Skip to main content

LOCAL CONTENT IS NOT A DONE DEAL, WE NEED TO DO MORE


This year’s “Oil & Gas Convention & Regional Logistics Expo2017” has just concluded after three days of discussion, exploration and soul searching.

First oil in Uganda is expected by 2020 and this Expo among other efforts are targeted at getting our local businessmen ready to take advantage of this historical development.

At the risk of sounding like a broken record, the discovery and eventual exploitation of our oil resource is one of those once in a generation events, that can transform this nation, not only on a macro level but also in our individual lives.

For starters at least $20b will be spent over the next three years in infrastructure development and other things that will ensure we are ready to pipe and refine our oil.

During the exploration phase about $3b was spent by the international oil companies, with on three in every ten dollars being retained here. That was an exploration phase and one hopes that we have learnt enough from that period to be able to retain more of the money that will be spent in coming years.

For starters there is a law in place that makes some provision specifically for local content as far as suppliers, employment and training and technological transfer.

The  Petroleum (National Content) Regulation 2016 for both the upstream – exploration, development and production and the mid-stream – Refining, conversion, transmission and mid-stream storage, were passed last year.

Further encouragement will come from evaluation of companies involved in the industry and their commitment to promoting local content. According to the law 10 percent of the evaluation score will depend on this.

In the same law it is provided that in joint ventures between local businessmen and foreigners in the industry the Ugandan partners must control at least 48 percent of the joint venture equity.

Speaking from my experience in working with foreign companies, while the spirit of this clause was good it is not very practical in our current circumstances.

For example, if a business required an equity  injection of $2m (sh7.3b) there are very few people with the financial muscle or  needed capacity locally,  to manage a project of that magnitude. This has negative implications for the sector in that it may frustrate investors and delay exploitation a bit longer.

No one is going to dish out 48 percent of their company free. At best they may give us a carry stake of at most three percent, just to satisfy some local participation requirements.

There are a few things that mitigate against such generosity from investing companies. 

In other countries like Angola, Nigeria and Equatoria Guinea for that matter which have a shore line, evacuating the oil is less costly than it will be for us. The higher costs cuts down investor margins and making it less likely that they will entertain freeloaders.

In South Africa because of their unique history more leeway was given to local investors under the Black Economic Empowerment (BEE) program.

The realistic thing is for our businessmen to look to creating meaningful linkages where they can benefit not only from the returns from the business but also from technology transfer and benchmarking their business processes against best practice.

For me the key will be how are these law operationalised by the technocrats and regulators.

For instance already incorporated in the law but a company’s fitness for a contract should be judged on a sliding scale on its commitment to local content promotion. The more local content a company has in terms of local equity partnership, employment of Ugandans, utilisation of local goods and services and technological transfer, the better chance it will have to win contracts in the industry.

But also in addition some smaller projects such as waste management and basic logistics should be ring-fenced for local businessmen.

However there should be encouragement for local business to increase their local content participation to the magic 48 percent over time without impinging on the overall business.

The point is that whereas we have a relatively progressive law on local content, we need to cut our coat according to our, bit what we can chew so that we do not frustrate inward investment but at the same time grow our capacity to take up more of a stake in the industry.


(APRIL 2017)
Labels:

Comments

Post a Comment

Popular posts from this blog

THE MUKWANO I KNEW

We have lost the greatest Ugandan entrepreneur of our time, Mr Amirali Karmali, more popularly known as Mzee Mukwano. I have known Mzee Mukwano for more than 40 years and most of what I am today is due to him. And I am not alone. "He has helped countless people through school – as he did me. Helped countless more in business – as he did me. And he has been a steadfast friend and source of support to countless more – as he was to me.... I first met Mukwano around about 1977. My mother was the secretary for the chief of operations at Uganda Airlines, a man I knew only as Hamid. Mukwano had come to charter the Uganda Airlines’ Hercules plane and I happened to be around the office then. He was a short man, an unassuming man, but clearly a serious businessman who would charter the plane to bring in goods that were in high demand here. He run a popular whole sale shop in Nakasero – Egesa Commercial Agencies, a beehive of activity and the go-to place for anythin...
Post a Comment
Read more

COME HELP BEAT BACK HIV/AIDS

Uganda has made tremendous strides in containing the AIDS pandemic. For some of us who were around in the 1980s and saw the worst effects of the AIDS pandemic, the way the country has contained the disease is not what we had envisaged back then. Ignorance, stigma and lack of drugs surrounding the disease saw thousands die horrible deaths – wasting away, tortured by opportunistic diseases and being shirked by family and a society out fear.  The doomsayers were projecting a major fall in our population, a collapse of the economy and a total breakdown of social cohesion. That the country is still around and fighting back the disease successfully, could not have been envisaged in those scary days of the 1980s when the disease came into the public conscious. Thankfully rather than sweep the problem under the carpet like many of the neighbouring countries, President Yoweri Museveni led a fight back against AIDS that had at its core widespread dissemination of infor...
Post a Comment
Read more

ARE WE HELPLESS TO DO ANYTHING ABOUT THE CARNAGE ON OUR ROADS?

Recently there was a horrific crash between a passenger bus and sand laden Isuzu truck on the Masaka-Kampala highway. To look at the pictures of the aftermath it is a miracle that only two were killed and 20 injured in the accident, which it is reported was a head-on collision between the two vehicles. We don’t go a week without news of a major accident on our trunk roads. I suspect that a combination of poorly maintained vehicles, improperly trained or inexperienced drivers, driving at break neck speeds are to blame. "A few months ago, there was a suggestion that the new paved roads were not properly designed and therefore causing the accidents, but I think that is a case of poor workmen blaming their tools.... If one was to buy this argument, what about the argument that we had fewer accidents when our roads were pot holed and it would take whole days travelling journeys that now take a few hours? So, we should we go back to our potholed roads? "Accord...
Post a Comment
Read more

GIVE OUR TRAFFIC POLICE A CHANCE

Last week during an investor interaction   Kampala Capital City Authority (KCCA) officials called on police to stop overriding traffic lights while directing traffic. KCCA argues that the traffic lights are large investment and it makes no sense for police to countermand them. In a classic case of “The importance of the river was not known till it dried up” on Friday the traffic police desisted from directing cars at the traffic lights leading to the worst traffic snarl-up in the city’s history. People were stuck in traffic jams around the city for hours and long into the night. Maybe it was the unhappy coincidence of the traditional Friday traffic and pre-Christmas excitement but without the traffic police directing traffic it was a mess. They made their point. It of course points to the bigger issue of a revamping of Kampala’s road network, which has remained   largely the same since independence but with an exponential increase in cars in the last three...
Post a Comment
Read more

UMEME A RECOGNISED SUCCESS BUT …

  Recently the World Bank did a survey of the power utilities on the continent. Of the 39 utilities surveyed only two, in Uganda – Umeme and in Seychelles, were able to cover their operating costs and capital expenditures – maintenance and expansion of the grid. The report went on to point out that only 19 or about half of the surveyed utilities were able to meet their everyday costs like salaries. Essentially most of our power utilities on the continent are technically bankrupt. This has far reaching ramifications for the industry as a whole. When you, the client, pays your bill, Umeme then passes money up the line to pay the transmission and generation companies. If Umeme does not collect the revenues due to it or does not price the power at an appropriate rate, the pain will be felt up and down the sector. The transmission company would not be able to maintain and extend its network and the generation company would not be able to generate efficiently or build ...
Post a Comment
Read more

WE NEED A BETTER SOLUTION FOR KAMPALA TRAFFIC

I am sure I am not the only one feeling it. Kampala’s traffic is becoming increasingly unbearable. Even the removal of roundabouts around the city seem to have an opposite effect to the intended purpose of easing traffic flow in the city. Kampala Capital City Authority (KCCA) has an ambitious plan of flyovers, underground tunnels and railway transport, which should help the cause, I hope. The snarl ups that we are coming fast accustomed to, are not only an issue of teeth grinding inconvenience but have a real cost on our economy by hampering and increasing the cost of doing business. A recent World Bank report suggests that as an economy, we are losing about sh3trillion annually due to traffic jams. The losses come in form of delayed deliveries, higher fuel consumption and the health consequences of seating in a smoke filled environment. To put this in perspective this is the combined budget of the health, agriculture and ICT ministries in this year’s budget. Or ...
Post a Comment
Read more

REAL ESTATE DEVELOPMENT CAN BE KEY IN OUR TRANSFORMATION

I have been around long enough to see real estate development, or maldevelopment, lead to the sprawl that is Kampala today. From atop the Skyz Hotel in Naguru, one can see as far as Mukono to the east, Entebbe to the South and Bombo to the north. At night the lights from traffic, streetlights and from residences makes it a sight to behold. But we were here in 1986 when Kampala’s outer limits were Kibuye roundabout, Rubaga, Wandegeya, Ntinda and Nakawa. The NRM did the smart thing and removed restrictions – rent controls, on real estate and spawned a real estate boom that has led to the dramatic expansion of the capital city’s boundaries to what they are today. During the same period the government’s National Housing & Construction Company (NHCC) has not kept pace with private developers, be they individuals or companies developing a few dozen units. "Official statistics suggest that there is a 550,000 deficit of acceptable quality housing in Uganda of ...
Post a Comment
Read more