In the last part of the three-part series of his SME Connect interview, Oil and Gas, the Journey and Opportunities Ahead, Elly Karuhanga paints a bright future for Ugandan businesses – always constrained by lack of credit in this capital intensive industry – willing to partake in the sector.
Government has overtime encouraged Ugandan businesses to build financial and technical capacity by partnering with more established international entities that understand the oil and gas sector. Karuhanga gives his three cents about those prospects in this last part of his interview with Stanbic Bank’s Head of Enterprise Development, Tony Otoa.
I think this is very good but now we have three projects to focus on and they have to be moving at the same time. We have the refinery, the pipeline and upstream project. Let’s focus a bit more on the pipeline. This for me is where I see an area of great opportunities but also opportunities that bring about our east African story. What is the significance of this story in relation to the pipeline when it comes to the EAC?
Oil politics is the best diplomatic and does a better job than ministry of foreign affairs I dare say. Our relationship with the DRC where we share Lake Albert where the oil is found makes us closer to them because we have to negotiate so many agreements with them. How do we share the oil because think about it to depict for the listener. Imagine Lake Albert is a swimming pool and on one side of the swimming pool is Uganda and the other equally is DRC and oil is found on one side of the swimming pool and you know very well oil is found on the other side so frankly the people in the pool must have a friendly relationship.
Secondly all the logistics we are going to bring in will come from Mombasa and will have to come through Kenya and we have to pay a lot of tariffs in Kenya and Mombasa and also use Kenyan roads. The equipment that is going to come to build the refinery, the central processing facility, and the developments; the trucks are supposed to be 2500 per day…
Just like yesterday’s COVID-19 tests they tested 2500 samples. That goes to show you the magnitude …
Even today I saw from Malaba to Bungoma a line of trucks 35 kilometers and those are trucks coming only and they all have to go back to Mombasa so we are talking about stopping the Kenyan people from using their roads so there has to be a relationship between us and Kenya and they must be happy that this is happening because they are going to benefit from it.
Even if Kenya doesn’t have the pipeline they have a lot to benefit from Uganda’s oil and so we have to have a very good relationship otherwise we’ll be chocked.
For Tanzania is even more grandiose because two thirds of our pipeline is going to go through their country. Two thirds of the pipeline will be in Tanzania. It will be housed at Tanga port. Tanzania has given us a whole port to look after. I mean this is a fantastic relationship. They look to benefit from Uganda.
And then South Sudan is another area with a lot of oil they could join their oil to our pipeline and Congo could join their oil to our pipeline so this pipeline becomes not only East African pipeline but we could make pipelines for the final products to southern Tanzania and we could use the same from Tanzania to Uganda to bring in gas and we could explore our iron ore and start a steel industry because there is gas in Tanzania plus our own and we could combine. So for me this oil and gas is for me the best strategic diplomatic resource. You cannot now say I have closed the border between Uganda and Tanzania once the pipeline is in place and bilateral agreements are there. If Rwanda for example had a pipeline and getting oil from here and we are getting gas from Lake Kivu and we quarrel with them Rwanda cannot say I’m closing the border. It is not possible.
Being in diplomatic service this for me speaks more eloquently for diplomacy. And so this is a strategic God given resource and we are very lucky.
We have talked about the opportunities in the oil and gas sector. Ugandans have been very scared about this sector. What do you think can be done for the businesses on a financial level? When the oil companies did an industry baseline survey in 2013 one of the biggest challenges was access to finance, visibility over demand, access to manpower who actually understand the sector and many others. You find that the core issues are access to finance and like you have just intimated the oil and gas sector is very capital intensive where you are in for the long haul. How do you break this down to a person who really wants to get in this sector or how do you advise the guys who were in, got their fingers burnt and are trying to think about getting back?
In the past commercial banks operating here in Uganda were making money from buying treasury bills and paper money and lending very little to the population because there was no business. And also the government policies did not adhere well to supporting financial strengthening and penetration. And also our exports were not sufficient to warrant a very strong statement from the investors in the commercial banking space. Now that we have oil and have an investor and have skilled people the issue is commercial banks (forget about the Central bank, government, UDB and all these things I was talking about) as luck would have it are all owned by strong shareholders. Look at Standard Chartered, Absa, Stanbic; look at DFCU shareholders, (all world class banks). Now they have been joined by the Danish (IFU). These are deep huge shareholders and are all looking for business. Oil and gas is very attractive. It brings in investors in agriculture, hotels, tourists are flocking because everybody knows the country is rich so they can invest.
Now the commercial banks are going to be very good players that’s why your bank (Stanbic) is smart, that’s why they started the incubation center because now they have access to SMEs. You have trained them they know they can now bid and tender for services in the oil and gas sector because you have sharpened their pencils. You know how to make them prepare tender documents for oil and gas company requirements. UNBS now has to set up more than 2000 standards and so they have to be strengthened. NEMA has to be strengthened and is already doing a very good job. So we now have a combination so I am not worried anymore that if I get a contract for $10m to do drilling and do maintenance services I cannot get money from the bank because they know Total will pay me. Once Total has signed an agreement with me your bank will know that they will pay me and they will give me the money I need.
On the delay I keep telling people that if FID had come five years ago we would have been in a situation where we are really messed up because people were not ready. But right now we can have a decent conversation and a good amount of businesses understand what we are dealing with so you are right on the point of readiness
Right now Uganda is really at the ready that is why I’m telling the civil servants can no longer play bureaucratic games with oil companies because now we are at the ready.
Note: the views expressed in this excerpt for entirely for the interviewee and not the management of this website.
By Robert Mwesigye
Edited by Muhumuza Didas.