National content in oil industry matters

Elison Karuhanga

What you need to know:

“There is still a long way to go but fortunately, we have started the journey.” 

National content is a concept that seeks to retain the value that a certain section of the economy brings, beyond the direct revenues generated by the specific industry. Uganda discovered oil in 2006 and explored for oil until 2017. In the process, oil companies were bought and sold until project partners Total Energies and CNOOC remained. These oil companies have been instrumental in accelerating developments and driving growth across the entire value chain.

During the exploration phase from 2006 to 2017 oil companies spent well in excess of $3b trying to find oil. This year alone, the oil majors will spend $3b, an equivalent of what was spent during a decade of oil exploration. It is estimated that by 2025, $10b will have been invested in developing the oil fields. This is exclusive of the cost of the East African Crude Oil Pipeline (EACOP), an estimated $3.5b, and the cost of the refinery. For Uganda to be the true beneficiary of this huge investment, it is important that a lot of this money remains in our economy through businesses supplying goods and services.

Earlier this week, Petroleum Authority of Uganda (PAU), the body charged by law with regulating the oil industry, held a successful informative national content conference in Kampala. The purpose of the conference was for oil companies to declare and explain the opportunities available for local businesses.

Oil companies and their major subcontractors, explained the steps being taken to integrate local business in the petroleum value chain. PAU also shed some light on the ground rules; any Ugandan company that wishes to benefit from contracts should be registered on what is called the national supplier database (NSD) which can be accessed from the PAU website.

Under the laws of Uganda, only Ugandan companies can be contracted for some of the services e.g. crane hire, security, clearing and forwarding, civil works. A total of 16 services have been ring-fenced to ensure preferential local subcontracting for goods and services.

There are examples around the world of the dangers of not prioritising national content. Recently, award-winning journalist Christina Lamb described the aftermath of a British army camp in Afghanistan that was constructed on barren land where there had been nothing more than a camel path, “Over the years, like the war, it had been expanded and expanded to become Britain’s biggest overseas camp since World War II, the first billion-pound base. At its height it housed more than 30,000 people with a coffee bar, Pizza Hut, Kentucky Fried Chicken, three gyms, state-of-the-art hospital and even a water-bottling plant producing 15,000 gallons of bastion water a day. The camp’s three canteens had served a hundred million meals since 2006, getting through 66,500 eggs a week and 6,000 tubs of ice cream, all flown in. Its airfield saw so many flights a day – six or seven hundred, from jumbo jets to unmanned reapers – that it had become Britain’s third busiest airport. Now everything had been packed up. Five thousand five hundred shipping containers had gone back, mostly by air. The hospital, the air-conditioning units, the Naafi shop, the water-bottling plant had all gone, as had the tented camps, one of them ending up sheltering refugees in a new war in Iraq.”

In other words, they found a camel path when they arrived and left a camel path behind. It was the same, if not worse, in other parts of Afghanistan. The only sector which seems to have been strengthened in those years was the sector involved in public advocacy; outfits similar to the #StopEACOP brigade here.

Uganda is different. There is still a long way to go but fortunately, we have started the journey. While a large chunk of the oil revenues will be going to government, a number of industries will develop around the refinery: roads, and an airport are already being built in the project area.

There can be no gainsaying the fact that local businesses must retain value throughout the lifecycle of the project. The ultimate aim is to ensure that the oil helps bring about social economic transformation. Of course, the value-add from national content will not be overnight, however, the long-term advantages of the empowerment of a generation to participate directly in Uganda’s wealth are well worth pursuing.

The writer is an advocate and partner at Kampala Associated Advocates