What Uganda can learn from other oil and gas producers
What you need to know:
Although Uganda is edging closer to oil production, Tanzania has moved faster than Uganda to develop her gas resource. Jonathan Adengo engages some experts from other countries on how they managed to overcome their challenges to get started and how they strike contracts that benefit their local people.
Ten years ago, Uganda discovered commercial volumes of oil in the Albertine and Nile basin. At that time the exploration phase which took 8 years attracted an expenditure of $3 billion (Shs11 trillion) causing a lot of excitement across the divide with multinationals and big oil companies showing interest and setting shop in the country.
Whereas Uganda is yet to enjoy the benefits of the resource, partners in the region have quietly moved fast and developed their resource.
Tanzania which has 50 trillion cubic feet of natural gas deposits is already producing its natural gas in Mtwara which is powering 60 per cent of the energy needs in the country.
According to According to Dr Emma Msaky, a geologist and technical advisor at office of the President of Tanzania, oil and gas advisory Bureau, the exploitation of the World Class natural gas resources discovered onshore and offshore the Ruvuma and Mafia basins created new opportunities for Tanzania to build a new economy founded on upstream gas extraction activities, as well as the downstream linked value addition industries.
The first discovery of natural gas in Tanzania in volumes of commercial significance was made in 1974 when discovery wells and their subsequent appraisal at Songosongo in Lindi Region gave resource estimates of 1 – 2.5 trillion cubic feet.
In 1982, more discoveries were made at Mnazi Bay in Mtwara Region and the resource estimates of that field stands at 3 to 5 trillion cubic feet. Currently, Tanzania has more than a dozen onshore/shallow water discovery and production wells with total resource estimate of up to 7.95 trillion cubic feet.
The production wells of Songosongo and Mnazi Bay which respectively have proven reserves of 880 billion cubic feet and 262 billion cubic feet of natural gas, produce limited fuel supplies primarily for power generation and industrialisation, as an environmentally friendly substitute to the more costly imported furnace oil and diesel.
Gas use master plan
In order for Uganda, Ghana and Tanzania people benefit from the resources, a strong legal framework is required to improve local participation in the extractive industry.
According to Ms Lugangira, Tanzania has a Natural Gas Utilisation Master Plan which among other issues, gives direction on how natural gas can be used locally. In its intent to protect local interests and steer economic growth in the economy, Tanzania has decided that 10 per cent of the gas produced will be dedicated to the domestic market whether it will be used or not.
Dr Msaky says the government is already converting the gas into Liquefied Natural gas for cooking in homes and launching stations for gas stations for refilling cars.
“We used to face a lot of load shedding in the country; this is no longer the case. The natural gas generates electricity which powers over 61 industries in Dar es salam,” she said.
She also said there plans to build a pipeline to Mwanza to supply electricity to the region which is also an industrial hub for Tanzania.
At the Tanzania Electric Supply Company Limited (TANESCO) power generation site in Kinyerezi, which is run Chinese, the government has signed a partnership with the Chinese firm running the site which will see Tanzania locals trained in running the plant as a way of taking over the management in future.
Several Tanzanian locals are employed at the Tanzania Petroleum Development Centre where the gas is processed into Liquefied Natural Gas before being transported in a pipeline to Msonga Fungu where it is compressed and transported to Dare es Salam TANESCO power generation plant in Kinyerezi
Mr Raphael Mbena, the country office manager of the Maurel and Prom Exploration and Production Limited, a gas processing facility located at Mtwara in the North-Western part of Tanzania, said 98 per cent of the company’s workforce is local employees. He told reporters on a field visit to the plant site at Msimbate that the gas recovery facility employed 78 people with only two expatriate workers.
But Ms Lugangira says local participation in the oil and gas activities in Tanzania, Ghana and Uganda are significantly low.
“Only a handful of nationals are engaged in core and service value chains. Most of the goods and services demanded by the industry are imported. Following significant discoveries of oil and gas, the governments established comprehensive Policy & Legal Framework to guide operations in the oil and gas industry of the respective countries,” she said.
Mr Mbena explained that although the oil and gas sector is a new area, the Tanzanian government had learnt lessons from other countries to make sure citizens benefit from the gas sector.
Ghana which is already producing oil measures content based on the level of Ghanaian Equity Ownership in the oil and gas industry. Local companies incorporated in Ghana with 51 per cent share owned by Ghana Nationals & 51 per cent of Management positions held by Ghanaians to ensure local participation.
One major concern for government, citizens and all actors has been how Ugandans will benefit from the oil and gas sector. Will she provide employment for citizens, use locally produced goods and services as well as exploit local resources to transfer technology that can kick start other sectors of the economy?
The debate has been around howmuch local content will be utilised by the sector. On the other hand the debate has been on whether there is enough local capacity to deal with the employment, technology and service needs for the oil and gas industry.
In Uganda, the oil and gas sector is governed by the National Oil and Gas policy. Dr Ernest Rubondo, the executive director of the Petroleum Authority of Uganda, a regulatory body of the Oil and Gas industry, says this policy was arrived at through a consultative policy which involved kingdoms, opposition parties, civil society, environmentalists all had a hand.
Since Uganda’s oil and gas sector is still growing, there is need to exert more efforts to ensure citizens competitively take part in the sector.
Speaking during the sidelines of ACCA Convention at Lake Victoria Serena, Dr Rubondo says a total of $20 billion (Shs67b) will be spent in the Ugandan economy over the next four years. Uganda’s GDP is of $27 billion.
“The development phase spent will attract $8 billion (Shs28.7 trillion) over the next four to seven years. We need to be prepared to see how much of this we can domesticate. The participation of the country in this is what is called local content,” he said.
Dr Rubondo says Uganda will not concentrate a lot on what other countries have done wrong because there reasons why things go wrong. Uganda has a National Oil and Gas policy which was arrived at through a consultative process and covers issues of capacity building and local content.
Capacity building and education has been considered under the National content policy to enable Ugandans to participate.
The aspect of national content looks at capacity building and training, development of entrepreneurs, handling procurement and monitoring and evaluation.
Mr Rubondo says a study was done to satisfy the requirements of the oil and gas capacity.
The study which was done to describe which people are required for the oil and gas sector showed that 20 per cent of the people are casual workers, 70 per cent are technicians and 10 per cent are professionals.
“We looked for what was wrong with the technicians working in the oil and gas sector and we found that their major problem was lack of the skill and necessary certifications to allow them participate. Now the training is focusing on certification of technicians. The professionals are required but there is only room for 10 per cent,” he said.
That is why the government set up the Petroleum Institute in Kigumba to equip people with the necessary certification.
Mr Rubondo says the government is looking at setting up six other technical institutes across the six regions of the country. We brought in technical people to make sure that when these technicians are certified to work in the oil and gas sector.
Benefiting local people
Tanzania has created frameworks to make sure the resource benefits the local people and also build capacity locally for the local people to take over the industry in future. In Mtwara where the gas production is taking place, the local people are using the electricity generated from the gas plant in Mnazi bay to power their homes. At Mnazi bay, there are locals employed along with technical experts who teach them on the production activities.
Despite government efforts to get more people to participate in the gas production in the various value chains, local participation is still low.
Ms Neema K Lugangira a local content specialist from Tanzania while speaking to 24 journalists, from Tanzania, Uganda and Ghana during a regional course on oil and gas by National Resource Governance Institute, said they have added value to the country through encouraging Tanzanians and their businesses to participate. Tanzania’s laws spell out local participation in terms of employment, procurement, and community.
“For the companies’ participation in the gas plant must be incorporated in Tanzania with 51 per cent share owned by Tanzanians nationals and 51 per cent of Management positions held by Tanzanians,” she said.
Uganda has proven reserves of oil estimated at 6.5 billion barrels with 1.8 billion barrels considered to be recoverable over the next 25 years.
This will be the first time Uganda carries out oil production and in order to ensure health, safety, environment protection and ensure effective regulation by the Petroleum Authority of Uganda, the standards are expected to define how operations take place.
$8 billion: Amount of money Uganda will spend in the oil development in the next four to seven years
In September, government issued a raft of standards that sector players are expected to adhere to as the country moves to the oil production phase.
Uganda, which imports all petroleum products, will by a 2020 official projection, start oil production that will see it exporting crude oil or refined products that will have to adhere to international standards. The 195 standards should be adhered to by suppliers, exploration companies, oil companies, the oil refinery and distributors of refined products.
195: NUMBER OF STANDARDS THAT GOVERNMENT ISSUED SECTOR PLAYERS IN OIL AND GAS
Training locals in oil
Government is setting up an Industrial enhancement centre whose designs are yet to be completed and the hope is that we shall be able to get programmes that can enhance the entrepreneurs.
Dr Ernest Rubondo, the executive director of the Petroleum Authority of Uganda, says: “This is not yet being done on the regional basis. It is being done on country by country basis however there is a programme that is being developed to see that this spreads across the region.”
Through the local supplier development training, the local companies were trained by E360 on environmental conservation in improving the health, safety and environmental standards through partnership with the German International Cooperation.
120: NUMBER OF wells that have been drilled in Uganda in eight years