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Oil: Can local companies measure up to standards?

More foreigners are increasingly coming to Uganda to set up companies, which pass off as local, in an attempt to enjoy the benefits of the oil industry, writes SADAB KITATTA KAAYA.

While it is perfectly legal for foreign firms to set up different local business entities, with local shareholding, it raises the issue of whether indigenous Ugandans will exploit the opportunities in the oil industry. 

According to figures from the Petroleum Authority of Uganda (PAU), the body which requires any service provider targeting the oil and gas industry to be listed on the national supplier database, at least 28 per cent of the companies listed are local. 

However, the parameters of what would define a company to be local remain a source of debate. According to the national content policy, a Ugandan company in the sector is one with at least 50 per cent of Ugandan citizens at managerial level, provides value addition to Uganda, uses available local raw materials, and employs at least 70 per cent Ugandans. 

But sector players question this description of a Ugandan company because it is not about ownership but incorporation, which means that foreign nationals can incorporate companies locally and do business with oil companies under the national content policy. 

“Many people come to Uganda and incorporate companies which are the ones that are getting contracts that would have been taken up by companies owned by indigenous people. As a result, not many indigenous people are benefitting,” says Bashir Twesigye, a lawyer with Civic Response on Environment and Development (CRED), an organization working with local communities in the Albertine grabben.  

A quick search about some of the companies listed on the national suppliers’ database confirms Twesigye’s assertion. Several companies that are listed in the national suppliers’ database appear as Ugandan companies but their websites show that their incorporation is in Europe and the USA which defeats the intent of the law. 

“The policy should be beneficial to an average Ugandan, better still, its implementation should be tailored to benefit the local people, say in Buliisa, who are affected by the negative impacts of the exploration of oil,” Twesigye said. 

AUDIT

In the Auditor General’s value for money audit of 2017 on national content, out of the $133 million (Shs 485.4bn) spent on contracts, purchase orders and call offs, 28 per cent were undertaken by Ugandan companies. These were in the areas of legal services, freight forwarding and customs clearance, waste collection services, catering services, survey and some engineering services, among others.

Records at the Petroleum Authority of Uganda (PAU) show that out of the 1,712 companies that were registered in 2018 on the national suppliers’ database, 716 are foreign companies while 996 are Ugandan registered entities.

While 28 per cent participation of Ugandan companies is a positive development as compared to the past, it is still a long way from government meeting its target of local players being in control of the sector. The law requires that “The licensee, its contractors and subcontractors shall give preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies.” 

Some experts in the sector say that because of the nascent nature of the industry, very few local companies have the capacity to meet the demands and standards in the oil industry.

“The private sector in Uganda is young. The Ugandan private sector is hopeful the local content in the country’s nascent oil and gas industry will deliver important capacity building opportunities to benefit the people of Uganda and Ugandan companies,” noted Nelson Ofwono, a principal consultant on local content and economic development at Africa Services Group Ltd, in an article for Global Local Content Council (GLCC).

The result of this, Ofwono notes, has been the slowing down of oil and gas activities. Oil and gas companies are now mainly adhering to the local content requirements through their procurement of goods and services. The easier way is for the local players in the sector to form consortiums in order to complete lest they lose business to foreign companies which have the financial muscle to invest.

“We are encouraging our members to form joint ventures with well-established companies in order to build the required capacity,” Denis Kamurasi, the chairperson of the Association of Uganda Oil and Gas Service Providers, told The Observer.

One of the first groups to respond to the call is Uganda Insurers Association (UIA) with the formation of the Oil & Gas Co-Insurance Syndicate, a consortium of 14 Ugandan registered companies that are targeting the high-risk liabilities, heavy intensive machinery, and the East African Crude Oil Pipeline, among others.

“Oil and gas is capital-intensive. There are very few Ugandan players who have the muscle to take on oil and gas contracts because the equipment involved is very costly and the standards are so high,” says Maggie Lukowe, the spokesperson of the Oil & Gas Co-Insurance Syndicate. 

Ernest Rubondo, the PAU chief executive officer, in a statement published on the authority’s website, is optimistic that the numbers will grow as Ugandans build more capacity.

“We hope there will be a marked improvement as we strive to achieve the goal of the local content policy for Uganda’s oil and gas sector which is “to increase the participation of Ugandan citizens and enterprises in the oil and gas industry in Uganda from the current 28 per cent to 80 per cent local content by 2040,” Rubondo said.

It is estimated that during the peak period of field development, construction of the oil refinery and pipeline, the workforce requirement will be 161,700 jobs of which, about 14,000 will be direct jobs while 42,700 will be indirect and 105,000 induced jobs.

Twesigye argues that the policy ought to be revisited to take into consideration the burden borne by the communities within the exploration areas, whom he says should be the first beneficiaries when it comes to jobs and provision of other services. Kamurasi does not agree with this.

 “While we support and encourage local content, we have to be cognizant of the fact that this is an area that requires a lot of capital and expertise because at the end of the day, we don’t want to compromise on the quality of service you are rendering to the oil companies,” Kamurasi said.

Under the Petroleum (Exploration, Development and Production) Act, government ring-fenced about 15 services under the local content policy, which are reserved for local companies. These include catering services, supply of building materials, security services, consultancy, training, ICT, transport and logistics, and clearing and forwarding, among others.

sadabkk@observer.ug

This article is produced with support from Centre for Policy Analysis (CEPA). 

Comments   

-1 #1 Akot 2018-11-08 19:03
How can Ugandans exploit, benefit from oil or any other resources, when the country doen't belong to them & they have no control nor say on anything?

Is it not time Ugandans wake up & join the living world?

China... control S.Sudan oil, but refugees from there are coming to Uganda for better life bacause there is no people's government to ensure they benefit from it, just as it is in Uganda under Museveni!

For how much long will Ugandans sleep & not see what's going on?
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