Uganda enjoys oil industry first dividends

Oil-drilling-in-Uganda6 October 2013, Kampala – Following the issuance of Uganda’s first oil production licence to China’s National Offshore Oil Corporation (CNOOC) to start the development of the Kingfisher Oil Field in Lake Albert basin, various service providers are looking for ways of positioning themselves to cash in.

Sector analysts say the next four years could be for you to get set to be among the first companies to benefit from the ‘Black Gold’ well ahead of the official production date of 2018.

Developing the Kingfisher Field (KF) will cost over $2b to cover the project’s engineering, procurement and construction contracts, construction of access roads, airstrips, permanent camps, pipelines and development of the oil wells among other activities.

Other production licenses are in the pipeline and billions in US dollars are expected in the process, meaning multimillion dollar opportunities for businesses dealing in different products and services waits.

The recently-passed Petroleum (Exploration, Development and Production) Act, 2013 gives legal backing to local companies to benefit from the general oil business under its rather elaborate ‘local content’ provisions.

Article 125 stipulates that on the provision of goods and services by Uganda entrepreneurs, the licensee (Oil Company), its contractors and subcontractors shall give preference to goods produced or available in Uganda and services which are rendered by Ugandan citizens and companies.

“Where the goods and services required by the contactor or licensee are not available in Uganda, they shall be provided by a company which has entered into a joint venture with a Ugandan company provided that the Ugandan company has a share capital of at least 48% in the joint venture,” the Act reads in part.

It adds that the licensee, its contractors and subcontractors shall ensure that the companies in question are notified of the quality, health, safety and environment standards required by the licensee; and notified of the upcoming contracts as early as practicable.

The law adds that within 60 days after the end of each calendar year, the licensee shall provide government through the Petroleum Authority of Uganda with a report of its achievements and its contractors and subcontractors’ achievement in utilizing Ugandan goods and services during that calendar year.

Uganda is not the first country to pass such a law. Top oil producing countries in Africa and the world have done the same. In all cases, government passes such laws to ensure that local people are not left cheated on their own soil, promote the maximization of value addition and job creation through the use of local expertise, goods and services, business and financing among others.

For instance Ghana’s Local Content Policy for the oil and gas sector says priority should be given to Ghanaians in the granting of licensing and agreements in the petroleum sector in all operations. Where foreigners want to be involved they must partner with Ghanaians who should carry at least a 5% equity interest, which is reviewable at the pleasure of the Minister given certain circumstances.

Private sector ready
While it is good to have such positive provisions to help local companies exploit opportunities in oil sector, some analysts believe Ugandan companies might fail to meet the terms and conditions especially when it comes to issues of quality and quantity.

“It could be true that most companies may fail to meet targets but that is not the issue for now,” says Gideon Badagawa, the executive director of the Private Sector Foundation Uganda (PSFU). Badagawa adds that the whole idea now is to start working on capacity building on enterprise and product development, work on standards, increase volumes produced and meet orders.

He says there is also a need to build on skills, technology knowhow, work on land reform issues and give tangible support in boosting mechanized agricultural systems in the country. “The good thing is we have more years to go before oil drilling begins. So we have some time to prepare.”

Already, PSFU is partnering with Tullow Oil and Total E&P to study the value chain on exploiting the various opportunities in the oil and gas sector.

“We are telling these companies not to bring experts from outside when Uganda has or could provide these experts,” he says.

As a result of the study, PSFU has listed a number of sectors where local businesses can invest to benefit, including plumbing, foods subsector, security, transport and communication, hotel and accommodation, information and communication technologies, financial services sector, insurance sector among others.

Badagawa says they are working on a plan with the Ministry of Trade to train the private sector in all these areas.

Godfrey Ssali, the trade policy officer at Uganda Manufacturers Association (UMA) also dismisses the perception that Ugandan companies are not ready to meet the standards, quantities and other terms required by oil companies in the chain business.

“We need to have a positive mind,” he told The Independent. “Let us work on where there are challenges so we can improve and benefit from the sector.”

He argues that the government through the private sector should put emphasis on formalizing businesses in Uganda, make it easy for them to go through all the legal processes of formalization and ensure that laws governing the oil sector are implemented.

“Once we do that, we will benefit from the sector,” he said, “It’s not late.”

Buliisa County Member of Parliament Stephen Mukitale Birahwa who is also the committee chairperson on National Economy in Parliament, said Parliament is ready to defend the rights of local companies when it comes to participating in the oil business.

“As we commercialize our oil and gas sector we need to encourage our businesses to formalize so they can tap into a US$15-20 billion sector,” he says. “We do not want our law we made to be failed by the private sector,” he adds, it is not late we can still train and empower our people to benefit from the sector.

Birahwa said for companies to benefit there has to be direct partnerships between government and the private sector associations in the country and with the oil companies.

While the perception persists that the Chinese managers could find it tempting to ship in their compatriots from China, Wei Chai, the head for corporate affairs at CNOOC Uganda Ltd, dismissed the notion, arguing that the company regards national content as a very critical part for its business.

“We have the intention to grow our business with the support of local providers,” Chai said in an email, adding that we also pre-qualify providers at the beginning of every year for available procurements envisaged for the period. She added that this gives opportunity to interested Ugandan companies to submit their expressions of interest and they are pre-qualified to provide services to CNOOC as and when the requirements fall due.

Chai did not mention the companies though. But she said the company has so far cooperated with about 120 local companies, who have been providing or have provided various services and goods to it.

She said they encourage their contractors/sub-contractors to use the service of qualified national suppliers. She said national content is also included in the evaluation process of the biding process and all contractors are required to focus on National Content where applicable.

She promised that they will try to support the local companies to play more active role in the oil and gas industry and “I believe these efforts will benefit all of us”.

Emmanuel Mugarura, the communications officer for the Association of Uganda Oil and Gas Service Providers (AUOGS), was positive that the legal framework was helping them to work with the oil investors to boost local participation in the oil and gas.

“We are already working with them (Oil companies),” Mugarura told The Independent. He said several companies including Bemuga Forwarders, Eagle Air, Richflo Lift Services Ltd, Threeways Shipping Services Ltd, Quantum Associates Ltd, Eco Sol among others are already important players providing services to the oil investors. “This sector is highly regulated world over. So you do not need to expect any company to violate the provisions in the law,” he said.

“From the discussions we have had we them (oil companies) they appear to be ready to respect the law,” he said, before urging local companies to ensure honesty and ensuring maximum compliance to professional standards in their dealings with oil companies.

Indeed, the benefits to be accrued are enormous. Uganda has 20 fields in the Lake Albert Basin, which is the most prospective area for petroleum production in Uganda. Lake Albert rift has estimated 3.5 billion barrels of oil equivalent in place and 1.2 billion barrels are confirmed oil and gas recoverable.

– The Independent

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