Include locals in oil contracts

Tuesday March 02 2021
prosper07pix

An oil well in Western Uganda. Intending bidders must therefore have in place elaborate national or local content plans. PHOTO | FILE

By Denis Kakembo

Almost every person has entered into a contract in their daily lives. For example, in buying groceries from a supermarket, the parties agree to swap provisions with money. It is important for the parties to a contractual relationship to understand their rights and obligations.

As Uganda draws closer to the long awaited oil final investment decision (“FID”), enterprises should position themselves for the forthcoming business opportunities. Local or national content is not only an evaluation parameter for scoring the best bidders. It is a means of winning over local support and acceptance which is essential for the implementation of the oil projects. Unless the underlying bid proposals are within the parameters of the underlying laws, the sector regulator (“Petroleum Authority of Uganda or PAU”) would not sanction the final award of these contracts. It may also set the stage for the losing bidders to challenge the tendering process which can be disruptive to the project implementation schedules as has been the case with some recent procurements in other sectors.

Local content 

The theme of Uganda’s local content requirements deriving is the objective to localise oil and gas business opportunities. Many developing countries have little of enduring value to show from oil production. By harnessing well oil and gas production, Uganda is optimistic about creating forward and backward linkages in the economy. Uganda’s oil and gas local content requirements aim at ensuring that there is optimal participation of Ugandans in the sector value chain through the recruitment, employment and capacity development of locals, procurement of goods and services obtainable in Uganda, fostering local supplier development and achieving technology transfer. 

Regulatory oversight 

Prior to the award of major project supply contracts, there will be a comprehensive review of the proposed offer terms by the Petroleum Authority of Uganda. Amongst other considerations, PAU must approve every contractor’s national content plan before the contract to be awarded by the oil companies is approved. Where local capacity may be lacking, contractors must have express commitments to accelerate local supplier development. In the absence of this, PAU will not approve the award of contracts. Even when supplies and services contracts are awarded, PAU will continue to monitor the local content compliance. 

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Intended bidding vehicle

Some business opportunities are reserved for Ugandan companies and locals. Ugandan companies are those entities established in Uganda, employ majority of locals, use locally available raw materials but have also been approved by the regulator. It is therefore important that entities intending to bid for these ring-fenced opportunities have in place the right bidding vehicle.

While other opportunities may not be ring-fenced, the law requies that these can be supplied by foreign companies only when they are in joint venture with Ugandan companies or with the approval of the PAU. This is aimed at improving the capacity of Ugandan companies to garner capacity to source all project inputs from Uganda. Intending bidders must therefore have in place elaborate national or local content plans. In the request for proposals, the oil companies in Uganda namely Total and CNOOC would outline the minimum basic local content issues that the intending bidders must consider to comply with Uganda’s law.

Oil laws only set out minimum local or national content standards to comply with. The oil companies and their contractors can go over and above the basic standards. So significant is local content in the contracts award process that by law when the gap between the best evaluated bidder and second best is less than 5 per cent, the vendor that scored higher on local content takes first priority for the tender award. 

Local content plans integrating the participation of locals in the oil and gas value chain is enough goodwill to secure the support of the locals and project host communities.

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