How Uganda will benefit from the oil projects

by Business Times
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Uganda’s oil and gas journey dates back to 2006 when commercial quantities of oil and gas resources were confirmed. As a result, the Government embarked on a process to ensure that the resources are utilised sustainably to create lasting value with the National Oil and Gas Policy put in place in 2008.

In the subsequent years, the country’s laws were updated to address environmental, social and governance issues associated with the petroleum industry. In addition, new laws to address key issues from the industry such as petroleum waste management, climate change and oil spills have also been enacted.

The Government expects to earn an average of $2.8b per annum from oil activities, which is projected to be 47 per cent of the government’s annual revenue collection during the 2022/23 financial year.

However, Uganda’s Oil projects have in the past few months received opposition from different activists largely online, especially climate activists who are against the East African Crude Oil Pipeline project (EACOP) and Tilenga projects siting environmental outcomes that the projects would come with upon execution.

In addition, the European Union (EU) Parliament called for the halting of drilling activities in the protected and sensitive ecosystem (Murchison Falls National Park) and the postponement of work on the EACOP for at least one year to study the feasibility of an alternative route that would preserve the environment and consider other projects based on renewable energy.

Whereas there have been attacks on the country’s oil and gas projects, we cannot entirely conclude that the projects are not well-intentioned.

As Mr Herbert SSempogo, Uganda National Oil Company’s (UNOC) senior Corporate Affairs Officer states, the Upstream (Tilenga and Kingfisher) and the midstream-EACOP projects are conjoined and each of them is vital for the other’s success.

“An attack on one is an attack on Uganda’s progress! Activists, largely foreign-based and backed, are predicting doom and gloom: the projects are not good commercially and environmentally. We say the opposite,” he says.

Reports indicate that close to US$20bn is going to be injected into the oil and gas projects, which is almost half of Uganda’s GDP in 2021, according to the UBOS statistical abstract for 2021/22.

According to Ssempogo, the investment will have a ripple effect-employment and contracts for Ugandans plus stimulating other sectors, which will provide goods and services. Using the prevailing crude oil prices, the government would earn close to $70bn over the projects’ lifetime.

Regarding EACOP, it is estimated that Uganda will realize between US$350 and US$400 million from the 15% equity shareholding. Production Sharing Agreements (PSAs) between the Government and international oil companies guide the sharing of proceeds from crude oil.

One of Uganda’s oil drilling projects

However, revenue from EACOP is linked to the total Upstream projects revenue because the pipeline is an enabler. It will also create employment, and contracts for goods and services and generate tax for both Governments (Uganda and Tanzania).

The refinery will process 60,000 barrels of crude oil per day into refined products, including liquefied petroleum gas, a clean source of energy. Plus, it will improve Uganda’s balance of payments by reducing the import bill of petroleum products currently costing $2bn annually.

All the proceeds are to be deposited in the Petroleum Fund and the funds will only be used to invest for future generations and support infrastructure development.

Ssempogo says the worry, therefore, that the proceeds would not benefit Uganda, is not justified.

“Moreover, Uganda is a member of the Extractives Industries Transparency Initiative, requiring openness and accountability vis-a-vis the sub-sector activities. This is in addition to various institutions, which will act as checks and balances for both players (companies) and officials,” he notes.

He further reveals that the employment of Ugandans is other major concern-pessimists argue that Ugandans will not be hired.

“The National Content Regulations (Midstream & Upstream) 2016 require the hiring of competent, qualified Ugandans. Indeed, several Ugandans are employed including at senior levels. For example, the EACOP Ltd. The Deputy General Manager is John Bosco Habumugisha while the TotalEnergies EP Uganda Deputy Managing Director is Mariam Nampeera Mbowa. A total of 5,106 Ugandans are employed by international oil companies (IOCs), their contractors and sub-contractors. This is out of 5,372 employees in the sub-sector,” says Ssempogo.

Currently, about 10,111 Ugandans are estimated to be directly employed by the oil sector, and the number is expected to grow to 13,000 at the peak. 

Ugandans, who have fully registered and have compliant companies, can and are getting contracts across the 16 sectors “ring-fenced” for Ugandans.

According to the Petroleum Authority of Uganda (PAU), the regulator, contracts worth $10.7m were awarded to local companies in 2020.

In 2021, they rose to $200m. Shortly before and after the Final Investment Decision, says PAU, Ugandan companies got contracts worth over $600m (about sh2.3 trillion) for the Tilenga and Kingfisher projects.

The Total Tilenga Project - Tangi Camp (Central processing facility in Buliisa)
The Total Tilenga Project – Tangi Camp (Central processing facility in Buliisa)

Ssempogo explains that since 2017, 460 Ugandan companies have got contracts from IOCs. “This, like direct employment, has a positive ripple effect. The intensification in activities will have a matching rise in contracts subject to compliance.”

“Additionally, a deliberate thorough framework with elaborate mandates-licensing, regulation and ensuring the State’s commercial interests-for each institution, will ensure efficiency. Elsewhere, the absence of this specialisation, is what in part, has curtailed optimal exploitation of the oil and gas resources,” says Ssempogo.

According to Ms Peninah Aheebwa, an Energy Economist and PAU’s director of technical support services, in terms of health care services, more than $100m worth of clinical and non-clinical revenue opportunities is expected from medical evacuation, incidental health care, fitness for work examination, dental services, pharmaceuticals and laboratory service, among others. 

She adds that oil projects are also expected to help in closing the housing gap given that demand has been identified in all aspects which include residential, industrial, office spaces and hospitality.

“In terms of agriculture, there is an opportunity to exploit the demand expected which will, therefore, require, farmer-level capacity building on quality and standards, research and development and strengthening seed supply systems, building cross-border business linkages and investment in increasing productivity and production, among other,” she reveals.

Business Times Uganda

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