The Observer (Kampala)

Uganda: Local Content - Uganda's Mixed Bag of Oil Fortune

Early this month, Tullow Uganda awarded a contract to Supreme group, a British catering company with a global footprint, to provide catering services to Tullow's camps in the Albertine graben. The contract took effect on December 1, 2013.

Supreme group took over from Equator catering services, a company owned by two foreign nationals, Peter Bowser and Charles Case, which had been providing catering services to oil companies operating in western Uganda. While Tullow Uganda has a right to contract any service provider, this particular contract has raised concern among local service providers, with many arguing it is against the provisions of the petroleum laws.

Section 125 of the Petroleum (Exploration, Development and Production) Act, 2013 compels a licensee like Tullow, its contractors and subcontractors, to give preference to goods and services that are produced or available in Uganda and rendered by Ugandan citizens or companies.

It further provides that in case the goods and services required are not available in Uganda, they shall be provided by a company that has entered into a joint venture with a Ugandan company. The local company should have a share holding of at least 48 per cent in the joint venture.

Peter Magelah Gwayaka, a lawyer and researcher at a policy think tank, Advocates Coalition for Development and Environment (ACODE), says by contracting Supreme group, Tullow violated section 125 of the upstream act.

"Did it [Supreme group] enter into a joint venture with a Ugandan company as the law requires? If not, it is clearly against express provisions and the spirit of the petroleum acts," he argues.

Gwayaka said Tullow's action was one of the examples which show that some national content provisions in the petroleum laws may remain on paper and never be implemented. While Conrad Nkutu, the corporate affairs manager at Tullow Uganda, confirms that Supreme group is foreign, he disagrees with Gwayaka. He argues that Ugandans should not look so much at the ownership of the company, but the jobs the company will create and the goods and services it intends to procure.

Nkutu says the tendering process was transparent.

"The company doesn't only provide catering, it runs the camp like a four-star hotel. It does laundry, cleaning, spraying and others," he said.

He stressed that many Ugandan companies fall short of the required industry standards, safety and practices. Nkutu argues that sacrificing a well-run camp at the altar of offering contracts to local firms that do not measure up can be costly.

For instance, in the last one year, two French expatriates have died of suspected malaria due to lack of adequate spraying of mosquitoes in the camps, according to our sources.

Nkutu also said local companies are too expensive.

"If a Ugandan company is three times more expensive than a foreign company, of course we shall give it [contract] to a foreigner, because this is a recoverable cost and we have a budget within which we operate in," he explained.

Dennis Kamurasi, the vice chairperson Oil and Gas Service Providers Association, disagrees.

"Why do we have foreign companies in catering, or spraying mosquitoes? Aren't there Ugandan companies that can do this?" he asks.

Kamurasi proposes that in the regulations, certain goods and services should be ring-fenced for only Ugandan citizens and companies. Otherwise, multinational oil companies will continue to circumvent the law under the guise of 'quality and industry practice,' he said.

Kamurasi's 'ring-fencing' proposal has worked in Ghana, which discovered oil in 2007 and kicked off production 40 months later. The country's local content regulations 2013 ring-fence services such as catering, cleaning and laundry, security, legal, medical, waste management, freight forwarding and logistics and transportation services, to be exclusively provided by Ghanaian citizens or companies.

Kamurasi warns that if Uganda's laws are not tweaked to look like that of countries like Ghana, foreign companies will keep dominating the sector, something that might lead to capital flight, job losses and ultimately bring less benefits to Ugandans.

Betty Namubiru, the national content and capacity building officer at the Petroleum Exploration and Production department (PEPD), says that her ministry is drafting regulations that will effect local content provisions in the laws.

"We want to see how the 48 per cent joint venture and other national content and participation provisions in the law will be implemented. In particular, goods and services will be ring-fenced for Ugandan citizens and companies," she said.

Without the regulations, it is hard to accuse Tullow of committing any crime.

"The details of who is to implement the broad provisions of the law will be in the regulations, which we are trying to develop. So, the regulations are going to unpack the law and provide for sanctions for non-compliance," Namubiru explained.

Namubiru said oil companies had often complained that local firms lacked the capacity. There are many cases where local companies have failed to adhere to industry standards and practices. For instance, recently, Kibibu Engineering Company Limited, a local company, was sub-contracted by Kolin construction, a Turkish firm constructing the Hoima-Kaiso-Tonya road, to build drainage channels for the road.

However, a few weeks after the company had started work, its staff, mainly casual workers, went on strike over non-payment of their wages. Work was brought to a standstill and consequently Kolin cancelled the contract for failure to deliver.

Also, in July, Tullow Uganda contracted Saracen to transport truckloads of waste from Buliisa to Nakasongola waste disposal facility. In turn, Saracen sub-contracted a local company Lamu Peter and Sons Ltd. However, instead of transporting the waste to Nakasongola, Lamu Peter and Sons dumped it in Kisimo village, just outside Buliisa town, provoking public anger among the people there. With its image on the line, Tullow was forced to apologise.

These cases and many more demonstrate how some Ugandan firms have failed to adhere to industry standards and practices.

Filling the gaps

Kamurasi advises that local firms need to be helped. He says that local firms' capacity should be built through joint ventures, skills and technology transfer, among others. For instance, Kamurasi puts into context a recent revelation where Tullow Oil said there were not enough trucks in the country for the oil sector.

He said this could not mean that the country did not afford trucks. He explained that if local companies got information that an oil company needed specific trucks, local companies could get the necessary funding and deliver the trucks.

He said oil companies needed to avail local companies with information of their approved annual procurement plans. This way, he said, local companies would be better prepared to deliver the services. In Ghana, for instance, local content regulations compel licensees and contractors to submit to the petroleum commission procurement plans on a quarterly basis.

This helps local firms to know what oil companies are planning to procure and prepare accordingly. Namubiru says Uganda is also moving towards that direction.

"As government, we are aware that oil companies' procurement procedures are not favouring our companies. So, we are looking on how to customize these international procedures to favour our local suppliers," she said.

She adds that government is currently formulating a national content policy to guide key interventions. She stressed that once the policy is in place, government may decide to formulate a separate national content law.

Kamurasi says the issue of standards and certification is supposed to be streamlined or it risks being misused. Ghana established a common qualification system whose purpose is to serve as a sole system for prequalification of local companies and setting national standards for goods and services in line with international standards.

Kamurasi faulted government for delaying to establish the Petroleum Authority and other institutions to regulate, monitor, supervise and enforce compliance of national content. Without such institutions, compliance and enforcement will be difficult, he said.

But as local companies struggle to meet standards, a source within the ministry of energy and Mineral Development intimated to this writer that international actors, aware of the inefficiencies in regulation, are registering their own companies locally and fronting Ugandans as 'conduits'.

Namubiru says government is to establish a national register for prequalified companies, develop and apply a holistic approach to measure and monitor national content.

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