The Independent Uganda: You get the Truth we Pay the Price
Ugandan firms in fight against foreigners
Uganda’s nascent oil and gas sector is entering an intense three-year development phase, or what everyone is calling phase II since it follows phase one of exploration. As excitement builds, so does anxiety.
“I hope to approach this phase differently. It is much bigger than the exploration phase in which most of us were merely speculating,”says Ben Mugasha, one of the top local logistics magnets, “My business plan is ready.”
Mugasha, who is commonly known by his company’s name Bemuga – fromBemuga Forwarders Ltd, explains that while oil companies spent about US$3.5 billion in the exploration phase, local companies only got an estimated 28 percent of that. This time, he says, up to US$25 billion is to be spent and local players like him want a bigger percentage.
“As locals we will have done well if we manage to get at least 30 percent of that,” Bemuga says in his optimistic voice. Then he adds the reality voice: “But to achieve this, we need to be looking for partnerships with those who have capacity.”
Under the development phase, Uganda aims to develop a US$3.5 billion crude pipeline and a US$4 billion oil refinery. It also aims to construct over 15 oil roads, an airport, and a web of pipeline for finished products in Uganda.
The country hopes to pump first oil in 2020 and, since August last year, the government has issued eight production Licences to Tullow Oil and Total E&P. The licensees are already carrying out Front End Engineering Designs (FEED) for an estimated US$ 8-10 billion.
Up to 60 percent of the estimated funds, experts in the logistics industry say, is to be spent on logistics of procurement and transportation of materials which is Bemuga turf. But he says it will be tough going it alone without partners.All players, he says, from banks, insurance companies, to the logistics sector, need to pool resources if they are to stand any chance of getting the big business on offer. According to him, locals alone cannot mobilise the required expertise, human resource, and capital required for the new business.
Unfortunately, he says, only the 17 insurance companies have managed to form an SPV – what they are calling the Oil & Gas Syndicate – to underwrite the oil and gas investments.
Fat meats and low fruit
To prep local companies for the big deals, the Uganda Chamber of Mines and Petroleum (UCMP), which brings sector players together, recently organised an Expo at which ideas were shared. Bemuga’s joint venture idea featured prominently but it met many doubters. Many were distrustful and Bemuga mainly sought to reassure them. To avoid mistrust, he noted, local companies need to learn the art of collaboration.
“It is high time local companies went legal; by using the pen, paper, and computer. This is business and it is about competition and nothing comes on a silver plate,” he said.
Bemuga is one of the biggest players in the logistics area of Uganda’s oil sector. He owns trucks, tankers, crane loaders and other earth moving, drilling, and hauling equipment.He says he plans to acquire new and much more specialised equipment as the development phase gets underway. When he says, finally, that local players are not equipped to service the next phase of the oil industry, he possibly knows his business.
Already, Total has formed a private limited liability company, Total East Africa Midstream B.V. (TEAM) to handle its East African Crude Pipeline project.
The clock is ticking. The companies will publish an Engineering, Procurement, and Construction(EPC) package in the third quarter and expect to make their final investment decision by the end of 2017, according to Martin Krzewski, Total E&P Uganda’s business and development manager.
In a recent bid, it set minimum requirements for participants in its Pipeline Engineering, Procurement, and Construction Management (EPcm) services, includingthe bidder to have “experience” in performing of similar services in the home country. No Ugandan firm has that.
EllyKaruhanga, the UCMP chairman, agrees with Bemuga on partnerships as the way forward for local companies. He says the time frame of three years is too short for locals to gain capacity to go it alone.
“Focus should be on attracting investors to come into the country so both them and the local business community can make money,” he says.
Nathan Kagere, the supply chain manager at Tullow Oil, who recently advised local companies on strategy divides the deals into the “fat meats’ and the “low hanging fruit”. He advises locals to go for the latter; in transport and logistics, warehousing, civil works, waste management, fabrication, catering and provision of labour.
