Uganda's journey to commercial oil production has started with the three landmark agreements signed by Ugandan and Tanzanian governments as well as Total, a French oil company and China National Offshore Oil Corporation on April 11. These pave way for the construction of the $3.5b East African Crude oil Pipeline that will go through Uganda, ending up at Tanga Port in Tanzania. Prosper Magazine's Ismail Musa Ladu interviewed Mr James Muhindo, an oil and gas industry expert on the good, bad and ugly of the agreements, 16 years after discovering commercially-viable crude oil deposits.
What does the signing of the crude oil pipeline deal mean to the country and the oil and gas sector in particular?
The agreements signed on Sunday, April 11, 2021 have two major significances in Uganda's oil and gas sector. First, after waiting for 15 years, finally a crucial ground has been set for production to commence. This is important because without the pipeline the upstream development that Total and China National Offshore Oil Corporation (CNOOC) are working on cannot achieve much without the pipeline. So the agreement that was signed by the Ugandan President, Mr Yoweri Museveni with the President of Tanzania, Ms Samia Suluhu Hassan and chief executive of French oil giant Total SE, Mr Patrick Pouyanne signifies the creation of enabling environment and the guarantee to the upstream development. Importantly it also sets ground for Final Investment Decision (FID) by oil companies.
For the last five years the targets for FID has been shifting. Initially the oil companies have been asking for production license that has since been given to them. So now with the tariff agreement, intergovernmental agreement as well as the host government agreement being signed By Uganda, pending Tanzania's signature, the ball is now in the court of Total and CNOOC to make the final Investment Decision.
Tanzania did not sign the host government agreement. What is the implication of that in the grand scheme of things?
Right now this is not a big deal yet in the grand scheme of things. This is something that the government of Tanzania can deal with internally considering that the pipeline will pass through their country. The delay therefore is not fatal to the process that is already underway. And fortunately Tanzania has committed to sign the host government agreement at the earliest opportunity and for that there is no need to worry at all.
Do you believe Ugandans are prepared to partake in the opportunities following the signing of oil pipeline deals?
Compared to five or so years ago, I think Ugandans are now more prepared to benefit from the oil and gas sector.
Petroleum Authority estimates that between $15 billion and $20 billion will be invested in different infrastructure projects that will be developed. Already, we have local service providers' data managed by the Petroleum Authority. So we believe that there are companies that can provide services ring-fenced for local organisations.
We have also seen several Ugandans upping their capacity through different trainings to be able to take up some of the jobs in this sector.
All that is left now is to see whether the oil companies will comply with the local content requirement as stipulated in our regulations.
After 15 years of waiting, is it possible that this delay could have affected the sector development in many ways?
The delay to take this decision has fairly affected the sector in a number of ways. The most obvious one is the fluctuation in the price of oil at the world market. We could have benefitted from the windfall coming with the high oil price between 2015 and 2016. It also seems to me that the delay has pushed the government into agreeing to terms that it would not have agreed to earlier. So for fear of losing its leverage, a deal had to be arrived at.
Importantly, calls for energy transition from fossil fuel (oil, gas and coal) to cleaner energy sources are increasingly gaining momentum.
Development in the area of cleaner energy such as hydro, solar, nuclear, wind and others is increasingly becoming the way to go. Because of this shift, the clock is ticking for the world to move from use of oil and gas to cleaner energy sources. I think the time we lost may mean that we have few years to exploit our oil and gas than we would have had if the production had started earlier.
So the world may move away from using oil products when we still have our oil reserves and this will be a loss to us because the investment we have made will be rendered redundant. Worse still, the massive investment made will grind to a premature halt. In that regard, the loss of time due to this delay cannot be under estimated. Now we have to work around the clock to ensure that our oil resource is developed before the possible ban of fossil oil.
Are you satisfied with local content capabilities of Ugandans thus far?
I have seen some people have partnered with international companies to provide services in the sector and this makes me feel fairly comfortable and confident that in the next three to five years Ugandans will be able to seize opportunities presented in the sector and maximise local content.
Ministry of Energy currently projects local content uptake at between 28 to 30 per cent based on the development that has been done so far. If this can be pushed to 45 or 50 per cent uptake, it will be good. The problem is that we are still lacking at community level. It is not clear whether a farmer in the village can supply his produce to the oil companies. We need to develop capacities beyond national companies to community level.
What are your thoughts on the timing of the agreements?
Timing is long overdue. However, it allowed Uganda to put its house in order. It would have been a risky affair if we probably rushed into it. So, the timing has been a blessing in disguise.