A tour of Uganda’s oilfields

Lessons for Uganda’s policy-makers from the experience of her oil industry

THE LAST WORD | Andrew M. Mwenda | I spent this week in Hoima (Kingfisher) and Bulisa-Bugungu visiting construction works on oil rigs and central processing facilities in the Albertine Graben. I was greatly impressed by the work that Petroleum Authority Uganda (PAU) has done in ensuring local content. On nearly all works, Ugandans are playing an important role. This runs across the board; from firms that are providing services to oil engineers managing and supervising the construction works. Given that Uganda is a new country in the oil production business, the fact that we have this many engineers in this new sector is impressive.

Uganda’s oil sector is therefore an island in a large sea of our “give-everything-to-foreigners” policy we have pursued for the last 30 years. It was a process made possible by runaway privatisation and liberalisation. These reforms were carried out without regard (and I mean no regard at all) for national ownership and participation in our economy. As a consequence, the commanding (even no commanding) heights of our economy are all (today) largely owned by multinational capital. I shall return to the negative effects of this policy later in this article.

Uganda today is spending billions of dollars building dams, roads, railways, streets, bridges, etc. After nearly 40 years of NRM rule, it is hard to find a serious local firm bidding for these works. Most of these firms were killed by liberalisation. How? By opening up competition when they were young, multinational capital simply destroyed many of them. The growth of very many others was stifled by the dominance of multinational capital – with its deep financial pockets, long experience, economies of scale, more developed technologies and access to cheap finance.

Look at telecommunications, banking, manufacturing, and you can only find a handful of Ugandan participants. The result has been that multinational capital and other foreigners own the firms and Ugandans serve them. Thus, our economy retains its structure at independence – an economy owned and controlled by multinational capital. It is thus an economy designed by and for multinational capital. The whole idea of independence was not to put black faces in government and retain the entire colonial structure intact. Rather it was to wean the economy from foreign control. Only then would Ugandans become participants as productive agents.

The Uganda government has since realised this mistake and adopted a policy called Buy Uganda, Build Uganda or BUBU. However, the ideological, institutional and bureaucratic structure of the state still favours foreigners. This has made BUBU a nice sounding phrase but found little traction in government procurement. Why? Because at the ideological level many Ugandans in politics, bureaucracy, civil society, academia, intellectuals etc. believe that there should be no deliberate state policy of favouring local firms and citizens to play a major role in the economy.

This has had dire consequences. First, bureaucrats in government design procurement rules deliberately to exclude local firms from bidding. For instance, there was a small dam worth $40 million in Isingiro. Officials in the ministry of water designed procurement rules stating that to bid, a company should have built a damn with more than 500,000 metric tons of concrete. Only Karuma Dam in Uganda has used that volume of concrete. But the trick behind this requirement was clear: to exclude local firms. Only Chinese and Indian firms put in bids and won.

Another example is Kampala City roads. Africa Development Bank lent Uganda $320 million to do major roads in the city. KCCA officials colluded with ADB officials to put in a requirement that bidders should have built a minimum of 7,000km of tarmac. The whole of Uganda has only about 6,000km. How does one expect any Ugandan firm to have such experience? Yet most of the roads in the city are less than 2km. Some of them were 800 meters long. The roundabout at Mukwano is only 300 meters. No Ugandan firm even dared put in a bid and all the contracts were taken by Chinese.

This brings us back to Uganda’s oil. How government of Uganda structured the oil industry is in stark contrast to how is has structured the rest of the Ugandan economy. First, President Yoweri Museveni personally helped create and train a team of highly specialised experts in the field. Second, he provided political protection of this team from the wheeler dealers who dominate our system. The consequence of these two decisions was the cultivation of an oil sector bureaucracy that enjoys the confidence of the president, have a strong esprit de corps, are highly motivated, imbued with a high sense of national purpose and are incorruptible.

Once in place, this team was able to develop a national oil policy that reflects the best practices in the world. They have also been able to negotiate some of the best Production Sharing Agreements (PSAs) in the world. While for new oil producing countries their share of oil revenues can be as low at 48%, and the average for mature oil producing countries 70%, Uganda’s share is 78%. It is this team that has also been successful at ensuring that Ugandan participation in the oil sector (local content) is rigorously enforced. It has also ensured the costs by the multinational companies going to drill and transport out oil are kept in check.

Of course, Uganda could not avoid the consequences of liberalisation that destroyed local firms. Thus, the major roads-works in the Albertine Graben are being done by the big multinationals. And why are Ugandan firms not participating here? Well because the agency handling roads is UNRA, which does not believe in local content. In fact, UNRA has no policy to encourage multinational corporations, which take all her contracts, to transfer skills and technology to local firms. This could have been done by ensuring that multinational firms bidding for road-works in Uganda subcontract a minimum of 30% of the works to local firms.

PAU, on the other hand, has made it a policy that multinational firms providing services to Uganda must demonstrate local participation. A company gets evaluated better if it has a local partner in a joint venture, if it has a plan to train Ugandans to take over the roles of experts within two years, and if it plans to subcontract major works to local firms. Now that it has worked in oil, government of Uganda needs to think of how to transfer this to the wider economy. I hope someone somewhere in government is reading and listening.

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amwenda@independent.co.ug