Tuesday September 15 2015

Delayed oil dreams hurting many Ugandans

Workers discuss around an oil rig in the

Workers discuss around an oil rig in the Albertine Graben area. Delayed oil production is causing jitters among producing companies and employees in the sector. Photo by Faiswal Kasirye 

By Mark Keith Muhumuza

In one of Kampala’s suburbs along Bukoto-Kisasi road is an entire parking lot of trucks. They are branded trucks with banners reading “Baker Hughes” and “Halliburton.”
Some of the earth moving equipment has been lying idle for the better part of the year, the reason being an oil sector that has been quiet as oil companies await issuance of production licences.
The equipment is only part of the story that highlights how businesses have stalled and people laid-off.
Some of them, including Bemuga Forwarders and Three Ways Shipping Group have laid back and are now held together by hope.

Dreams of many have been sent down the drains at least for now. Suppliers have had to lay-off workers and so have oil companies as they cope with the inactivity in the sector – worsened by the complete crash of oil prices.
Doris (name withheld on request) used to be an employee of the oil company, Tullow. On a good salary, she was looking on the positive side but all this came crumbling in May 2015 when she was among the 120 that were laid-off.
The situation wasn’t unique to Tullow. CNOOC and Total have all sent some workers into redundancy.
However, industry statistics are scanty on the actual numbers of how many people have been sent packing so far.
But reliable information indicates the three oil companies have laid off more than 200 workers.

The Association of Oil and Gas Suppliers (AUGAS) puts the number to at least 1,000.
Notably some of the international contractors like Schlumberger, Baker Hughes, and Halliburton have all laid-off several employees both locally and globally.
For some of these international companies, this measure is routine, however, it shatters the dreams of many including those who have in their hundreds been taking on oil related courses in various universities across the country and abroad.

Locally, bankers are also stuck with several non-performing loans from the oil and gas sector. This explains why bankers would like the sector to kick-off. Insurers too are basically playing the waiting game as the anticipated early oil production may just delay some more time.
The optimism has subsided for now, as over a year ago, an Industrial Baseline Survey conducted by CNOOC, Total, and Tullow pointed out that at least 15,000 jobs would be created directly.
Another 150,000 were projected to be created indirectly. All this would be at the peak of oil production. Uganda is not in that phase yet.

Oil price double jeopardy
Uganda is yet to start producing oil, but it is paying the price for the fall in global international oil prices.
It is paying the price because it is already in the process of becoming an oil producing country. Oil prices are hovering around the $50 mark, sometimes lower than that for a barrel.
This is down from $100 at the start of 2014. Globally, jobs have been lost, countries like Angola and Nigeria that are oil dependent, are all beginning to struggle. The Uganda government is going ahead with two major projects, in anticipation of production.

The $3b oil refinery, where negotiations with a Russian conglomerate, RT Global Resources is just shy of seven months.
The oil pipeline negotiations are yet to reach a financing stage as a route has only just been agreed. A modulation by the campaign group, Global Witness indicates that for the government to make money from the sector, oil prices should be in the Shs219,600 ($60) per barrel range.
On the other hand, oil companies in Uganda have had their fair share of pain.

According to Ahlem Friga-Noy, the Total head of corporate affairs, “Total E&P Uganda has to adapt to the pace of the project, while also taking into account recent trends in the international crude oil price and their impact on our capital-intensive industry,”
Globally, Bloomberg’s estimates place at least 100,000 jobs could have been lost in the last one year due the oil price plunge. Uganda is part of that cycle.

Investment drops
If there is a year that has been the worst for the oil and gas sector, it was 2014, according to Irene Muloni, the Energy minister, who said “investments in the oil and gas sector dropped to Shs1.5 trillion ($413m) from Shs1.95 trillion ($533m) in 2013.
Total invested Shs1.83 trillion ($500m) in supplier contracts in 2012 but Ahlem says they have cut their expenditure because the country has moved from the exploration and appraisal phase.
“This ultimately resulted in a reduced demand for some goods and services,” she notes.

Also she notes there has been a considerable reduction in the expenditure on oil suppliers as “we move forward with the government of Uganda to finalise key required steps towards development.”
Tullow’s investment in Uganda had peaked at Shs10.2 trillion ($2.8b) by the end of 2013 but has dipped to about Shs10.98b ($3b).
Tullow did not respond to request for information yet it has been the most vocal about delayed licences.

Is government playing the hardball with oil firms?

At the Presidential Investor Roundtable last month, Irene Muloni appeared unshaken by developments in the oil sector, as speakers asked about the issuance of oil licenses, which remains a key demand for the companies.
The government has continued to tow a similar line on the licenses with Muloni saying: “We have had discussions with them. There were key outstanding issues like the size of wells and recovery rates. Tullow has submitted the addendum to the reports and Total is yet to submit. If they do, we will conclude this by the end of next month (September).”

Talk to any government official in the ministry of Energy, the response is always short on detail and gives a date that some have termed as a “tired song.”
For instance, Muloni had noted to Reuters, a news agency last year that production licences would be issued by the end of 2014. That didn’t happen. Then back in March, she told investors they were ready to issue the licences by Easter. That too didn’t happen.
This has frustrated many oil investors as the negotiations continue to drag on.
Sources indicate CNOOC has also decided to use some of its negotiating powers to nudge government.

mmuhumuza@ug.nationmedia.com

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