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What SME’s Should Do To Harness Opportunities Created By The National Content Framework In Uganda’s Oil And Gas Sector

Table of Contents

Introduction

Following the discovery of oil in Uganda, it has become difficult to describe the future of Uganda and her economic potential especially in the medium and long term without making reference to oil. Uganda has approximately 6.5 billion barrels of oil reserves, with at least 1.4 billion estimated to be economically recoverable. The exploitation of this oil resource has been described as a possible life time transformative game changer for the Country in terms of Revenue potential.

While speaking at the Annual Lawyers Conference 2021, Mr. Ernest N.T. Rubondo the CEO of Petroleum Authority of Uganda intimated that the launch of these oil and gas projects will usher in investments of over USD 15 Billion into Uganda’s economy in the next 5 years and an additional USD 40 Billion is expected to be spent over the following 25 years of operation and maintenance of the oil fields and other infrastructure. The CEO remarked that the oil and gas projects were launched in Uganda on 11th April 2021 after conclusion of critical agreements required for commercialisation of the country’s oil and gas resources. The investment by the industry in the exploration and appraisal operations was over USD 3.8 Billion by end of 2020 and the first oil is expected at the beginning of 2025.

To fully harness the oil resource, the Government as a constitutional custodian of all resources on behalf of Ugandans has invested fairly in policies and laws aimed at avoiding the deepening lack of involvement of citizens in other countries where states did not deliberately develop National Content Policy. This article underscores the opportunities created by the Uganda’s National Content legislation. It also makes proposals to individuals and SME’S to prepare them for the lucrative but highly specialised Oil and gas sector.

What is National Content

Most oil producing Countries put in place Intentional policy mechanisms to increase the flow of revenue into the Country and to the local individual natives and local Companies. There are two approaches to this development strategy namely the protectionist and liberalised approaches. These policy mechanisms are what is normally referred to as local or National Content. 

National content approaches vary from Country to country but are always in form of policy and regulatory interventions. Uganda’s National Content policy defines National Content as the value added or created in the Ugandan Economy through the employment of Ugandan workers and the use of goods available or produced in Uganda and services provided by Ugandan citizens and enterprises. The Petroleum (Refining, Conversion, Transmission and Midstream storage) (National Content) Regulations No.34 of 2016 and The Petroleum (Exploration, Development and production) (National Content) Regulations No.44 of 2016 similarly define National Content to mean; the level of use of Ugandan local expertise, goods and services, Ugandan Companies, Ugandan citizens, registered entities, business and financing in Petroleum activities.

Opportunities created by Uganda’s National Content framework for Individuals and SME’S

The Petroleum (Refining, conversion, Transmission and Midstream storage) Act 2013 together with The Petroleum (Exploration, Development and Production) Act 2013 provide the following direct opportunities;

  1. Requires the licensee, contractors and subcontractors to give preference to goods which are produced or available in Uganda and services which are rendered by Uganda Citizens and Companies. Approval is required from the Petroleum Authority for goods which are not locally available.
  2. In the event that goods and services are rendered by a contractor, such company should execute a joint venture with a Ugandan Company and the percentage holding by the said Ugandan Company should not be less than 48%. The said Joint venture must be approved by the Petroleum Authority of Uganda.
  3. The Licensee, its contractors and subcontractors shall ensure that Ugandan entities are notified of any upcoming contracts early enough to enable participation.
  4. The Law requires the licensee to train and recruit Ugandans in the sector. The Licensee shall within twelve months after grant of license and on the subsequent anniversary submit to the Authority a programme for recruitment and training of Ugandans.
  5. The law prohibits hiring of expatriates without prior approval from the Authority. This is meant to safeguard the involvement of Ugandans.
  6. The National Content Regulations reserve sixteen categories of goods and services for Ugandan entities. These include; Security, Foods and beverage, Hotel accommodation and catering, Human Resource management, Office supplies, Fuel Supply, Land surveying, clearing & forwarding, crane hire, locally available construction materials, Civil works, Environment studies & impact assessments, Communication & Information technology and waste management.
  7. Allocation of 10% to National Content during bid evaluation and for bids with less than 5% score difference during financial evaluation, bid containing the highest level of National content to be selected.
  8. The requirement for all entities to be registered on the National supplier data base maintained by PAU.

Uganda’s National content regime is by far fair to the Nationals and if properly implemented, nationals may realise tangible financial and economic benefits.

What SME’S and individuals need to do, to participate in the Oil and Gas sector

 Section 125 PEDP Act and 53 of the PRCTMS Act provides entry point priority to Ugandans and joint ventures with international firms. As such, firms and individuals interested in participating in the sector need to do the following in order to put themselves in a position contemplated by the Acts;

  1. Registration on the National Supplier Database (NSD) for Uganda’s Oil and gas sector via www.pau.go.ug or nds@pau.go.ug
  2. Capacity building. The oil and gas sector is indisputably a highly specialised sector which may not entertain mediocrity. It’s one thing winning a lucrative procurement and another being able to deliver on the same. This is the time to study the sector and understand the policy, legal and regulatory framework in place, attain that requisite skill ahead of commercial production. Strengthen experience in project development, project finance and or project acquisitions and dispositions including working knowledge of Joint Ventures. Develop an understanding and knowledge of oil and gas markets, financial markets, credit agreements as well as oil and gas transactional documents across the petroleum value chain.
  3. SME’S need to formalise businesses and put their accounts in order. The National Content regime requires specific goods and services from local companies and if they are unable then such services would be provided by international companies with joint ventures with Ugandan companies. In order for any local company to attract an international joint venture, it must be a formally registered business and its books of accounts must be in order. 
  4. Be tax compliant. No international company will seek to associate with a local company that does not observe its tax obligations because such is to risky in the medium and long term. But it is also good practise to be tax compliant as a business looking at strategic long term business survival.
Conclusion

The Uganda Government has done the best it can to craft a National Content Legal regime that attempts to ensure involvement of Nationals in exploitation of Uganda’s Albertine Graben with the aim of ensuring direct and indirect benefit to the Country. Now what is crucial is for intending participating SME’S to prepare adequately to harness the sector and partake in the direct and indirect opportunities created by the intentional local content framework. 

Innocent Ddamulira - Partner DIT Advocates

Innocent Ddamulira - Partner DIT Advocates

Innocent is a Partner at DIT Advocates. He is a commercial lawyer and head of the Transactions and Corporate advisory department of the firm. Prior to setting up DIT Advocates, Innocent worked with a Leading Law Firm where he advised/represented Government Bodies, Regulators, Financial Institutions and Corporate entities.
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