‘We need an energy mix to slash power shortfall’

What you need to know:

The executive chairman of the African Energy Chamber (AEC) and chief exexutive officer of the pan-African corporate law conglomerate Centurion Law Group, Mr NJ Ayuk, was recently in Uganda where he held various meetings with key government and private sector energy officials. In an interview with Prosper Magazine’s Bamuturaki Musinguzi, Mr Ayuk elaborates on how to close the energy sector gaps in the country for faster development.

What are the opportunities for investing in oil and gas in Uganda?

Uganda has emerged as a formidable oil and gas competitor over the years. With sizeable reserves, enabling regulation and a proactive national oil company that prioritises local participation, inclusivity, and capacity building, the country is positioning itself as a force to reckon with. By seizing the opportunities brought about by projects such as the East African Crude Oil Pipeline (EACOP), and targeting partnerships and joint ventures with regional actors, local companies will be enablers of driving successful economic growth, creating investment opportunities in Uganda’s oil and gas industry.

Which are the oil and gas investment challenges in Uganda?

The challenge that Uganda faces, like most other African countries, is the lack of transparency, good governance and policies that could create favourable investment climate especially in the energy sector. Uganda has put in the work effort to improve on that by joining the Extractives Industries Transparency Initiative (EITI) which is a step in the right direction.

How are energy poverty levels looking like in Uganda and how can the country make energy work for all?

Uganda’s pragmatic, steadfast and progressive leadership, in conjunction with its commendable regulatory environment, has elevated the country to hydrocarbon success. We must remember that energy poverty isn’t a Uganda issue but a continental reality. Our approach to combating energy poverty must start by addressing Uganda’s resources, political will, and willingness to create an active local business sector.

We must consider the percentage of people that are without electricity, it only makes sense to harness Africa’s abundant gas resources to alleviate this problem. Natural gas, affordable and abundant in Africa, has the power to spark significant job creation and capacity-building opportunities, economic diversification and growth. Uganda must also bank on all forms of energy to address its shortfall in energy production and distribution. The focus should be on those resources to which they have easy and affordable access.

By promoting the role of women, local companies, and enabling regulation, as well as showcasing the abundant opportunities present in the sector, Uganda will and can drive investment and regional collaboration, further positioning the country as one of Africa’s top energy destinations.

Which are the latest innovations in the energy sector that Uganda can adopt to harness its oil and gas development?

The ministry has placed a focus on domestic capacity building through the emphasis of women inclusivity, local company participation, and the transfer of skills from international oil companies to local companies. Projects such as EACOP present the unique opportunity for local companies to actively participate in the country’s oil and gas sector, not just as commission agents, but as active participants. By seizing the opportunities brought about by the EACOP, and targeting partnerships and joint ventures with regional actors, local companies will be enablers of a successful oil and gas industry in Uganda.

What is the state of the energy sector in Africa?

An ongoing energy transition and new efforts to decarbonise the world are weighing on oil demand. The shale revolution is exacerbating these pressures. The Covid-19 pandemic has wrought havoc on markets around the world, accelerating and intensifying existing trends. External headwinds are forcing African petroleum producers to re-examine their strategies.

Conventional petroleum resources here should be globally competitive, but growth has lagged because of conditions above the ground, not below. Restrictive fiscal regimes, inefficient and carbon-intensive production, and difficulties in doing business are preventing the industry from reaching its full potential. As companies delay projects and cut costs, planned capital expenditure in 2020-2021 has fallen from $90 billion pre-Covid-19, to $60 billion now. To remain competitive, African producers and governments must adapt, and we’ve seen that. Africa will benefit greatly if we create an investment climate that supports the development of all energy resources.

Which are the major challenges facing the energy sector in Africa and how can they be addressed?

Restrictive fiscal regimes, inefficient and carbon-intensive production, and difficulties in doing business are preventing the industry from reaching its full potential. We have to cut the red tape to make life easier for hard-working Africans, businesses and investors to work and grow the energy sector. But how do we do this?

Developing gas-to-power infrastructure will increase access to affordable energy for all sectors of the economy, offering massive knock-on benefits and making it easier to do business. Reducing lead times to limit risk premiums put on long cycle projects will further bolster the industry’s viability and growth prospects. It will not be easy, but these reforms are necessary.

Finally, implementing programmes like local content, economic diversification that support natural gas value chains, making fiscal terms competitive and reducing red tape and streamlining regulatory processes must be priorities for the future.

Why has Africa failed to adopt solar energy as a cheaper and viable alternative to grid electricity?  

Despite conditions for solar energy in Africa being favourable, the continent’s solar industry accounts for less than 1 per cent of global solar revenues. Solar projects rely on global value chains, which limits their ability to support local jobs, business opportunities, and capacity building. Until this can be resolved, the renewable energy industry simply cannot offer Africa the same value as a strategic approach to our oil and gas industry will. We need to remain a committed partner of choice for the industry as we advance into an uncertain future.

What impact has the Covid-19 pandemic had on the energy sector in Africa?

The energy sector has resulted to a year of unprecedented challenges, and the trials and tribulations have made the Chamber’s work more important now than ever. We are committed to helping Africa’s oil and gas stakeholders navigate a complex and ever-changing global energy landscape. We believe the short-term outlook will improve the demand growth for oil globally. We also got to see Covid-19 accelerate the underlying pressure on global energy markets that Africa has not been insulated from.

For the first time in history, we saw the prices of oil reach its lowest level, standing below $25 a barrel. The effect on the upstream sector automatically affects the midstream and downstream, sector, which essentially affects the economy.

Some countries in the West are steadily moving towards clean energy in the next one to two decades. Yet some African countries, Uganda inclusive are investing heavily in oil exploration. Will countries like Uganda be able to meet SDG 7 target of ensuring universal access to affordable, reliable, and modern energy services by 2030?

Across Africa, access to power has been hampered by the lack of access to competitive funding, the dire state of the continent’s utility infrastructure, and the need for energy policy and legislation to be adopted to boost investment in the sector. Post Covid-19, new solutions are urgently needed to address Africa’s power crisis and switch on a continent-wide strategy for its recovery. Such solutions must take into account the energy transition, the focus on smart power technologies and cost-effective solutions, and the global drive towards a decentralised, decarbonised, and securing energy supply that addresses climate change and stimulates economic growth.

Who is NJ AYUK?

Mr NJ Ayuk’s experience includes advising major companies on investment strategies, the establishment of joint ventures and cooperation structures, privatisation, licensing and related tax matters, OHADA – a system of corporate law and implementing institutions adopted by 17 West and Central African nations.

He is active in the structuring, negotiation, and implementation of petroleum, mining, Liquefied Natural Gas, and other natural resource projects for leading private operators in Equatorial Guinea, South Sudan, Uganda, Angola, Congo-Brazzaville, Nigeria, and Senegal.

Mr Ayuk, an influential oil and gas lawyer, has authored several books about the oil and gas industry in Africa, including the Amazon and Wall Street Journal bestselling book “Billions at Play: The Future of African Energy and Doing Deals.”

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