The Independent Uganda: You get the Truth we Pay the Price
26 services ring-fenced
Even the government appears determined to ensure that local companies are not locked out of all deals. However, it is approaching the business pragmatically by letting local companies handle bits they possibly have capacity for and seeking partnerships for others.
“I would want Ugandans to take full advantage of these opportunities and make clean money,” says Irene Muloni, the Minister of Energy and Mineral Development. She says whereas a local company may feel inadequate, it can partner with other companies which have the resources as long as rules of joint venture partnerships are respected.
According to Karuhanga, the government has ring-fenced up to 26 services as local content development areas, which is a major opportunity for locals.
Ernest Rubondo, the executive director of the Petroleum Authority of Uganda (PAU), says as the sector regulator, they have established a national oil and gas sector suppliers’ database for efficient procurement.
As of April 26, he says, 406 companies had applied for listing in the database with 220 being Ugandan companies and 186 being international companies.
He says PAU is working with Ugandan institutions to vet local companies and the embassies abroad for international companies.
He said that the database will enhance transparency and also provide a one-stop procurement centre.
“You don’t want that $20b to just pass by with little participation of Ugandans,” he says, “Ugandans being employed and Ugandan enterprises providing goods and services; that’s what you want to achieve.”
Such shifts in attitude and approach are a major break from the last five years starting 2011, when companies like Bemuga’s lost business and incurred huge losses.
Many had borrowed heavily and invested in equipment because in 2011, as now, there was a positive buzz around the oil business and it was anticipated that the development phase was just months away.
Instead, endless disagreements between the oil companies and the government over the refinery, taxes, the absence of requisite laws, the fall in the global oil prices and the delay by government to approve field development plans and offer companies production licenses, meant that the development phase had to be held for years.
Some local companies, including Three Ways Shipping, which was once touted as the poster child of the oil sector, almost went under receivership and lost creditworthiness.
Jeff Baitwa, the managing director of Three Ways Shipping, said back then it would be hard for them to get credit from the banks. Now, as oil companies are looking to move quickly to gain lost time, Baitwa says suppliers that will be ready would most likely be foreign companies.
But Emmanuel Mugarura, the chief executive officer of the Association of Uganda Oil and Gas Service Providers, says local suppliers are rising to the occasion again.
“Some suppliers have started getting contracts and by the time the year ends a good number will have got,” Mugarura says.
But if they are going to even merely “scratch the elephant”, Mugarura says, the suppliers will need to keep building capacity because the coming contracts will be 20 times bigger than they were getting before.
Philip Gill, the Chief Executive Officer of Kampala Executive Aviation (KEA), is one of those who are already getting deals. He told The Independent on May 18 that the oil and gas sector is very demanding on standards. KEA has over the last three years offered services to the three oil companies involved in Uganda’s oil industry—Tullow, Total and CNOOC, and Gill spoke about the experience.
“Besides the actual aircraft operations, safety and quality management; you have to consistently measure quality and operations performance,” he says.
To explain how the next phase might even be tougher, a source at one of the oil companies said that during the exploration phase, the biggest project required transporting 120 to 200 truckloads of equipment and paid about $ 1 million, most of the contracts averaged $500,000.
“Not small money by Ugandan standards but for all the planned projects going forward,” the oil executive said, “we estimate that we will need 350 – 400 truckloads of equipment every day.”
Mathew Ntanyungura, the operations manager at logistics firm, TransEast Uganda, told The Independent on May 15 that trucks could take an average of seven days hauling equipment and materials from the Indian Ocean ports to the Albertine region. So do the logistics firms have what it takes to tap into the upcoming opportunities? Ntanyungura says companies whose trucks make up about 30% of the existing fleet are ready because they meet the conformity standards in the oil and gas sector.
His company has been involved in the oil and gas sector in Kenya (Tullow Oil) and the Standard Gauge Railway.
Another sector player put the estimates at 1000 truckloads. According to this official, while Tullow, CNOOC, and Total E&P will be embarking on the development phase, some other companies will be exploring for more oil.
“In the past, 120 wells were drilled,” the executive said, “now 700 wells are planned. Do the math for yourself.”
Commenting about the locals’ readiness, the oil executive noted that over the years, a campaign to promote local content has already borne fruits. “Many local suppliers are now more knowledgeable and many more now contact us,” he said, “At that level, one can even say that more than 50 percent of Ugandan companies are ready.”
However, he added, when it comes to technical and financial requirements, the local companies will need to do more.
“Companies, which have been under financial stress,” he said, “need to fix their relationships with banks and their internal workings to meet the strict oil and gas standards in health and safety certification of their teams.”
And this is where the fears linger. “In non-specialised fields, we are competitive enough,” Mugarura said, “for the specialised, however, we still have a long way to go, and since government has set the date for production as 2020, it means the industry will go with those who are ready, most of which are not local companies.”
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