Petroleum Authority to approve Shs21 trillion in oil contracts

Crude oil containers in Bullisa District. Oil money will flow into the economy from foreign and domestic companies that will be awarded Tier 1, Tier 2 and Tier 3 contracts. PHOTO | FILE

What you need to know:

  • The approved contracts follow the launch of oil projects in April 2021 that paved the way for licensed oil companies including Total Energies, and CNOOC to conclude the procurement process and grant contracts for the Tilenga and Kingfisher projects. 

The Petroleum Authority of Uganda, the key regulator of Uganda’s oil and gas resources,  is finalising the approval of contracts worth $6 billion (Shs21 trillion) for over 40 work packages, and contracts for the Tilenga, Kingfisher and the East African Crude Oil Pipeline (EACOP) projects that have been submitted by several licensees to the Authority. 

The oil regulator made the announcement yesterday during the launch of a performance review of the oil and gas sector for 2020/ 2021, and the outlook for 2022. 

So far, the Authority has approved the total budgets for licensees for the two previous years, which were $180 million (Shs630 billion) for January to December in 2020, $500 million (Shs1.7 trillion) for January to December 2021. It is expected that $3 billion (Shs10 trillion) will be approved in 2022.  

Oil projects

The approved contracts follow the launch of oil projects in April 2021 that paved the way for licensed oil companies including Total Energies, and CNOOC Uganda to conclude the procurement process and grant contracts for the Tilenga and Kingfisher projects. 

The Tilenga project’s main Engineering and Procurement Supply and Construction and Commissioning (EPSCC) was awarded to the consortium of McDermott and Sinopec which have commenced work.  In addition, 10 other contracts were awarded for drilling and management of services. 

Mr Ernest Rubondo, the executive director at the Petroleum Authority attributed the growth in investment in the sector to a significant increase in the activities in the sector. 

 Rubondo said, in terms of macro economic benefits, Uganda’s Gross Domestic Product estimated at over $37 billion (Shs130 trillion) in the financial year of 2020/2021 will be significantly enhanced by the massive contracts and investments through linkages between oil and gas, and other sectors 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 gross domestic product by 22 percent in the next three to fouryears of the construction phase,” Mr Rubondo said.  

The oil and gas investments come at the backdrop of a Bank of Uganda projected economic outlook for 2022 showing a 3.5 -3.8 percent economic growth in the first half of 2022 hinged upon oil and gas investments. 

The conclusion in signing of key oil and gas agreements in April last year opened up opportunities with international oil companies setting ground for work. The significant investment that was unlocked into Uganda’s economy includes the implementation of the Tilenga Project in Buliisa and Nwoya districts with approximately US$4 billion (Shs14 trillion); the Kingfisher Project in Hoima and Kikuube Districts at US$1.5 billion (Shs5 trillion). 

The East African Crude Oil Pipeline (EACOP) that will cross the ten districts of Hoima, Kikuube, Kakumiro, Kyankwanzi, Gomba, Mubende, Lwengo, Sembabule, Kyotera and Rakai in Uganda valued at US$3.6 billion (Shs12 trillion). 

This is in addition to the government investing in the required support infrastructure, including Hoima International Airport and 700 kilometres of oil roads. 

It is expected that the flow of oil money into the economy from foreign and domestic companies will be 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 condition 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. 

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. 

It is expected Tier 1 companies have 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. 

 So far, Ugandans have provided goods and services worth US$ 1 billion out of the total investment into the sector of $3.7 billion as at the end of 2021 with over 330 Ugandan companies involved. 

Rubondo noted that the Authority is currently measuring Ugandan entities participation, and efforts are being made to increase the current partipation from 28 percent to 40 percent during the development phase whose investment is expected between $15 -$20 billion.  

Local companies involvement        

So far, Ugandans have provided goods and services worth US$ 1 billion out of the total investment into the sector of $3.7 billion as at the end of 2021 with over 330 Ugandan companies involved. 

Rubondo noted that the Authority is currently measuring Ugandan entities participation, and efforts are being made to increase the current partipation from 28 percent to 40 percent during the development phase whose investment is expected between $15 -$20 billion. 

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