Now that we know the first commercial sales of Uganda’s oil are at most two more years away, it is understandable to feel disappointed after all the reassurances that fueled the great anticipation for 2025.
The upside is spending in the oil and gas (O&G) sector will continue, acting as a locomotive for attracting foreign direct investment (FDI), and helping to maintain the country’s current six percent-plus economic growth rate.
After several false starts, we also have a clearer picture of who will build the $4 billion refinery, previously the missing link in Uganda’s ambitions to develop an integrated O&G industry.
In partnership with the government, Alpha MBM Investments LLC, a company linked to the multi-billionaire royalty that rules the United Arab Emirates, is nearing a final investment decision for the 60,000 barrels per day facility.
Latest reports say shareholders are halfway towards closing financing of the $5 billion proposed 1440-kilometre East African Crude Oil Pipeline (EACOP) which will link Tanzania’s Tanga port and the oilfields of western Uganda.
Currently, it is in the engineering, procurement, and construction phases, a good sign that although things are moving relatively slowly, the shareholders remain committed to seeing the project through. Towards the end of 2024, they raised another $500 million.
Drilling platforms are sited in Kikuube, Buliisa, and Nwoya districts while the pipeline will go through the districts of Hoima, Kikuube, Kakumiro, Kyankwanzi, Gomba, Mubende, Lwengo, Sembabule, Kyotera, and Rakai before crossing into Tanzania.
Further delays in starting full-scale production should also be seen as welcome. It gives Ugandans more time to size up the opportunities now and into the near future. About 16 O&G support services have been ring-fenced by the government under its National Content policy.
Ruth Nankabirwa, the Minister of Energy and Mineral Development recently reminded us, “We are dedicated to fostering economic growth, creating employment opportunities, and improving the quality of life for all Ugandans.”
As the first step in vieing for available contracts, the Petroleum Authority of Uganda (PAU) enthusiastically invites companies to register on the National Supplier Database (NSD). Eighty percent of the estimated 3000 already listed on the NSD are Ugandan, and to date, nearly $2 billion in contracts have been won by local businesses.
All the same, there are a vast number of interested parties within the vicinity of the oilfields who are unaware or just plainly intimidated by the whole NSD process. They would prefer an easier entry point into the O&G value chain.
Fortunately, there is one already at hand and that is the supply of foodstuffs, but it also means the adoption of a more business-minded attitude. For instance, if the recipients of the Parish Development Model funds were to align their spending with this venture in mind, there is every possibility of increasing household incomes.
When oil production reaches its peak, PAU estimates there will be at least 13,000 people directly involved in daily operations. However, investments in the sector will also stimulate indirect and induced employment in the region numbering between 35,000 and 100,000 people.
Some time ago, PAU commissioned a study carried out by the Economic Policy Research Centre (EPRC) and in partnership with leading private sector entities, such as Stanbic Bank, which shows a significant surge in demand for food items within O&G districts and along the EACOP route.
The study, Agricultural linkages to the oil and gas sector in Uganda, states that demand for agricultural food production will increase dramatically in the next five to 15 years. There is an unmet demand for cereals, pulses (dry beans, cowpeas, lentils), and a shortage of milk, meat, vegetables, and fruits.
The three strongest linkages between agriculture and the oil sector are the purchasing of food, the sale of food products, and service provision to agriculture. The commonest actors in the linkages are farmers, produce traders, and transporters.
Ideally, smallholders grow the produce; aggregators warehouse it, making it easier for the contracted companies to centrally source and supply their customers in the oilfields.
While linkages between O&G and the agricultural sector are expected to generate benefits, there are three main challenges; lack of awareness of available opportunities, lack of understanding of how agriculture works, and poor farmer’s organization. This highlights a high degree of information gap that relates to food standards, market information, market readiness, and farming inputs such as pesticides, herbicides, and acaricides.
Oil companies do not buy directly from farmers. Instead, they hire contractors to deliver the food, which must meet national food standards governed by the Uganda National Bureau of Standards (UNBS).
The process of hiring contractors is competitive and is advertised in the media, with food specifications outlined in the advertisement. Some companies set a monthly menu that determines what is needed and procured from suppliers. Other companies also rank sub-contractors by their ability to meet specifications.
Direct demand for most food items, by O&G companies, will more than double during the course of development and production of the oilfields. For example, demand for meat is expected to rise from 567,827 kilograms to over a million. During the first year of pipeline construction, there will also be a significant demand for eggs (532,800 pieces) and milk (76,800 liters).
According to the study, households dominate the indirect demand. This suggests that there is a missing market for food supplies to firms and a scope for strengthening the linkage between agri-based firms and the O&G food market.
Another concern is that the quantity of food and meat supply is increasingly being affected by drought. Other effects are those of soil degradation due to poor conservation measures. In this case, a significant proportion of food consumed is sourced from outside the O&G region.
Food items imported to Kikuube from other districts include eggs from various sources; Irish potatoes from Kagadi; and tomatoes, passion fruits, and carrots from Fort Portal.
The UNBS also needs to urgently address awareness about standards. The study results show that firms lack awareness of food standards. People have not developed the sophistication to understand or demand standards. Moreover, the products grown by most farmers do not respond to demands in the oil camps.
Most farmers grow cassava and sweet potatoes yet oil camps demand vegetables. Other common requirements are supplying tomatoes in plastic containers, washing potatoes, and washing off pesticides before supplying. This means there is a scope for more sensitization.
The requirement to register on the NSD is also constraining produce firms from tapping into linkages between the two sectors. Firms are expected to have a TIN and a Uganda Registration Services Bureau (URSB) registration, among other requirements, to register on the NSD. Instead, most are registered with local governments and cannot register with URA and URSB.
The study makes several recommendations, but one notable one is improving infrastructure. This includes things like storage, cooling, and processing facilities, as well as maintaining good feeder roads to link farmers to markets and access market information.
Stepping up the distribution of fertilizers, pesticides, improved seeds, and farm machinery is another area that requires closer attention. Addressing these factors would help to de-risk agriculture and underpin the capacity to raise the quantity and improve the quality of the produce to meet rising demand.
Skilling is a vital factor in strengthening linkages. The study recommends providing business development services so that people, especially subsistence farmers, can fully benefit from entering the O&G value chain. The Stanbic Business Incubator and its partnerships with PAU, the Uganda National Oil Company, and other entities have been very active in this area of skilling and enterprise development.