Oil deals: Can Ugandans pocket petrodollars?

The oil and gas sector is expected to set Uganda, and region on a huge economic stride in 2022, with a beehive of activity.

The contracting and land acquisition processes to be concluded this year will set pace for oil works on the ground to be intensified with the commencement of drilling the planned 450 oil wells in the second half of 2022.

The next three years will therefore, have intense infrastructure development in preparation for the first oil in 2025.  The anticipated costs and benefits of the country’s investment in oil and gas projects is estimated to attract about $15 billion.

Following the launch of the projects, contracts worth US$ 6 billion (Shs21 trillion) for over 40 work packages and contracts for the Tilenga, Kingfisher and the East African Crude Oil Pipeline projects have been submitted by the licensees to the Petroleum Authority of Uganda  (PAU) for approval before award.

The total budgets approved for all licensees were $180m (Shs630b) for January to December 2020, $500m (Shs1.7 trillion) for January to December 2021 and an expected $3 billion (Shs10 trillion) for 2022.  

The Petroleum Authority of Uganda, (PAU) projects that in terms of macro-economic benefits, the gross domestic product of Uganda, which was estimated at over $37b (Shs130 trillion) in the FY 2020/21, is expected to be enhanced by the massive investments anticipated in the sector.

The anticipation is mainly through the linkages between oil and gas and other sectors of the economy such as agriculture, tourism, manufacturing, and transport, among others.   

The benefits which are expected to accrue to the economy as a result of harnessing these linkages are estimated to increase the country’s current GDP by 22 percent in the next 3 to 4 years of the construction phase.

Mr Ernest Rubondo, the executive director at the Petroleum Authority, attributes this growth in investment to a significant increase in the activities in the sector following conclusion of the required agreements on the launch of the projects.

As such, Ugandans will need to move fast and continue preparing for the direct and indirect opportunities that are becoming clearly visible.

Considerable benefits for Uganda’s economy are expected if competitive domestic firms are able to supply goods and services demanded by the oil and gas industry.

The companies being regulated by the Petroleum Authority of Uganda have significantly increased including; the licensed companies, their contractors, and sub- contractors at  different levels.

This implies an increase in investment in the country, but also the opportunities for local entrepreneurs and high-level employment of skilled Ugandans. 

The anticipated infrastructural improvements for a developing country like Uganda will improve trade, and other economic activities in the host communities, and surrounding areas.

The attendant National Content Regulations mandates the Petroleum Authority to facilitate capacity building of Ugandan enterprises, promote the training and employment of Ugandans, transfer of knowledge and technology and the provision of goods and services by Ugandan companies, Ugandan citizens and registered entities, in petroleum activities.

 Utilisation of Ugandan goods and services is a key pillar of National Content and Regulation 9(1) of National Content Regulations that require oil licensees to give preference to goods and services which are produced and are available in Uganda and services which are rendered by Ugandan citizens and companies.  

Supply of goods and services

So far, Ugandans have provided goods and services worth $1 billion (Shs3.5 trillion) out of the total investment into the sector of $3.7 billion as at the end of 2021, according data from the Petroleum Authority.

 The Shs3.5 trillion earning was mainly from 330 Ugandan entities that have provided goods and services to the oil and gas activities between 2017 and 2020.

Regarding the supply of goods and services, 92 percent of the supplies and services were provided to the country’s oil and gas sector in 2020 were by Ugandan entities while in 2021, 53 percent of the supplies and services were from Uganda entities.  

Some of the services provided by Ugandan companies include;  human resource services; construction; agricultural and crop development; environmental and waste management services; broadcasting services; housing, hotel accommodation and office rental services; security services; ICT accessories and services; education management services; insurance; vehicle hire, tracking and maintenance; medical services and equipment; and legal services.  

Tapping into oil money

 Oil money is expected to flow into the economy from foreign and domestic companies through the award of Tier 1, Tier 2 and Tier 3 contracts.

Tier 1 contracts are multi - billion dollar contracts given to major industry players who sub contract several other companies in Tier 2 and 3 to provide good and services.

Total Energies that will lead in production of oil in the Tilenga Area announced mid last year the letters of award for Tier 1 contracts to five oil industry players.

These companies include; A Consortium comprising CB&I UK Limited (a McDermott Company) and Sinopec International Petroleum Service Corporation (SINOPEC), Schlumberger Oilfield Eastern Limited, Vallourec Oil and Gas France, ZPEB Uganda Co. Limited and several other Ugandan companies.

Tier 1 companies will undertake construction of key oil facilities and activities such as drilling operations, industrial site preparation, well pads and lake water abstraction site preparation, and other associated surface facilities.

Tier 1 companies are required to make significant commitments to promoting national content, through sub-contracting Ugandan companies which fall under Tier 2 and 3 to supply Ugandan goods and services and technology transfer.

At least 40 percent of the oil deals, an equivalent Shs4.2 trillion has been set aside for local companies.

Anita Kayongo, the corporate affairs manager at Total, said about $900 million (Shs3.1 trillion) will be spent directly on local contractors during the construction phase for the Tilenga project.

Local companies will benefit from providing key services in transport and logistics management, camp management, accommodation, civil works, manpower and training, land surveys, information and communication services among other key services.  

So far, four Ugandan local companies specialising in civil works and camp services have been awarded with Tier 2 contracts for the Tilenga Industrial Area preparation in Buliisa district. 

 “These are going to be huge contracts that will bring money into the pockets of Ugandan companies that have patiently waited, and made themselves ready through incubator programmes,” says Elly Karuhanga, chairperson at the Uganda chamber of Mines and Petroleum.

In the immediate term, Karuhanga says the key sectors to get ready include; agriculture, tourism, health and education, works, as well as transport and logistics.

“The conversation in Uganda for the next three to five years will be about oil and gas. We should get ready to see a big shake up of the economy in 2022,” he notes.  

Ugandan suppliers, especially micro, small and medium enterprises (MSMEs), are currently facing several constraints, including information asymmetries, challenging business environment, inadequate infrastructure among other constraints as captured in a World Bank report.

Another possible scenario is that small local firms in developing economies are oftentimes unable to participate in the sector due to large contract size and high bargaining power of large multinationals which already have established relationships with the International oil companiess all over the globe.  This creates a bias against the use of local suppliers who are not properly considered for the contracts as they presumably cannot fulfil the standardised requirements.

Therefore, achieving the desired participation of Ugandan entities in the sector requires enhancing capacities of both the people and the enterprises.  

The Petroleum Authority set up the National Supplier Database (NSD) and a National Oil and Gas Talent Register (NoGTR) that is currently supporting companies that intend to participate in the country’s oil and gas sector. 

So far, the database has 2,662 companies that are qualified and registered up from 513 in 2017 when it was established.  

The National Oil and Gas Talent Register was established by the Authority in February 2019 to increase the visibility of Ugandan nationals who are interested in working in the sector. 

At the end of 2021, the Talent Register had a total of 5,941 registered and 114 employers.

There is a significant increase in the registration of both people and companies after the launch of the projects in April 2021.

A total 193 jobs were posted on the system by the different employers to provide opportunity for the competent Ugandans to take the jobs.

As the oil sector moves into the development phase, the participation of Ugandan entities in the country’s oil and gas sector is constantly being measured by the Petroleum Authority and all efforts are being made to increase the participation of Uganda entities from 28 percent to 40 percent.

Developing capacity

 Ugandan suppliers, especially micro, small and medium enterprises (MSMEs), are currently facing several constraints, including information asymmetries, challenging business environment, inadequate infrastructure among other constraints as captured in a World Bank report.

Another possible scenario is that small local firms in developing economies are oftentimes unable to participate in the sector due to large contracts and high bargaining power of large multinationals which already have established relationships with the International Oil Companiess all over the globe.

 This creates a bias against the use of local suppliers who are not properly considered for the contracts as they presumably cannot fulfil the standardised requirements.

Therefore, achieving the desired participation of Ugandan entities in the sector requires enhancing capacities of both the people and the enterprises.