Uganda: Oil Companies Seek Local Content Fund

Posted on : Thursday , 17th December 2015

Ugandan companies within the oil and gas sector want government to set up a special local content fund to finance their growth in order to be at the forefront of winning some of the lucrative tenders the industry offers.

The Uganda Association of Oil and Gas Service Providers argues that local companies require a lot of money to fully participate in the capital-intensive oil sector.

Emmanuel Mugarura, the association’s head of secretariat, said such a fund would help local companies to borrow money at affordable rates to participate in the sector.

“We need a fund to boost local enterprises. This sector is capital-intensive. It needs a lot of money; our interest rates are too high, yet we need affordable finance to be able to fully provide goods and services in the oil sector,” he said.

He was presenting a paper on the challenges of local enterprises in the oil sector at an oil conference organised by Advocates Coalition for Development and Environment (ACODE) at Hotel Protea recently.

Mugarura said the cost of doing business in Uganda remained too high and processes too long, something that could gradually edge out local enterprises from participating in the sector.

“We should stop that chorus of standards and embark on enterprise development and capacity building. We need actual efforts beyond these conference rooms and academic papers,” he said.

In some countries such as Ghana and Nigeria, there are special funds meant to provide cheap and affordable credit to local businesses in the oil sector.  However, many Ugandan companies are said to lack the required capacity that international companies demand for to win the contracts in the oil sector.

“This talk that Ugandan companies lack capacity to handle contracts in the oil sector is simply street talk. Our members can deliver goods and services on time,” he said. The association has 85 members, mainly companies, with a total combined capital of approximately $1 billion.

Mugarura said the problem was not the local companies’ lack of capacity but, rather unharmonized standards that the international oil firms demand for. He explained that oil companies require different standards.

For instance, he said the association’s members are required to have different standards from each of the three main upstream companies, that is Tullow Oil, Total E&P, and Cnooc. Buliisa county MP Stephen Mukitale Birahwa agreed with Mugarura on the issue of standards.

“We should not lock out our people from the sector in the name of standards,” he said.  He also implored government to spread local content in all other sectors of the economy such as roads. He said confining local content to the oil sector alone did not make sense.

Ronald Goboola, the national content development officer in the petroleum directorate, said: “Laws are necessary but not enough to drive local content. So, we need real commitment and strict enforcement of the laws.”

He said the national content policy had already been drafted and was before cabinet pending approval. The draft policy, he explained, identifies key priority areas of employment of Ugandans, enterprises development, skills development and procurement, among the key thematic issues upon which Ugandans can benefit from the sector.

Goboola, however, noted that “the success of local content will depend on how well-prepared the local businesses are to deliver the right quality and quantity on time,” he explained.

If the policy is approved, the country plans to have a stand-alone local content law as opposed to being incorporated in the current petroleum laws.

Dr Jean Pascal Nganou, a senior country economist with the World Bank Uganda country office, implored government to focus on skills development if it is to reap abundantly from the oil and gas sector. He said oil provides unique opportunities for both direct and indirect employment due to the inflow of investments.

Peter Lokeris, the state minister in charge of minerals, said local content was a critical element in the sector.

“Without clear policies and laws on local content and strict enforcement of these laws, the country is likely to miss out on both direct and indirect participation. If we have a robust local content framework, then forget about the oil curse,” he said.