Government has agreed to establish a local content fund to facilitate the financing of local enterprises participating in the oil and gas sector.
The proposal and commitment to establish a local content fund is contained in the draft National Content Policy for the Petroleum Subsector 2016, which was released recently.
The policy acknowledges that access to finance is one of the biggest bottlenecks hindering local companies and enterprises from fully participating in the oil sector. The policy notes that more than 90 per cent of the private sector is comprised of small and medium enterprises, employing an estimated 2.5 million people. But many of these are constrained by the limited access to finance.
“Access to finance is one the key obstacles undermining the ability of SMEs to acquire inputs, skilled personnel and equipments, develop technology and infrastructure required to achieve competitive in business… It is therefore necessary to establish a fund to support and address the capital needs of Ugandan enterprises in the petroleum subsector,” the policy reads in parts. The policy is expected to lead to the enactment of a Local Content Act, which will promote local investments in the oil and gas sector.
Recently, Bernard Ongodia, a senior geophysicist in the petroleum directorate in the ministry of Energy and Mineral Development, said the draft policy is now waiting cabinet approval. He emphasized the need for a fund.
“Without such a fund, there is no way we can achieve all our local content aspirations as a country,” he said.
In its initial stages, the local content fund is expected to finance capacity-building of local enterprises and later support local businesses.
According to the policy, government is to establish a local content steering committee to be comprised of permanent secretaries of all key ministries such as education, energy, local government, among others, to ensure that the oil industry complies with local content requirements, in addition to quarterly and annual report by oil companies to the Petroleum Authority of Uganda (PAU).
The association of Uganda Oil and Gas Services Providers (AUOGS) has been pushing government to establish a local content fund. Oil-producing countries such as Nigeria, have established such funds.
Speaking at a local content conference organized by Advocates Coalition for Development and Environment (ACODE) at Hotel Protea in Kampala, last month, Jeff Baitwa, the group managing director of Threeways Shipping Services limited, said access to the ‘right finance’ is critical in building the capacity of local businesses in the sector. Threeways Shipping Services Ltd is one of the local companies providing forwarding and clearing services to the oil sector.
“Many of our members [Association of Uganda Oil and gas Services Providers] have a problem with banks. We closed activities in 2013 and to date there are no activities, yet they borrowed from banks. So, many are almost becoming bankrupt. That is why the establishment of a local content fund to provide for long-term financing at affordable interest is a must,” he said.
Some of the local companies like Bemuga Clearing and Forwarding are already on the list of distressed companies seeking a Shs 1.3 trillion government bailout.
The policy identifies the existing gaps such as the lack of enough skilled and semi-skilled labour in relevant technical areas such as mechanical technicians, civil craftsmen and welders, poor standards and limited access to finance among others, and proposes how these gaps will be plugged.
It is estimated that the workforce requirement during the peak period of field development and construction of pipelines and the refinery will be 161,700 jobs, of which 14,000 will be direct jobs, 42,700 indirect jobs and 105,000 induced jobs, according to a baseline survey that the three major oil companies conducted last year.
Of this workforce, 15 per cent are likely to be engineers and managers, 60 per cent technicians and craftsmen and 25 per cent unskilled labourers. The policy seeks to put in place a strong legal and institutional and administrative framework for national content in the sector.
Some of the proposals aimed at maximizing local content in the sector include: set national content targets, the creation of a national supplier database and the establishment of a human capacity register, among others. The policy’s major aime is to promote the actual utilization of locally-produced goods and services and building capabilities and human resource for the sector.
“The country’s current education and training institutional set-up is not aligned to the needs of the petroleum sub-sector and consequently the available skills and competencies on the market do not match with the needs of the industry.
The universities and training institutions in the country have been offering general engineering and business programs that are not relevant to the supply of skills for the oil and gas industry. In addition, these institutions are not internationally recognized and accredited as training and education institutions for the oil and gas industry,” the policy reads.
The policy observes that the number of Ugandans trained in vocational and technical courses has declined, as emphasis has been concentrated on university education. In addition, the qualifications are not certified as required by the industry.
As a result, few Ugandans have been able to secure employment in the international and competitive oil and gas industry. According to the policy, the country, in collaboration with international institutions, will establish a certification program for skills and competencies required in the petroleum sub-sector.
The expected expenditure for upcoming projects such as the construction of a crude export pipeline, an oil refinery, development of current fields and the attendant infrastructure is approximately $20bn.
In order to benefit, Ugandans need to tap into this money. According to the policy, tenders in the sector are often too big and require significant financial resources, which is a challenge to many Ugandan enterprises.
“The size of tender bids should not be too big to discourage small enterprises in the petroleum sub-sector due to their limited technical and financial competence and capacity,” the policy reads.