In the second of a three-part series of excerpts from his SME Connect interview, Oil and Gas, the Journey and Opportunities Ahead, with Head of Enterprise Development at Stanbic Bank Tony Otoa, Elly Karuhanga reveals in detail what plans government has for Ugandans to participate and benefit from the oil and gas sector.
This brings me back to the issue of local content because you see this, I think in my opinion, provides an opportunity for a lot of Ugandans we also need to remember in the first years 2006 – 2012 there wasn’t any regulatory framework which was guiding the industry. In 2013 is when you see all these laws and regulations coming out. I think also this puts us in a comfortable place where we see areas that are ring-fenced for Ugandan businesses. On a more specific level how do we see Ugandans getting into this sector and benefiting from it?
For the last ten years Ugandans have been preparing for oil and gas. They have been training, skilling, and made some money when discoveries were made and bought nice cars, houses, life was all good and we were all waiting for the day when FID would come and then things didn’t happen and some companies went under. But now Ugandans are trained in oil and gas, they understand the industry very well, they know exactly the dangers in it, the risks involved.
You can never insure oil and gas as local content unless you get together. Now twenty insurance companies have aggregated together and can insure any risk in oil and gas. That money will stay in our country. Local content companies have worked with foreign companies out of a series of very many meetings that we held as the Uganda Chamber of Mines and Petroleum. We have been able to inculcate a lot of confidence in the minds of Ugandans that it is an industry they must participate in and we cannot leave it in the hands of our foreign friends. I think we have sufficient training and skilling of Ugandans the only thing we don’t have is the financial capacity.
What we need is to team up with other companies who have the financial capacity and technical know-how to join us. And we should make sure that out of the billions of dollars that are going to be spent in Uganda a good 50% of it stays in the country. Once we achieve that then we know
that the country and economy and benefits of oil have started to come in. This is an industry, an opportunity for local content. This industry is a fortune that God gave us and we should be able to exploit it.
On the financial arrangement we are going to discuss with government, we are asking them and they are talking about strengthening Uganda Development Bank. We are building the Local Content Fund and making sure that Ugandans definitely participate not only in oil and gas but
the entire business chain and cross cutting in every sector. That’s the only way we can benefit from oil.
Just tell me more about this local content fund I have been hearing about for some time. What is it all about and how does it help a normal Ugandan business owner to be able to participate?
We would like to put maybe $1billion in UDB and make sure they can lend this money as a development bank at reasonable interest rates to encourage Ugandans to participate in oil and gas. Government, donors and oil companies will chip in to grow the fund through percentage
contributions.
The Fund will have to be a design specific programme to ensure entry into oil and gas. Remember that the whole area, in east and central Africa, countries have discovered oil. Uganda is going to be the hub because we have been in the business longer. We have trained very many people more than anybody else around us. Once the industry grows in South Sudan, Kenya, Tanzania, Zambia, Malawi, Mozambique, we Ugandans are going to be the ones – the choice will be, do we have a Ugandan or a Filipino or Thai person – we have a huge opportunity with this new Africa intercontinental trade zone. I think Uganda is poised to make a very big impression in the oil and gas story.
We have talked about services, companies coming into the sector. We haven’t hinted on manpower. How do we seem as a country in terms of manpower?
This is an area where I want to single out Stanbic Bank because when they came up with this story of setting up a subsidiary to teach SMEs – that incubation center; so far you have trained more than 1000 people and more than 700 businesses – that is one way.
Secondly the ministry of education and Government of Uganda has set up all these centers for skilling Ugandans. Even when oil and gas is finished the people who are trained will always be trained. The only way to be prepared is to make sure SMEs or even micro SMEs can participate in oil and gas.
You talked about us getting ready as Ugandans but which sectors do you find critical in terms of preparedness for our local Ugandan or east African businesses?
I think the logistics, freight forwarding, transport will constitute about 50% – 60% of the industry. That’s a very good area. The second one is supply of goods and services from agriculture to legal, accounting, engineering, surveying, mapping, all those. Then of course also the Government has a lot of work to do following the Tullow sale. After they have agreed Total to buy Tullow, Total and CNOOC will have to go through their paperwork on preemption clauses.
CNOOC has about a month in their joint operating agreement to decide whether they are going to participate in the acquisition of Tullow businesses and once CNOOC agrees they’ll have to go into the preemption clause and agreements that will see CNOOC and Total share the Tullow fortunes equally which requires government consent as well. But government has already quickly consented to the transaction between Total and Tullow and then they will also have to consent to the preemption which I’m sure they’ll do very quickly but that requires to sit down and wait for the FID.
Government has another big challenge to finalise the Host Country Agreement which might also require the development of the pipeline. Government has to seek certain rights because the pipeline which is going to be owned by Uganda and Tanzania, Total and CNOOC and all
hosts of rights regarding taxation and all those issues related to the host country agreement they have to decide how fast they have to move. This time the bureaucrats have a challenge to act with haste. They have the tariff agreement where they to decide how much per barrel Total and CNOOC are entitled to – how much the governments will pay to the companies that have invested in the pipeline per barrel. These negotiations have to be concluded then they have an agreement on the shareholders agreement – the Tanzania and Uganda governments, CNOOC, Total, UNOC representing government interests. They have to sit down and prepare the shareholders agreement. At this time each shareholder must put money where their mouth is. This agreement is not easy to negotiate and the money is not easy to raise especially at this time.
And then of course there is he multilateral agreement between Uganda and Tanzania which had to be kicked off and then of course the decision of where the company which will own the pipeline be domiciled. The oil companies want it in London, Uganda wants it in Uganda,
Tanzania would not mind hosting it. Clauses like when there is a dispute where will it be settled? Uganda wants it settled in Ugandan courts, the investors want it settled in France and etc. All these agreements are complicated. These agreements also require the consent of the financing
partners who want to know every detail about the political risk. If there is a change in politics will the government in charge during the time affect their interests? All this is in the hands of the government and must act fast. We have delayed but now that this is out of the way and we have good partners who have licensing for the next 30 years and or years to produce oil we need to hold each other and move as partners.
This industry is complicated as I said at the beginning. The oil price is the king in all this. And they do not determine the oil price nor does the government or oil companies determine the oil price. These are determined by other wings of politics around the world. They are determined by
the quarrel between America and Iran. We are actually bystanders we do not determined the oil price at all because our oil is not even big enough to have impact on the OPEC scene so we have to sort out ourselves as quickly as possible to be able to wait for this geopolitics to take
place.
But by the time we produce oil the oil price will be at the right time I think it was good we delayed. Secondly now that everybody who is in the oil services their tools are sitting idle. All these rigs are unemployed so now we can get them at the cheapest of prices. Yes we have a budget but government has to move faster than ever before faster than private companies.
Note: the views expressed in this excerpt for entirely for the interviewee and not the management of this website.
By Robert Mwesigye
Edited by Didas Muhumuza