New Vision (Kampala)

5 February 2013

Uganda: Oil Companies Sideline Local Businesses

Ugandan service providers are losing out on deals they had initially won from Tullow Oil in favour of foreign firms, New Vision has exclusively established. This implies that Uganda will pay more in recoverable costs since more money now goes to foreign firms.

New Vision has seen e-mail correspondences, where Tullow Oil officials prefer foreign firms to local ones, although they give no justification. The recoverable costs that now stand at over $1b (over sh2.67 trillion) were at $800m (sh2.1 trillion) as of June 2011. Uganda will start paying the recoverable costs once oil production starts.

Companies like Bemuga and Three Ways won contracts to supply trucks, but the volumes have been cut down in favour of foreign firms. Bemuga and Three Ways officials acknowledged that their companies were involved in service provision for oil exploration, but declined to give details.

New Vision also found out that Tullow Oil signed confidential contracts with local firms, which bar the companies from sharing information with a third party. "Through such contracts, they (Tullow) are able to control and exploit local firms,"

revealed a source. Some local firms secured loans from banks to procure equipment, while others entered joint ventures with foreign firms, but have since lost out.

Tullow Oil's managing director Jimmy Mugerwa and human resource head Abdul Kibuuka declined to comment despite several attempts to reach them.

Service providers unite

As a result of losing contracts, local firms have formed an umbrella association, the Alliance of Indigenous Oil Services Companies, to voice their concerns. The members are Bemuga Forwarders, Eagle Air Uganda, Globe Trotters, Three Ways Shipping Services Group, Quantum Associates, Intercar (trading as Europcar) and Richflo Lift Services. Officials said local firms were being kicked out, but would not go on record, fearing victimisation.

Some of the foreign firms competing with local ones are Strategic Logistics, East African Cranes and Specialised Welding Services, whose directors are British nationals Paul Sherwen and Jerry Burley, according to copies of their annual returns. Sherwen and Jerry were also directors in BMS Minerals, alongside former Tullow Managing director, John Morley.

A French firm, Ortec Group, has since bought 70% shareholding in all the three companies and recruited Joshua Tuhumwire, a former employee of the department of geology and mines, as nonexecutive director. Another British firm, Equator Catering Services, whose directors Charles Case and Peter Bowser are also Britons, is also giving various services to Tullow. But all the money these firms earn is to be recovered from the Government once oil starts flowing.

Recoverable costs trend

According to the Auditor General's findings published early last year, Hardman petroleum resources, which was bought by Tullow, generated $39,208,492 (sh104.6b) between September 8, 2004 and October 31, 2006. Tullow itself generated $239,158,459 (over sh638.5b) since it took over on October 31, 2006 to December 31, 2008.

In total, the oil companies generated $492,544,876 (sh1.3 trillion) between 2001 and 2008. By June 2011, over $800m (about sh2.1 trillion) had accumulated as recoverable costs. It is currently estimated at over $1b (sh2.67 trillion)and this, among others, included sh8b annual salaries to Tullow expert staff, $2.8m for training local capacity and sh16m for hiring an HIV/AIDS country expert.

Insider trading

There are also reports that some Tullow officials engage in inside trading with foreign firms to avoid losses. A report by audit firm Ernst & Young implicated Jeremy's company, BMS Minerals now Strategic Logistics, in insider trading. He was running the firm with former Tullow boss Morley.

The audit firm divulged the information in a 74-page report to the energy ministry in April 2009. The five-year audit covered the period October 2001 - October 2006. It said Ugandans risked paying highly, since Tullow did not use the recommended competitive procurement process and entrusted a lot of services to BMS Minerals. Jerry was also implicated in a markets-abuse scandal, over leaking information on Ugandan oil in London by UK's Financial Services Authority (FSA).

According to FSA, Jerry Burley, the managing director of Strategic Logistics, gave his father (Jeffrey Burley) information about Uganda's grim oil prospects in 2009. This resulted into his father selling Jeremy's shares in Tower Resources Plc, a UKbased company to avoid a loss because the share price was expected to fall.

According to FSA, Jeremy escaped a loss of £21,700 as a result of insider trading. This action was tantamount to flouting the London Stock Exchange regulations, for which FSA fined the Burleys £50,000 (sh212.5m). The Burleys had admitted to the offence earlier and so FSA reduced the fine by 30% (£15,000). They ended up paying £35,000 (sh148.7m). New Vision has learnt that the implicated former managing director (Morley) was thereafter transferred to Kenya.

Drivers sacked

Meanwhile, Tullow has fired 17 drivers and replaced them with expatriates after a test conducted by On Course Driving School at Kajjansi, owned by Mick Farmer.

The Inspectorate of Vehicles in Naguru is the only authorised testing centre. The law requires driving schools to train drivers and refer them to the inspectorate for testing before they get driving permits. The affected drivers said they had been trained by Prestige driving school and got certificates and permits, which Tullow ignored.

New Vision has also established that foreign firms get more money than what local firms get for similar jobs. For instance, Tullow hired five land cruisers from Strategic Logistics at $4,200 (sh11.2m) and $1,800 (sh4.8m), if they were on standby (not used) per month. On the other hand, Ugandan firms were paid $1,400 (about sh3.7m) and $1,000 (sh2.67m) for standby vehicles, according to documents.

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