Local companies need support from govt to tap into oil proceeds

Victoria Nyeko

What you need to know:

  • Critical. ISO certification is critical to international oil companies working with local businesses because it provides assurance in quality of local products.

Recently, I attended a local content workshop in Kampala sponsored by a global engineering company in partnership with a rig lifting, industrial pipping company. It was rumoured that both companies are among the top contenders for the big oil contracts.

Most of the local businesses from sectors such as agriculture, insurance, among others, attended the workshop while anticipating some sub- contract deals. But it became apparent at the workshop that without internationally recognised standards certification from a relevant organisation (ISO), local business might fail to win contracts in the oil industry.

The ISO certification is critical to international oil companies working with local businesses because it provides international assurance in quality of local products and services. The certification of ISO45001 in occupational health and safety, and ISO 9001:2008 in quality management systems are some of the key local contractor/supplier requirements.

The ISO certificate demonstrates to international oil companies that local businesses are compliant with internationally recognised principles. According to the World Bank and Republic of Kazakhstan Economic Research Programme, international oil companies awarding contracts are often hesitant to source from non-ISO certified local businesses due to high accidents and financial risks.

However, for a Ugandan business to get ISO certification, the process requires significant capital investment in not only upgrading technical capacity, but also staff training. However, the banks’ high interest rates at more than 20 per cent limit local businesses from borrowing money to improve their competitiveness.

They are already at a disadvantage since they cannot compete with foreign companies operating in Uganda that are bankrolled by their governments. According to a local construction company, the business environment is becoming increasingly frustrating and for the last 10 years they have failed to benefit from local content in Uganda’s oil industry.

The NRM government licensed a number of international oil companies in petroleum exploration such as Tullow, Cnooc and Total-E&P, among others. The oil companies signed production sharing agreements (PSA) with government to operate in the Albertine oil fields.

There is a local content clause in the PSA emphasizes that “preference use of goods produced or available in Uganda and services which are rendered by Ugandan citizens and companies”.
However, preferential consideration doesn’t guarantee winning oil contracts with international oil companies.

Therefore, to increase the chances of success for a local business, it means finding free money, those with powerful connections, a local content fund or high interest bank loans to pay for ISO certification. In 1956, the Nigerian oil industry started with Oloibiri oil field discovered almost 62 years ago. In Nigeria, local businesses for many years watched from the sidelines as international companies got multimillion dollar contract awards.

However, in 2010 there were some significant developments when the Nigerian Oil & Gas Industry Content Development Bill was signed into law. Subsequently the introduction of the Nigerian Content Intervention Fund (NCIF) followed. A successful financial fund model, recognised worldwide and used by Norway to develop local content, was formed.

NCIF requires one per cent payments of all upstream contracts awarded in Nigeria. According to Nigeria’s junior energy minister Emmanuel Kachikwu, recognising that capital access, hampered local business participation combined with high bank interest rates, NCIF was setup with only five per cent interest rates, much lower than the banks rates for local business.

NCIF has so far successfully secured in excess of $500m (Shs1.8 trillion). In Uganda local content needs urgent government intervention; otherwise it might remain an attractive proposition without benefiting Ugandans.

Ms Victoria Nyeko is a media commentator.
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Twitter:@VictoriaNyeko