The recent final investment decision for the Tilenga Kingfisher exploration and production oil projects, and the East African Crude Oil Pipeline is a significant stage in a journey that started with the confirmation of commercial oil and deposits in 2016. Since then, many Ugandans have had high expectations for the resources’ economic value.
“The final investment decision is one of the important steps in Uganda’s journey to first oil as they signify the commitment of the oil companies — TotalEnergies EP Uganda and Cnooc Uganda Limited — and the Uganda National Oil Company, to fund the development of Uganda’s oil and gas projects,” said Irene Batebe, the permanent secretary for the ministry of energy and mineral development.
“It also means that Uganda’s oil and gas sector remains profitable, even amidst the challenges related to the volatile crude oil prices and the ongoing Covid-19 pandemic. FID, therefore, unlocks the highest value project in the country which will bring in an investment of close to $15bn (Shs52.9 trillion) in the next three years.”
From the 1980s, the government’s efforts were initially focused on developing the required institutional and regulatory capacity to sustainably manage the oil and gas sector, while promoting investment. This might have seemed to many as causing delays, according to Ms Batebe, but it was a “necessary evil” whose benefits today are many.
Ms Batebe added that Uganda boasts of progressive laws and regulations that are now used as standards by several countries, some of which are already producing oil. Uganda “developed a unique model” of managing the oil and gas sector based on the successes and mistakes of others, she noted.
The government also had the to ensure that the interests of Ugandans and the investors were aligned; this took several years.
The preliminary work to set the stage for the construction of the oil projects is already in progress. The environmental and social impact assessments, and the front-end engineering design studies for the Kingfisher and Tilenga Projects, and the EACOP were concluded; the land required for the projects has been identified and surveyed, and the process of compensating and relocating affected persons in ongoing.
The projects’ technical schedule indicates that first oil will be achieved 36 to 45 months after the final investment decisions. Those months will be characterised by intensive activity as FID unlocks the detailed engineering, procurement, and construction phase of the projects, where the bulk of opportunities lie. This is critical for the Ugandans entities that seek to harness the opportunities presented by the projects.
Uganda has made significant strides in promoting national content in the oil sector. The main objective for national content is to achieve in-country value creation and retention whilst ensuring competitiveness and effectiveness.
“In 2020, the ratio of procurements spent on indigenous Ugandan companies went up to 92 per cent, up from 74 per cent in 2019 and 59.6 per cent in 2018. Whereas this was during a period of relatively low activity, it is indeed a show of the capability of Uganda enterprises. During the peak of exploration (2008 to 2017), the country achieved 28 per cent national content,” said Ernest Rubondo, the executive director of the Petroleum Authority of Uganda.
Having finalised all the necessary commercial agreements, the oil companies will move to the engineering, procurement, and construction phase of the projects. The contracts for this phase have been unbundled to enable the participation of local companies. Bid notices for supplies and services are now being advertised and the process of awarding contracts is expected soon.
The projects have been sub-divided into different work packages requiring a wide range of contractors and sub-contractors. The first opportunities will relate to pre-drilling, related civil works (including site preparation and some construction), and related supplies. This will require over 3,000,000 tons of local construction materials such as murram, sand, aggregates, and cement. This is just one of the 16 categories of goods and services that is ringfenced for Ugandan companies in the national content regulations.
Another category reserved for Ugandan firms is logistics/ transportation; close to 300 lorries will be required every day to transport construction equipment and materials during the peak period.
However, Ugandan entities can still create joint ventures with non-Ugandan entities in other categories (outside the 16) to participate in the more technical and specialist works, and hence promote technology transfer. It is also important to understand the contracting processes involve different levels and/ or work packages that will each have opportunities for sub-contractors for up to three levels, in some instances.
“Following the launch of the projects, contracts worth $6bn for over 40 work packages and contracts for the projects have been submitted by the licensees to the Petroleum Authority of Uganda (PAU) for approval. The Authority manages the National Supplies Database, a register for entities willing to supply goods and services to petroleum activities.” Mr Rubondo added.
The oil companies are required by law to contract only entities registered on the National Suppliers Database. The NSD therefore enhances national content by giving visibility to Ugandan companies and creates opportunities for joint ventures to improve capabilities. On the other hand, the National Oil and Gas Talent Register, gives visibility to those with oil and gas related skills.
The government continues to support Ugandans through collaborations with several entities willing to develop the capacity of Ugandans and Ugandan entities. Recently, the African Development Bank and the government of Uganda signed a $500,000 grant agreement for financing of micro, small and medium enterprises. The project, which is being implemented by the Petroleum Authority in partnership with the Stanbic Business Incubator and other partners, aims to help develop the capacity of local Uganda MSMEs along the pipeline route by enabling them to access new market opportunities, and build linkages with larger companies. It also hopes to create an estimated 500 jobs along the pipeline.
In addition, the government established a petroleum institute at Kigumba to support the delivery of required technicians in the sector. There are also several government-run vocational training institutions offering programmes relevant for the oil and gas sector; so far, the institutions are underutilised. They include: Buhimba Vocational Training Institute, Kiryandongo VTI, among others.
Mr Rubondo added: “The journey to have Uganda’s oil sector finally take off has been long and tedious one. Ugandans should utilise this time to continue developing their capacity to benefit from the development of the country’s oil and gas resources.”
