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LOCAL CONTENT IN OIL & GAS: NOTES FROM UGANDA

tullow oil_0Oil and gas are non-renewable extractive resources which are finite. These resources have the potential to provide immense benefits to countries through the creation of employment, generation of revenues, development of infrastructure, and social transformation of people.

It is important to note, however, that oil and gas resources and the revenues that accrue from them can also pose challenges of windfall revenues and the paradox of plenty if not well managed.I was privileged to be part of a team of journalists who undertook a two-week training programme on oil, gas and mining in Kampala, Uganda, recently.

The programme pooled almost 30 journalists from Ghana, Uganda and Tanzania, all oil-rich countries, and was run at the African Centre for Media Excellence (ACME) in Uganda.

The course, the fifth since its inception, is under the aegis of the Natural Resource Governance Institute (NRG), a non-profit organisation which provides policy advice and advocacy to governments, civil society organisations, the media and other agents of change.

The objective of the course was to strengthen media oversight of the extractive sectors in the respective participating countries.

One area which hasn’t ceased to amaze me is how the Ugandan people are warming themselves to take full advantage of the oil and gas resources.

With support from oil companies like Tullow and other local organisations, several farmers across oil-rich districts are already in brisk business.

I’m talking about local content – a term well used in Ghana but christened “National Content” in Uganda.Local content is defined by Mr Kwame Jantua, Director at African Energy Consortium Limited, as the quantum of locally produced materials, personnel, goods and services rendered to the oil and gas sector and which can be measured in monetary terms.

Mr Jantua is on record to have advised that local companies must ensure that they deal with international oil companies “as partners and not just agents.”

“Giving preference to local suppliers makes economic and financial sense, but only where they can deliver on price, schedule and quality which then makes alliances between domestic and international companies one of the most effective means of turning local content policies into effective economic development strategies,” he was quoted as saying.

Uganda is yet to commence the production of oil. The landlocked country struck oil in commercial quantities in 1998, with production said to potentially reach over 200,000 barrels per day (bpd).

During one of the sessions at the training, the Vice-Chairman of the Association of Uganda Oil and Gas Service Providers , Mr Dennis Kamurasi, told us (participants) how the Association fought for a stake for Ugandans during the exploration stage when services were being rendered.

Transporting of oil rigs from one area to the other during exploration had to be done by trucks and indeed the oil companies like Tullow had and still have work camps from where their administrative staff operate.

What businesses in Uganda realised at that time (Exploration stage) was that there was a lot of work going on but there were no Ugandan companies involved.

“The majority of companies that were doing heavy lifting, transportation and other services were not Ugandan. There was one very interesting  contract of supplying food to the work camps and the  service providers were invoicing per month close to half a million dollars,” he said.

According to Mr Kamurasi, they began wondering whether “there are no competent people in Uganda to cook food, carry beans, provide tomatoes and onions to these work camps.”

Even contracts for construction works still related to the exploration were given out to expatriates, so there was, according to him, a disparity which had to be corrected.

It is important to note the fact that apart from the lack of priority given to local content issues at that stage, the Government of Uganda, and by extension the people of Uganda, was going to pay for the recoverables – costs associated with exploration and subsequent production of oil.

As a response to what they saw as unfairness as regards their lack of participation in the services being rendered in the industry, the Association of Ugandan Oil and Gas Service Providers was formed.

“We came together as a group of companies and began advocating being part the exploration of a resource that is ours,” he said.

The group was met with resistance on the premise that the local companies had insufficient capacity and low capital to meet the demands of the industry, “which were genuine but of course where else can Ugandans build capacity? It must be in-country.”

“Because in the long run it is cheaper, there is skills transfer, there are more employment opportunities for the locals and a lot more so we took our case to parliament, where we were told to put it in a draft form,” he recounted.

A strong case was made for Ugandans as the Association proposed to government that on a project-by-project basis, 48% of the ownership within the oil and gas industry of a company must be given to Ugandans.

“If there is a contract to transport an oil rig or couple of rigs from Mombasa to Kaiso-Tonya and you have a freight forwarding company like DHL International, probably the largest within the region with the largest capacity to transport that rig and that movement will cost $1 million, we are saying $480,000 of that amount should be paid to a Ugandan freight forwarder for its services,” he said.

The Association insisted that on whatever project, whether its construction, transporting of equipment, catering or procurement of safety wear, Ugandans should at least have participation of 48%.

It is interesting that even before production commences Ugandan companies are being encouraged to go into joint ventures with international companies and provide support services to oil and gas companies.

In fact those services are already being provided.

A field trip paid by the team to the oil-rich Hoima District in Western Uganda revealed tremendous results vis-à-vis local content as over 6,000 farmers from different farmer-based groups are now in brisk business supplying their produce to work camps that belong to Tullow, Total and China’s  National Offshore Oil Corporation (CNOOC).

Hoima has a population strength of 100,000 and is situated within the Albertine Graben, which harbours Uganda’s oil and gas discoveries.

In Hoima, we visited Traidlinks, a not-for-profit agriculture-based organisation established in Hoima to aid the food sector and to build the capacities of farmers to be self-supporting.

The organisation is currently on an agri-supply chain project funded by Tullow Oil Plc with the mandate to see to it that natives in the oil region can reap benefits.

Managers of Traidlinks formed a steering committee made up of the Hioma District Farmers Association (HODIFA), Hoima District Local Government and a micro finance company to deal with credit-related issues.

Mr John Bosco Kalule, Project Manager for the Agri-Supply Chain, a component of Traidlinks, stressed that the enterprise deals with “commercially-minded farmers or the active poor.”

After meeting with consumers, including Tullow, CNOOC and Total, and knowing  the required standards for services, Traidlinks  trained extension officers within the farmer organisations, who also trained the individual farmers.

The farmers have since 2012 been supplying the work camps of the oil companies with vegetables and fruits non-stop, without compromising on quality standards.

The products on supply increased steadily to 10 and presently the farmers are supplying 52 different kinds of products on weekly basis.

Farm produce collection centres have been set up at the sub-county (grassroots) levels and are managed by the trained farmer groups.

After the  farmer leaders have checked the products and satisfied themselves with the quality standards, HODIFA receives them and delivers them to Traidlinks, where the sorting, grading and packing are done.

Supplies are made to supermarkets, hotels in Kampala, Hoima and Tullow work camps in Bulisa.

Farmers are paid upfront by the microfinance company through HODIFA.

Mr Kalule reckons the farmers’ increasing capacity to take advantage of the emerging opportunities in Uganda’s oil and gas industry.

“We are at Traidlinks are using the emerging opportunities in oil and gas as a catalyst to prepare farmers for other opportunities in the region. For instance, there are a lot of produce going to Congo, Southern Sudan, and we are helping the farmers to add value and supplying the supermarkets in Kampala,” Mr Kalule pointed out.

The target of Traidlinks is for every of the 15 sub-counties in Hoima to have not less than four farmer groups, with at least 200 members in each group.

All these are being done to prepare the farmers for the oil and gas production because “when it takes off, I bet you, some of them may be limping and that’s what we are trying to avoid. We are working ahead of schedule.

Our interactions with some farmers revealed improved lives and hopes for expansion of their businesses.

“My daughter has completed her university education and my other children are also doing well. I am so grateful to Tullow for the support, for their coming to Hoima and the Traidlinks project,” said John Byaruhanga, a 57-year-old farmer who has been farming for 20 years now.

A lot of hotels have sprung up especially in Hoima ahead of oil production, which is to commence within two years.

The hotels take delivery of vegetables, eggs, chicken, fruits and a lot more from farmers in Hoima.

The upstream production of oil is not labour-intensive; domestic financial institutions rarely have the capacity to finance or insure investments, and infrastructure to process output locally is limited.

The true benefits of hydrocarbons wealth lie in developing mid-stream and downstream industries and reducing the country’s energy import bill.

Having experienced what obtains in the landlocked East African country, what should be engaging the minds of people in government, civil society groups and the Ghanaian society at large is how to build capacity within Ghanaians to be able to take advantage of the oil and gas industry.

Source: Isaac Aidoo/ The Finder

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Reporting Oil and Gas project was launched on 4th June 2009atTakoradi, Western Region, Ghana by Penplusbytes (PPB – www.penplusbytes.org) with the vision of providing a one stop online information and knowledge about Ghana’s oil and gas sector
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