Presentation by Dennis Kamurasi, Vice Chairman of the Association of Uganda Oil and Gas Service Providers
Much has been said about the nascent hydro carbon find in the albertine rift .Tales of wealth and prosperity alongside stories of gloom, doom and disaster abound. But amidst conjecture, half truths and fantasies, what, one wonders, is the reality? Are we destined to elevate ourselves and country to 1st world status in a couple of years as some prophesied? Is this resource really a blessing or is it a curse. And of course, there is that very Ugandan of questions, ‘TUFUNIRA WA?’ loosely translated to mean, where and how, as ordinary Ugandan citizens do we stand to gain from this fabled resource?
Let as briefly look at the dynamics of this situation before we delve into the benefits and opportunities. Uganda is the host country and owner of the resource. The oil companies (TOTAL, CNOOC & TULLOW), are the entities with the know-how and requisite resources to deliver this oil from the ground to a form that can be translated into money. In essence, the relationship between the host (Uganda) and the Oil companies is one of landlord and tenant. The benefits that accrue to the host (Govt) are largely fiscal in nature. i.e. Payments for drilling concessions, taxes, royalties etc.The ordinary citizen benefits from this in the form of better service delivery, infrastructure and the like but the benefits are medium to long term in nature and not so direct. The benefit to the Oil companies is profit on sale and refining of crude. So this is clearly understood.
However, as the Oil companies go about the business of getting crude oil out of the ground and on to the refineries, a host of activities take place. These companies bring in equipment. This equipment has to be transported from Europe and Asia to the remote drilling locations in the albertine. They bring in personnel. These personnel have to be transported, fed, housed, clothed etc. The presence of these large Oil companies also attracts large multi-national companies that are in the habit of providing support services to the Oil companies. And with these multi-national and other companies, come more people more equipment and more resources. Herein lies the opportunity for the ordinary, informed and prepared Ugandan.
What is local content? Local content is a term used to denote the participation of indigenous, local inhabitants of a given geographical area in a given sector. In the context we are using it, local content denotes the active inclusion and participation of indigenous Ugandans in the Oil and Gas sector. This inclusion means that Ugandan companies and Ugandan individuals should engage in the provision of goods and services to areas in this sector, where these goods and services may be required. This inclusion ensures that locals gain skills, become financially more stable and act as the spur for growth and social-economic transformation.
In the present scenario and within the context of the Ugandan Oil and gas sector, many bottlenecks are present. Below are some of the more widely held misconceptions about local inclusion which I will endeavor to dispel:
- Ugandan Companies and Ugandans lack the requisite capacity
- Ugandan companies lack the skills and know-how required
- These companies have insufficient capital
- Ugandan companies lack the necessary corporate culture to undertake the big projects involved
- Oil and Gas companies have very high operational standards which Ugandan companies are unable to meet
These are some of the reasons presented to Ugandan companies as to why their participation is at a minimum and in some project areas, non-existent.
So, are the reasons forwarded valid reasons? Of course they are! Most Ugandan companies lack the skills, the capital and the standards required for many undertakings within this sector. They lack the capacity for one very obvious reason. This sector is GREEN-FIELD, it is new. We have not extracted oil before and as such, to expect Ugandans to be at the level of say Nigeria where they have been drilling for more than 30 years is most unrealistic.
That said, it does not mean that Ugandans are incapable of learning these skills. It is not to say that Ugandan companies cannot source for capital. It is not to say that Ugandan farmers are incapable to growing tomatoes to the required standard. To exclude Ugandans on these premises is a dis-service to Uganda and to future generations. Just as there was the policy of black empowerment in South Africa, Affirmative action in USA during segregation, we as a country should have policies than ensure inclusion and reduce marginalization in this sector. Luckily, unlike in SA and the USA our problem is economic rather than social in nature. But it is no less important. Many Oil producing African countries have tough policies on Local content that ensure indigenous participation. We do not need to re-invent the wheel on this one. We can just copy best practice.
To better illustrate my argument, let me use some of the more common examples of Oil producing nations. We will consider Trinidad&Tobago, Nigeria, Ghana and Angola.
In combination, these countries aim to have between 75% – 90% local content their respective Oil and Gas sectors. Nigeria passed the Nigerian Oil and Gas Industry Development Act in 2010. Some of the finer points of this act include:
- Nigerians given first priority for employment and training for any project in the sector
- Section 35 of the act requires all operators and companies to employ only Nigerians in their junior and intermediate cadre
- Each operator should present a 4 year succession plan on how Nigerians will fill expatriate position
- For award of tender if a Nigerian company is second by has a differential of not more than 10% ,the contract should be awarded to the Nigerian Company
Under the same act, the Nigerian Content Monitoring Board was established to monitor local participation. The Nigerian Content Division (NCD) also issued a list of 23 categories of work which must be executed in Nigeria by Nigerians.
The Prime Minister of T&T, Hon Patrick Manning described sustainability as the ability to meet today’s needs without diminishing the capacity of future generations to meet theirs. He stressed that for this sustainability to become apparent it was imperative to foster local content inclusion in the T&T Oil and Gas sector. To this end, T&T set up the Permanent Local Content Committee to oversee and ensure that local content was a component part of the Oil sector. T&T is today hailed as one of the success stories in Oil and Gas development.
Angola, under decree 127/03, passed by the Angolan ministry of petroleum on the 25th November 2003 also realized the importance of local inclusion as a spur for development. The finer points of this decree include:-
- For competitive bidding, first priority is given to Angolan companies. Outside bidders have to obtain prior authorization from the Angolan ministry of petroleum
- Certain goods and services are ring-fenced for Angolans(e.g. catering, cleaning, transportation, water supply etc)
- More specialized services (e.g. geographical and geodesic surveys, mud logging, drill pad construction and production facilities etc) may be performed through Joint Ventures with Angolan companies.
Ghana started there exploration around the same time as Uganda. Their biggest well (Jubilee) has now been in production for 2 years so many parallels can be drawn between Ghana and Uganda. Ghana has a local content policy. Contents of this policy state:-
- Where bids are otherwise equal, the bid containing the highest level of Ghanaian content shall be selected
- Operators, contractors and sub-contractors within the Oil and Gas industry shall consider local content as an important element in their project development and management philosophy for project execution.
- Also, companies in Oil and Gas projects will establish a local content fund. This fund will be primarily for education, training and R&D to further enhance local content.
What does all this suggest? I think that it means our African brothers in other Oil producing nations appreciate the importance of value- added content, technological transfer and development of local know-how. These can best be advanced by a strategic, conscious and well formulated ‘local content’ oriented road map.
Uganda has only recently enacted two Oil and Gas laws for the Up stream. There is mention of local content in parts 7 and 8 respectively, of those laws. However, a lot remains to be done in the creation of regulation that can safe guard Ugandans and Ugandan business.
A point of contention within this law is what is better known as the ‘Alaso’ amendment in section 125. Under this amendment within the law, foreign companies are required to have a 48% shareholding within their companies owned by local Ugandans. Whereas its intentions are good, its practicality might be a bit wanting. What is more beneficial, in my own view, would be the establishment of Joint Ventures and MOUs between local talent and more established foreign companies. This would ensure skill transfer and, in the long term, succession of project by local firms.