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

NOT ONLY THE HARDWARE BUT THE SOFTWARE TOO

In the middle of September the United Nations released its annual Human Development Indicator (HDI). This index serves as an indicator of the quality of life of a country’s people by measuring the health, education, inequality, poverty and security standards. Aside from the statistical measures of development like GDP growth, this is obviously a better measure of how people are actually doing. In this year’s HDI report Uganda was ranked 162 out of 189 countries with a HDI score of 0.516. The index goes from zero to one, the nearer you are to one the better. Our score puts us in the low human development category. But as bad as that sounds we have been worse. In 1990, the earliest year that these figures were compiled our score was 0.311 even the UN recognises that we have improved 66 percent in the last three decades. According to the UN figures life expectancy has risen to 60.2 years   from 45.5 in 1990; expected years of schooling has doubled to 11.6 fr...
Post a Comment
Read more

A STITCH IN TIME

Last week the Bank of Uganda raised its key Central Bank Rate (CBR) a percentage point to ten percent from nine percent. This was the first increase in more than a year, a move prompted by BOU’s projection that price increases coming around the corner. Increasing oil prices, a weaker shilling and new taxes on mobile money services were cited as reason for this anticipated increase. We know that in the last year or so there has been a cash squeeze, money has been hard to come by. While the economy has been growing this has not been spread around evenly. It was hoped that if the economy can keep growing we can all begin to feel the joy. The Bank of Uganda has helped on this front by lowering its CBR from a high of 21 percent about seven years ago when inflation hit record levels. This allowed more borrowing by the private sector which has helped keep our economy ticking. But just when the economy was beginning to gain traction BOU has slammed on the brakes. We may ...
Post a Comment
Read more

FINANCING OUR ENTREPRENEURS, A CHALLENGE WE CANNOT IGNORE

In recent weeks the issues of financing for business has been in the news, in one form or the other. We have seen the challenge a past minister is facing with having to hang onto his home. The case is in court, so we can’t discuss its merits and demerits, just to say he may have fallen prey to some predatory practices, with the lender skirting dangerously on the edge of the law. Across the border in Kenya a cap on bank lending rates has been repealed. Three years ago Kenya’s parliament passed a law restricting lending rates to two percentage points above the rate at which the central bank lent money. In reaction banks pulled back their lending to businesses, depressing the economy and prompting the reversal. So now banks can “properly” price their loans, often to the discomfort of small and medium sized businesses. The two incidents are related and speak to the availability and cost of credit. In my business career I have benefitted immensely from credit. It is next...
Post a Comment
Read more

OUR HISTORICAL SITES SHOULD NOT GO UNATTENDED TO

Recently I was at Makerere University to attend a wedding ceremony. I hadn’t been on the university’s grounds in a while. I was shocked at how run down Mary Stuart and Lumumba Halls were. They are in need of serious work. These thoughts were reawakened with the recent launch of the coffee table book “Beyond the Reeds and Bricks” promoted by the tourism ministry, the cross cultural foundation of Uganda and the European Union Delegation. The book which is aimed at the protection of historical sites and buildings in Kampala, Entebbe and Jinja, is a moving collection of pictures of buildings and sites we know, but probably take for granted when we pass them as we go about our business. "Entebe za Mugula in Entebbe, Mackay’s Cave, the post office in Entebbe, the Stanbic Bank Branch in Jinja, Hamu Mukasa’s house in Mengo, the main building at Makerere , the Bahai Temple, Kibuli mosque and many other sites have pride of place among the 60 pictures in this book, which is ...
Post a Comment
Read more