Wednesday August 6 2014

Create a local content monitoring board to include more Ugandans in oil sector

By Emmanuel Mugarura

As the production and development of oil in Uganda reaches the critical stage, many players in the industry are opening up shop in Kampala: international oil companies, international service providers and all sorts of individuals and companies that have an interest in the industry.
However, the Ugandan actor in the oil sector continues to be sidelined because the legal framework at the moment does little to protect the local entrepreneur from the powers of domination of the larger players in the industry. As a result, the expected mass wealth expected from the resource will benefit foreign companies as more profits are repatriated by the non-Ugandan actor in the industry.
Government enacted a law last year (Petroleum Exploration, Development and Production Act 2013), but limited its scope, especially on local content save for the contentious Section 252 (b) that talks about composition of a company doing business in the oil industry (some people know it as the 48 per cent requirement). At this stage, the government is working on regulations to operationalise that law. However, for Ugandans to benefit and be protected from the strong and financially stable and experienced foreign players in the industry, there is need for a law that will create a national content monitoring board that is independent of the State.
Nigeria and Angola are good examples where this kind of set-up has registered success. The board sets targets that must be met by players in the industry to promote and use local content in all levels – human resource, materials, services, goods, etc. In Nigeria, they have gone a step higher by ring fencing some activities and services that must have 100 per cent Nigerian local content. Food provision, internal transport, warehousing and security are among the services that must be provided by Nigerians. The net impact of this is that there are more Nigerians participating in the industry in the last three years than ever before.
According to the Nigerian National Petroleum Corporation (NNPC), the industry has employed more than 30,000 Nigerians since 2010 when the law was enacted as compared to 55,000 in the 60 years before the law. This means with deliberate effort, we can put up measures that will encourage more people to participate in the industry.
The board should have a mandate to do audits on the participating companies to measure their compliance to employ Ugandans and also give [Ugandans]more skills so that they can be promoted to higher positions as well as a systematic succession plan that allows Ugandans to take over jobs occupied by foreign employees. This can be done through creating employment quotas with a limited ability to renew work permits for non-specialised jobs and a maximum one renewal for specialised jobs. The board would make sure there is a Ugandan being trained to take over the job without destabilising the continuity of the employer.
The law, in its current form, requires companies participating in the industry to have a 48 per cent local content in some areas. But it’s not explicit on the penalties for defaulters and rewards for compliance. If two companies are competing for a tender in the oil industry, the company that exhibits or proves more local content in employment, services, goods utilisation and ownership should be given an advantage of say 20 per cent so that the other companies are encouraged to work more on local content and national involvement.
The companies that continue to violate the law on local content can be penalised financially with their future participation in bidding evaluated by the board. The same method can apply by adding or deducting points to the bidding companies, especially in highly specialised areas. A company should be able to commit to promoting local content with measurable indicators. The board would be able to evaluate the performance of a particular company and if there is no satisfactory improvement, then the defaulting companies are fined or penalised.
The purpose of this is to regulate the activities of the players in the industry with a deliberate aim of involving as many Ugandans as possible, in the oil and gas sector. The national policy on oil and gas – objective seven – supports such initiatives. If this method works in the oil and gas sector, then we can extend it to mining, construction, ICT, telecom, banking, etc.

Mr Mugarura is the executive director of the Association of Uganda Oil and Gas Service Providers.