Unpacking Uganda’s oil local content rules

What you need to know:

The significance of local content in Uganda’s nascent oil and gas sector cannot be overemphasized. The law gives local content a total score of 10 per cent in the evaluations for award of supply contracts by the oil companies and their subcontractors.

Three key agreements paving way for Uganda’s oil final investment decision (FID) were recently concluded, first between the government and French oil major Total and between the governments of Uganda and Tanzania.
Pending is the Host Government Agreement with Tanzania and the associated commercial arrangements to put in place an overarching contractual and legislative framework for the development of Uganda’s crude oil discoveries. It is projected that up to $ 20 billion will be spent on the requisite infrastructure in the first three years after FID before first oil flows.
Some developing countries have little of enduring value from oil production to show. While they have earned direct revenues from the sale of crude oil and collected the supplementary monetary levies, there has been minimal if any trickle down impact on their domestic economies.
To foster stronger sustainable growth beyond the lifetime of oil production, resource rich countries Uganda inclusive are now placing greater emphasis on the use of local or national content policy instruments to extract more economic value.
This article gives an overview of the local content rules that apply to entities participating in Uganda’s oil and gas value chain.
In the context of this article, local or national content is the extent to which oil production prompts more value and benefits to the economy beyond the sale of crude oil and direct fiscal receipts.
Local content rules prescribe in varying forms the preferential use of domestically available resources and manpower creating backward and forward linkages for the local economy.
Uganda’s oil local content requirements derive from the provisions of the main oil contracts and legislation namely the Petroleum (Exploration, Development and Production) Act No.3 of 2013, the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Act No.4 of 2013 and the regulations thereunder. The rules extend as applicable to the licensed oil companies and their subcontractors.
Oil companies prospecting, exploring or producing crude oil in Uganda must submit satisfactory Local Content Plans (LCPs) to the Petroleum Authority of Uganda (PAU) for approval. LCPs outline proposals for the employment and training of Ugandans, procurement of local goods and services, transfer of technology and commitments on local supplier development.
All vendors to oil companies and their subcontractors should be registered on the National Suppliers Database managed by PAU. Non-registered vendors are ineligible to vie for business opportunities in the sector. Oil companies and their subcontractors must generally give preference to goods and services provided by “Ugandan companies” and citizens unless they are unavailable or are of inferior quality.
Otherwise, foreign companies in joint venture with Ugandan companies holding at least 48 per cent shareholding in the collaboration and upon the approval of PAU may make these supplies.
The shareholding requirement does not apply to the midstream segment where the crude oil pipeline and the refinery projects fall. A Ugandan company is not one necessarily owned by a majority of Ugandan citizens. A company incorporated locally, employs 70 per cent Ugandans, uses locally available raw materials and is approved by PAU qualifies as such.
Oil companies and their subcontractors must have in place a robust suppliers’ development plan to support Ugandan companies and citizens achieve capacity to eventually supply and source locally all goods and services that the oil sector requires.
The foregoing discussion notwithstanding, some supplies are exclusively reserved for Ugandan companies and citizens. These include transportation, security, hospitality, human resources management, locally available construction materials and waste management where possible amongst several others.
Oil companies and their subcontractors must unbundle the underlying contracts into work packages that Ugandan companies are able to compete for and execute.
From the start, oil companies and their subcontractors must employ at least 30 per cent Ugandans in management roles progressively increasing to at least 70 per cent within five years.
A minimum of 40 per cent Ugandans should hold technical roles growing to 60 per cent in five years and 90 per cent in 10 years. 95 per cent of the support staff must be Ugandans. This is the reason why applications for work permits by expatriate staff in the oil sector must be recommended by PAU.