National Participation; Our Perspective

Presented by Association of Uganda Oil & Gas Service Providers 22-10-2013

Founder Members of the Association Eagle Air Uganda Ltd Globe Trotters Ltd Three Ways Shipping Services Group Ltd Bemuga Forwarders Ltd Quantum Associates Ltd Intercar (trading as Europcar) Richflo Lift Services Transtrac

Background
The Association;
locally owned and incorporated. Operating in the oil and gas industry since 1998. Owned by indigenous Ugandans Employs a total of over 9000 Ugandans Invested heavily in acquiring land, equipment, farm inputs and highly skilled staff. Total investment in the economy is over USD 60M Non Partisan, non racial and not for profit 73 member companies across the board; services, banks, farming, insurance, transporters, clearing agents, warehousing, catering, food production, Construction, Drilling, Law firms, welding, etc

Current Situation The industry

Development stage estimated at between USD15bn-USD20bn with about 40% going to logistics (PEPD) Indigenous private sector stakeholders are shouldering the weight with seemingly inadequate support from the oil companies. Relevant equipment and technical know-how is hard to come by. A lot of logistics, food, labour, equipment, management and administration, etc will be needed in this stage.

Current Situation The industry

As we move towards the lucrative stage of devt;
A number of international service providers; Baker Hughes, Schlumberger, Agility, Halliburton, Saipem, weatherford, etc have opened shop in Uganda recently. There is a law now compelling all non Ugandan owned companies to cede atleast 48% ownership to locals.

AUOGSP advocates for Joint Ventures.

Current Situation - Contracts

Contract terms with the local companies are normally short therefore not bankable. This stifles their growth, preventing them from participating in larger projects in the future. The contracts contain clauses that are ambiguous compared to the commitment required. Some contracts are not openly advertised while others receive bid information earlier than local companies.

Termination clauses are unfair Cancelation with or without reason is a clause in the contract. Intellectual rights are owned by the oil companies as per their contracts Any amount disputed requires a credit note to be issued regardless whether there was an agreement or not. Equipment certification is dependent on who is holding office at the time. The multinationals place unfair contract terms for the local companies.

What does the law say?

The Petroleum (Exploration, Development & Production) Act, 2013 (the Upstream Act): Section 25: Preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies. Where the goods and services required are not available in Uganda, they must be provided by a joint venture company in which a Ugandan company has a share capital of at least 48% Licensee to submit to the Petroleum Authority an annual report on use of Ugandan goods and services.

Successful Local content Laws

Nigeria - Nigerian Oil and Gas Industry Content Development Act, 2010 Highlights Obligations under the plan
A Nigerian company is defined as a company registered under the Companies and Allied Matters Act and having not less that 51% Nigerian shareholding Submission by all companies of a Nigerian Content Plan Compliance with minimum Nigerian Content specifications
Certain services such as Directional Surveying Services, Cutting Injections/Cutting Disposal Services, Waste Disposal/Drainage Services and industrial Cleaning Services requires the use of 100% Nigerian man hours while services such as Disposal/Distribution and Waste Transport Services, procurement of Sickline, Well Head Safety Panels and certain Seismic Data Acquisition and Interpretation Services requires 100% Nigerian spend.

Our Proposals:
There is no clear definition of what local content includes in the Petroleum Act. It is recommended that local content be defined as consisting of, Indigenous Ugandans or companies that are owned and managed by indigenous Ugandans. A local company should be well defined. Local content should be further broken down into 4 key areas:
Employment (at the lower level) Management (mid level to top level) Equity (shareholding and ownership of service companies) Acquisition of Assets and Equipment (from local content)

More recommendations
Every contract or job must be advertised in the local media with penalties if this is not done. Local participation must be correctly weighted. A list of all contracts awarded should be made available to the government (this will especially be beneficial for tax purposes). Government agencies such as the Ministry of Energy (PEPD) should do everything possible to ensure contracts are awarded to local companies. All contracts in the oil and gas should be signed in Uganda (this ensures that there is transparency in the process).

More recommendations
The government should continue to pay for local operators to receive training and this should be enforced, eliminating this matter will disadvantage Ugandans. More stringent monitoring of the multinational oil companies business practices in Uganda is required. A National Content Board should be formed to monitor and supervise strict adherence to the rules. Increase awareness to ensure that indigenous operators are aware of the opportunities and their rights. Nigeria compels international companies to have 75% local content Angola recommends 71% local content inclusion Uganda 48% local content for those services that cant be locally availed. We think Joint Ventures will help in transferring skills and technology.

Successful Local content Laws

Consideration of Ugandan Content in Bid Development; Nigeria is at 40%, Angola 43%, we propose 40%. Submission of documentation requiring proof of compliance Expatriate Quota and training of Ugandan Personnel Research and development Obligations Technology Transfer obligations Compliance with Insurance, Legal and Financial Obligations Submission of an annual Uganda a content performance report Penalties
Failure to comply incurs a penalty worth 5% of the entire project cost. Eligibility for awards of licences and permits is also based on compliance with the Act.

Peer Review
Nigeria enacted the Nigerian Oil and Gas Industry Development Act in 2010 and this is what we can pick; Nigerians given first priority for employment and training for any project in the sector Section 35 of the act requires all operators and companies to employ only Nigerians in their junior and intermediate cadre Each operator should present a 4 year succession plan on how Nigerians will fill expatriate position For award of tender if a Nigerian company is second by has a differential of not more than 10% ,the contract should be awarded to the Nigerian Company

Angola
For competitive bidding, first priority is given to Angolan companies. Outside bidders have to obtain prior authorization from the Angolan ministry of petroleum. Certain goods and services are ring-fenced for Angolans(e.g. catering, cleaning, transportation, water supply etc) More specialized services (e.g. geographical and geodesic surveys, mud logging, drill pad construction and production facilities etc) may be performed through Joint Ventures with Angolan companies.

Ghana
Where bids are otherwise equal, the bid containing the highest level of Ghanaian content shall be selected Operators, contractors and sub-contractors within the Oil and Gas industry shall consider local content as an important element in their project development and management philosophy for project execution.

What we need from Govt

Enterprise development Capacity building Facilitating national participation and Monitoring and Evaluation Institutional development

Opportunities
Catering and food supplies Security services Welding and fabrication Transport of goods and personnel Warehousing Camp management Cold chain management Hotel services Recreational and social amenities Logistics supplies like clearing, forwarding and handling Housing, infrastructure and roads.

Challenges
The sector is highly regulated Capital intensive Standards can not be relaxed to accommodate local business environment. Risks are very high and therefore funding limited Competition is so high because of foreign experienced and skilled companies that know very well these companies. Lack of a strong local financial policy that supports local investment Legal and regulatory framework doesnt favor locals. An investor needs 15 procedures to start a business in Uganda. Kenya (10), TZ (09), Burundi (04) and Rwanda (2). You need an average of 33 days in Uganda, Kenya (32), TZ (26), Burundi (08) and Rwanda (03) to complete start up procedures.

Ultimately the goal is to build Africa, for Africans Obama