Understanding a Ugandan company for oil and gas

An oil rig. Investors seeking to participate in Uganda’s oil and gas sector should pay attention to the national oil and gas local content requirements. PHOTO/file

What you need to know:

To qualify as a Ugandan company, the entity must additionally employ 70 percent Ugandans, provide value addition to Uganda, use locally available raw materials but also be approved by Petroleum Authority of Uganda,  Denis Kakembo  writes.

The supply of 16 categories of goods and services for Uganda’s oil and gas sector is currently reserved for entities that are designated as Ugandan companies for oil and gas purposes.

The ring-fenced goods and services are transportation, security, foods and beverages, hotel accommodation and catering, human resource management, office supplies, fuel supply, land surveying, clearing and forwarding, crane hire,locally available construction materials, civil works, the supply of locally available drilling and production materials, environment studies and impact assessment, communications and information technology services and waste management services to the extent possible. The supply of the aforementioned goods and services is reserved for Ugandan companies based on the findings of several studies including an industry baseline survey commissioned in 2013 which established that there was local capacity to provide thoseindustry inputs. To entrench further the participation of locally established companies in Uganda’s oil and gas industry that employ locals but also create value addition locally, the government decided to give local enterprises the exclusive right of supply of the ring-fenced goods and services. By supporting the participation of local companies in the sector value chain, Uganda would extract more economic value from the oil and gas sector beyond the direct crude oil sales revenues.

What is a Ugandan Company?

A Ugandan company for oil and gas purposes is not one necessarily owned by Ugandan nationals. A foreign owned company can qualify as a Ugandan company for oil and gas purposes if it complies with all the conditions set out in the oil and gas legislation and underlying regulations. Uganda’s Oil and Gas National Content Regulations define a Ugandan company as one that is locally incorporated under the provisions of the Companies Act, 2021. To qualify as a Ugandan company, the entity must additionally employ 70 percent Ugandans, provide value addition to Uganda, use locally available raw materials but also be approved by Petroleum Authority of Uganda (PAU). It is increasingly becoming difficult for entities to achieve designation as Ugandan companies for oil and gas purposes from the Petroleum Authority of Uganda unless the foregoing conditions as set out in the Regulations are met.

In addition to incorporation as explained above, an entity can be designated as a Ugandan company for oil and gas purposes if it employs at least 70 percent Ugandans with at least 70 percent Ugandans as management staff, another 70 percent Ugandans as technical staff and 95 percent as support staff.

The entity must also provide value addition to Uganda, uses locally available raw materials and is approved by PAU. Evaluating the demonstration of value addition can be subjective depending on the nature and business of the entity. An entity can, for instance, establish production or processing facilities in-country to transform locally available or imported raw materials. Entities could also set up workshops or operational yards for the provision of specialised services if their nature of business demands for such. The company must also prove that it utilises locally available raw materials or services as core inputs to the extent possible.

While the supply of certain goods and services is reserved to Ugandan companies, foreign investors are still able to establish local entities that qualify as Ugandan companies for oil and gas purposes in Uganda. Investors seeking to participate in Uganda’s oil and gas sector should proactively pay particular attention to the national oil and gas local content requirements. Otherwise they may lose out on these opportunities for non-compliance…

Denis Kakembo is a managing partner with Crystal Advocates.

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