikling og Miljø. Menotti, Victor. 2006. “The Other Oil War: Halliburton’s Agenda at the WTO - A Policy Brief on the Energy Services negotiations in the World Trade Organization (WTO)”. http://www.ifg.org/reports/WTO-energyservices.htm
ment of Ugandans, give priority to Ugandans and Ugandan entities in the
WTO. 2006. “Collective request in energy services”. Can be downloaded
provision of goods and services and to engage in joint ventures. In addi-
from: http://docsonline.wto.org/
tion, Uganda’s ambitious target on renewable energy could be contested in the WTO. Based on this information we recommend the following:
WTO. 2006. “Plurilateral negotiations on energy services”. Can be downloaded from: http://docsonline.wto.org/
For Uganda
WTO. 12.01.2010. “Energy services – Background Note by the Secretar-
• Uganda should not undertake commitments on energy services in WTO.
iat”. Document symbol: S/C/W/311. Can be downloaded from: http://
Uganda should rather join forces with other developing countries to in-
docsonline.wto.org/
crease awareness of the consequences of committing to liberalize energy services.
Interviews with:
• Ugandan CSOs and relevant Ministries should work together to create
• Per K. Johansen(First secretary) and Katrin C Lervik(Energy
awareness of the consequences of committing to energy services in WTO.
Counsellor), Royal Norwegian Embassy in Uganda, 18th November
This work should also be viewed in the context of bilateral and regional
2010
free trade agreements. • Uganda should take advantage of the still existing policy space to work on its energy related policies and regulations.
For Norway: • Norway should not pursue negotiations and agreements that might curtail policy space for developing countries. Hence, Norway should withdraw from the collective request on energy services in WTO. Norway should maintain the existing policy of exempting LDCs from bilateral and collective requests on liberalization, and reconsider all bilateral requests that potentially will have adverse effects for national participation in developing countries’ energy sector. • If investments are made on the terms of developing countries, and local content is included, Norwegian investments can be an important and positive factor in the development of the energy sector in resource rich developing countries. Also, existing programmes like Oil for Development
• Issa Sekitto, Spokesperson, Kampala City Traders Association (KACITA) 19th October 2010. • Usher Wilson Owere, National Organisation of Trade Unions (NOTU) 19th October, 2010. • Turyahewa Anthony, National Organisation of Trade Unions (NOTU) 19th October 2010. • Andrew Luzze, Ugandan Manufacturers Association (UMA) 19th October 2010 • Onesmus Mugyenyi, Deputy Executive Director & Manager Environmental Democracy, Advocates Coalition for Development and Environment (ACODE), 4th August, 2010 • Dickens Kamugisha, African Institute for Energy Governance (AFIEGO) 21st October 2010. • Ivar Aarseth and Heidi Hegertun from Oil for Development, Norad, December 7th 2010.
This policy brief is based on the report “Serving the Rich or the Poor? Implications of WTO Energy Service Negotiations for Resource Rich Developing Countries: The Case of Uganda” by Southern and Eastern African Trade Information and Negotiations Institute (SEATINI Uganda) and the Norwegian Council for Africa (NCA). SEATINI Uganda is a non‐governmental organization working on trade issues at national, regional and international levels. The Norwegian Council for Africa is a media and advocacy organization working towards justice and development in and for Africa, based in Oslo. This policy brief and the report are financed by the Norwegian Agency for Development Cooperation (Norad).