Tuesday November 13 2012

Oil firms favouring foreign companies

Workers at the oil drilling well in Kigogole in Hoima District.

Workers at the oil drilling well in Kigogole in Hoima District. PHOTO BY ISAAC IMAKA 

By ISMAIL MUSA LADU

KAMPALA

Leading oil industry players, including Tullow Oil, are facing accusations of unfair and discriminatory conduct reportedly intended to push Ugandan-owned service providers out of the lucrative oil sector

A member of the House committee on Natural Resources yesterday confirmed to the Daily Monitor that they had received representations from the Association of Oil and Gas Services, a loose body bringing together local service providers.

Mr Vincent Kyamadidi said the Natural Resource committee had been made aware of “injustices meted out to local suppliers in the oil and gas sector”, which have seen contracts reported to be worth hundreds of millions withdrawn from Ugandan-owned businesses and passed on to foreign firms. “I am aware of the issues. And we will look at them because [we] don’t agree with what is happening to them—local suppliers,” he said.

The reports come at a time when Parliament is battling with the government over a key law under which the oil sector will operate.

MPs say the amendments they have suggested to the proposed law -- in the face of stiff opposition from the government -- are to protect the country’s interests against multinational concerns.

Sources within the local suppliers’ association revealed that their petition outlines a litany of injustices, including arbitrary award, variation or termination of supply contracts, which are then reportedly signed off to more financially secure foreign firms – and on much better terms.

Some local firms, petitioners, and observers are staring at the possibility of collapse as a result of what is an often one-sided and summary determination of changes to contracts by the multinationals.

The parliamentary committee was also informed of the continued awarding of lucrative and long term contracts to foreign-owned companies for services which can be provided by Ugandan firms.

It is said the multinationals tend to cite a controversial ‘variations’ clause which is embedded in the contracts as a basis upon which to arbitrarily reduce previously agreed on supplies to below 50 per cent, and in some cases to as low as 10 per cent with no compensation.

Some cases in point include how Three Ways Shipping Limited and Bemuga Forwarders Ltd’s, whose contracts were varied and when they tried to understand the reason for the sudden changes, their contracts were terminated.

The Bemuga case
Early in 2011, Tullow Oil placed adverts in the newspapers calling for competent firms to tender for provision of lifting services (cranes) for their Uganda operations—which tender Bemuga Forwarders Ltd won.

Bemuga was supposed to provide 17 different types of equipment over two years, effective April 1, 2011. According to sources, Bemuga’s owners raised capital and provided the equipment. However, to the firm’s consternation, after just four months, Tullow Oil varied their contract from 17 to only four pieces of lifting equipment without any explanation.

According to copies of emails seen by this newspaper, an agreement was later reached, after long negotiations in London, that instead of a two-year contract, Bemuga be added three years so that they are able to meet their costs.

But Tullow reportedly did not honour its commitment as agreed. Instead, it went ahead to terminate the contract altogether on August 9, 2012, which was just half way through the agreed contract period. Bemuga was reportedly not paid for services rendered while the business was quietly transferred to the British-owned East African Cranes Ltd.

Eagle Air case
Eagle Air, a locally-owned air transport company, also suffered an almost similar predicament. It was eliminated from providing air travel services on grounds that it lacked prior oil industry experience. Another reason against Eagle’s disqualification was that they had bigger planes than Tullow wanted and, therefore, they were over qualified for the required service.

The tender was instead given to Kajjansi Aero Club, a company owned by two British citizens.

Sources indicate that the petitioners also presented another case where Equator Catering Services, a company believed to be owned by two British nationals, was handed a six-month contract worth $951,623 to supply food to staff of Tullow at a cost of an average $38 per plate for category A staff. Category B staff were provided meals at $20 for each plate, in a particularly lucrative deal that the members said cannot be given to a local supplier.

The Commissioner for Petroleum in the Ministry of Energy, Mr Ernest Rubondo, said in an interview yesterday that he was aware of cases of the reported mistreatment of locally owned businesses by foreign multinationals.

Mr Rubondo said the government had hired a consultant to draft proposals and plans to help develop local content.

Last evening, Ms Cathy Adengo, the corporate communications manager at Tullow Oil, said they would respond to the issues later.

iladu@ug.nationmedia.com

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