Ugandan firms eye contracts as first oil approaches

After years of delay, multinational oil development in Uganda looks set to go ahead, but will local suppliers be able to reap a fair share of the business?

| LIAM TAYLOR | In the 1990s Edward Kabuchu and his brother were mining tungsten in western Uganda when they were approached by a foreign company looking for oil in the region.

Soon their own business, MSL Logistics, was providing the logistical underpinning of oil exploration in Uganda: bringing in fleets of vehicles along rutted roads, recruiting local workers, and organising camps which moved around with the prospectors.

“We’ve grown with the industry,” says Kabuchu in his expansive office in Kampala.

Kabuchu was understandably excited on 11 April when the Ugandan president Yoweri Museveni signed three milestone oil agreements with his Tanzanian counterpart, Samia Suluhu Hassan. After several years of stasis, the main construction phase of the project now seems just around the corner.

“The decision could not come any sooner,” says Kabuchu, who is currently discussing contracts with the oil companies. “The next seven to eight years are going to be good.”

Over the next few decades the French oil company Total and the China National Offshore Oil Corporation (CNOOC) plan to extract more than a billion barrels of commercially recoverable oil from the Lake Albert region of western Uganda.

The long-awaited development, including construction of a 1,443km pipeline to the Tanzanian coast, is set to begin this year, with first oil expected in 2025.

The project will bring $15bn of investment into Uganda, a country with a GDP of $38bn in 2020. The government says that over $4bn of that money will flow into the coffers of Ugandan companies, supplying everything from construction materials and transport to legal services and food.

But the oil industry – technical, specialised, and capital-intensive – has a track record of operating in enclaves, extracting resources without building strong linkages to local economies. Can Uganda succeed where other countries have failed?

Promoting local content

It has been a long, slow road to oil development since commercial reserves were first discovered in 2006. The Ugandan government and oil companies have repeatedly disagreed over tax issues and the construction of a refinery – a symbol of the “resource nationalist” approach which characterised Museveni’s negotiating position.

The same nationalist rhetoric motivates a slew of laws and regulations which try to promote local content in the oil industry. Oil companies must submit plans outlining how they will employ Ugandans, procure local goods and services and transfer technology.

They can only use contractors who are registered on the National Supplier Database. They must give first consideration to goods and services produced in Uganda by Ugandan companies, and 16 categories have been ring-fenced for Ugandan suppliers.

The results so far have been mixed. During exploration between 2010 and 2013, as regulations were still being drawn up, about 28% of oil companies’ procurement came from Ugandan providers.

Ahead of the next phase of development Total and CNOOC have presented contracts worth nearly $1.4bn to the regulator, of which $167m goes directly to Ugandan companies (though others may benefit as sub-contractors).

Behind those statistics is a debate about what counts as a “Ugandan company”. The regulations classify a business as Ugandan if it is incorporated in Uganda, adds value in the country, uses local raw materials and employs Ugandans as at least 70% of its workforce.

“The definition looks at the value you’re creating in the country,” says Gloria Sebikari, a spokesperson for the Petroleum Authority of Uganda (PAU), which regulates the industry. “Ownership may be important, but it should not be the only parameter that defines a Ugandan company.”

But Julius Byaruhanga, a researcher at the Catholic University of Leuven and lecturer at Uganda Christian University, worries that the approach could backfire.

“A number of multinational companies are coming here, registering as Ugandan companies, employing 70% of Ugandans – but they are truck drivers, they are cleaners, those very low-paid positions – and they end up qualifying to be local,” he says.

He adds that those Ugandan-owned companies which have won contracts tend to be part of an “insider network”, either with political connections or long-established relationships with the oil companies.