President Museveni (with hat) and his Tanzania counterpart John Pombe Magufuli sign the agreement on the oil pipeline in Chato District, Tanzania, recently. PHOTO | PPU
Three key agreements paving way for Uganda’s oil final investment
decision (FID) were recently concluded, first between the government
and French oil major Total and between the governments of Uganda and
Tanzania.
Pending is the Host Government Agreement with Tanzania and
the associated commercial arrangements to put in place an overarching
contractual and legislative framework for the development of Uganda’s
crude oil discoveries. It is projected that up to $ 20 billion will be
spent on the requisite infrastructure in the first three years after FID
before first oil flows.
Some developing countries have little of
enduring value from oil production to show. While they have earned
direct revenues from the sale of crude oil and collected the
supplementary monetary levies, there has been minimal if any trickle
down impact on their domestic economies.
To foster stronger
sustainable growth beyond the lifetime of oil production, resource rich
countries Uganda inclusive are now placing greater emphasis on the use
of local or national content policy instruments to extract more economic
value.
This article gives an overview of the local content rules
that apply to entities participating in Uganda’s oil and gas value
chain.
In the context of this article, local or national content
is the extent to which oil production prompts more value and benefits to
the economy beyond the sale of crude oil and direct fiscal receipts.
Local
content rules prescribe in varying forms the preferential use of
domestically available resources and manpower creating backward and
forward linkages for the local economy.
Uganda’s oil local content
requirements derive from the provisions of the main oil contracts and
legislation namely the Petroleum (Exploration, Development and
Production) Act No.3 of 2013, the Petroleum (Refining, Conversion,
Transmission and Midstream Storage) Act No.4 of 2013 and the regulations
thereunder. The rules extend as applicable to the licensed oil
companies and their subcontractors.
Oil companies prospecting,
exploring or producing crude oil in Uganda must submit satisfactory
Local Content Plans (LCPs) to the Petroleum Authority of Uganda (PAU)
for approval. LCPs outline proposals for the employment and training of
Ugandans, procurement of local goods and services, transfer of
technology and commitments on local supplier development.
All
vendors to oil companies and their subcontractors should be registered
on the National Suppliers Database managed by PAU. Non-registered
vendors are ineligible to vie for business opportunities in the sector.
Oil companies and their subcontractors must generally give preference to
goods and services provided by “Ugandan companies” and citizens unless
they are unavailable or are of inferior quality.
Otherwise, foreign
companies in joint venture with Ugandan companies holding at least 48
per cent shareholding in the collaboration and upon the approval of PAU
may make these supplies.
The shareholding requirement does not apply
to the midstream segment where the crude oil pipeline and the refinery
projects fall. A Ugandan company is not one necessarily owned by a
majority of Ugandan citizens. A company incorporated locally, employs 70
per cent Ugandans, uses locally available raw materials and is approved
by PAU qualifies as such.
Oil companies and their subcontractors
must have in place a robust suppliers’ development plan to support
Ugandan companies and citizens achieve capacity to eventually supply and
source locally all goods and services that the oil sector requires.
The
foregoing discussion notwithstanding, some supplies are exclusively
reserved for Ugandan companies and citizens. These include
transportation, security, hospitality, human resources management,
locally available construction materials and waste management where
possible amongst several others.
Oil companies and their
subcontractors must unbundle the underlying contracts into work packages
that Ugandan companies are able to compete for and execute.
From the
start, oil companies and their subcontractors must employ at least 30
per cent Ugandans in management roles progressively increasing to at
least 70 per cent within five years.
A minimum of 40 per cent
Ugandans should hold technical roles growing to 60 per cent in five
years and 90 per cent in 10 years. 95 per cent of the support staff must
be Ugandans. This is the reason why applications for work permits by
expatriate staff in the oil sector must be recommended by PAU.
Denis Kakembo
dkakemb0@cristaladvocates.com
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