OIL: Uganda is now in the most crucial phase

By Stephen Bwire
What is going to happen to Uganda between now and 2020 is extremely important, and needs to be done well. Between now and the time when oil gets out of the ground, it is expected that $20b will be invested in this country. The GDP of this country is $27b. We are, therefore, talking about a country that has the potential to have almost all its GDP invested in it in four years.

Uganda is now in the development phase of the oil and gas industry which will be characterised by heavy construction activities, and this will require the supply of goods and services including steel and metal products, cement, gravel, labour, food, health services, insurance and many others to the major companies that have begun the process of putting in place essential infrastructure to be used in the production phase of oil.

According to experts in the industry, the next four to five years will be the busiest periods in the estimated 30-year lifespan of the long-awaited oil production process for Uganda because this is when companies will be building the most critical infrastructure.

The infrastructure such as roads, camps, pipeline networks including the major 1,444km-long oil export pipeline from Hoima to the Tanzania port of Tanga, are to be built over the coming four years as the country prepares to start producing the oil. Energy minister Irene Muloni told journalists recently during the launch of a major study to determine the design and cost estimates of the production system for two oil blocks, that the government and other private players are targeting to start producing the oil by the year 2020.

What’s needed?

The government and oil companies agreed to compile an ANNUAL REGISTER of suppliers from within Uganda as well as from around the world to whom the oil companies will send requests to supply goods and services they may need.

And late last year, the newly created Petroleum Authority issued a call to all entities willing to participate in the provision of goods and service to join the register so that they can be considered for contracts by the oil companies.

The Petroleum Authority is keeping the register and interested parties were advised to complete forms that can be obtained from the website of the Directorate of Petroleum www.petroleum.go.ug with the following link, petroleum.go.ug/resources/pau_forms.

The importance of this process was underlined by Dr. Ben Mugasha, Chairman Bemuga group which is one of the local companies that are positioning themselves to provide services to the Oil companies. Dr. Mugasha says: “It’s high time Ugandans became serious and register their companies to ensure they are able to target these opportunities that are coming. It’s very clear oil is in Uganda but everyone should ask themselves what have they done to take advantage of the process.”

He also stressed the fact that more opportunities especially for majority of Ugandans exist not in directly getting employed by the oil companies but rather as suppliers of a diverse range of quality goods and services to the different companies that will have won contracts to do the work.

“Ugandans should not put a lot of hope in ‘oil money’ [referring to government’s revenue share of the oil proceeds] but think of delivering food to these companies,” said Mugasha.

Mugasha added: “It’s high time political leaders sensitised their people and see how to benefit from there opportunities. Ugandan companies should come out and not let Kenyans take these chances away from us.”

Minister Muloni also underlined the scale of the work as well as the business opportunities lying ahead by estimating that it could cost about $8billion. Uganda’s entire annual budget is about $8 billion.

In 2014, the three major oil companies Tullow, Total and CNOOC that prefer to move under the banner of Joint Venture partners, and a team of officials from government conducted a baseline survey of the needs of companies that will be involved in the oil development and production phase.

Getting employment is one of the biggest anticipated benefits from the oil sector. And results of the survey revealed that between 100,000 and 150,000 jobs will be created, majority of which will be indirect or induced jobs such as working on farms or in factories that will supply things like iron bars or chicken to feed the directly employed workers.

Warning not heeded

Whereas the survey highlighted the need for government to put in place a certification or accreditation process especially for the semi-skilled workers, little or nothing has been done to ensure the semi-skilled Juakali workers obtain some certification papers which they can use to apply for jobs.

As the survey revealed back in 2014: “Workers and engineers need to be certified in several disciplines i.e they need to receive an accreditation allowing them to work on an oilfield site.”

In the absence of certification process for the technicians, drivers, engineers, civil craftsmen, machine operators, the recruitment companies will likely be left with no option but import foreign workers from countries such as India, Philippines who have experience working in oil-related operations.

Crucial step on designs and costs commence

The launch of the Front End Engineering Design (FEED) studies at Sheraton Hotel in Kampala recently was hailed as a monumental step towards Uganda’s journey to realise oil.

Energy Minister Irene Muloni said: “This is a milestone in our journey for oil production in Uganda where everyone now is focusing. This FEED will lead to the project execution and construction phase for the upstream facilities required to produce Uganda’s first oil targeted by the end of 2020 which is our mail goal. Several facilities will be constructed such as pipeline to transport oil from Kabale to Tanga, over 11 key roads are to be built as well as two bridges.”

The FEED studies will be carried out by three companies with the aim of determining the technical design of the oil infrastructure, such as pipelines, power infrastructure, as well as the cost of the work before the oil companies can determine whether or not they will fund the exercise.

Two of the three companies that are participating in the FEED study will eventually be awarded the contracts to lay the infrastructure with each company taking charge of its own exploration area. The study is expected to be completed in six months, after which the Joint Venture partners will announce their Final Investment Decision (FID) before end of the 2017. The FID is a major step when an oil investor reveals whether or not he will fund the operation.

The three companies that were chosen to conduct the studies are Fluor from France partnering with China Petroleum Engineering and Construction Company (CPECC) from China, Technip from France and Chicago Bridge & Iron Company (CB&I) based in the USA.

Total General Manager Adewale Fayemi said during the signing ceremony at Sheraton that: “The three companies are to work professionally and competitively because only two best companies will be invited for to compete for Engineering, Procurement and Construction (EPC).

The FEED studies will provide the necessary information to fine-tune the cost estimate of the project, identify the specific technical expertise, skills and equipment needed for construction. The performance of these three companies will be critically vetted and analysed by the Joint venture partners.”

What you need to know about oil jobs

Initial estimates indicate that some 13,000 high-paying direct jobs will be created in the coming four years as companies build the infrastructure ahead of first oil expected in 2020.

Experts in the field however warn that the oil sector is a not a mass employer. Indeed, apart from a couple of thousands of jobs that are likely to come during the peak period of construction, expected to take place in the coming five years, the production period creates very few jobs and mostly in the technical fields such as engineering to support oil production, pipeline maintenance and probably in the refinery, if Uganda succeeds in building one.

That notwithstanding, the anticipated 13,000 direct jobs that are expected to be created and an additional 130,000 indirect or induced jobs that will be generated in peripheral supporting industries such as farming, transportation, logistics, legal services, insurance cannot be ignored.

In fact the government emphasised employment creation as key aspect of the National Oil and Gas Policy which outlines Uganda’s vision as an oil producing nation.

Certification essential

Gloria Kagoye of Q-Sourcing one of the certifying agencies

But a 2014 report of the Industrial Baseline Survey (IBS) that was carried out by Oil companies in collaboration with the private sector, revealed serious man power gaps including those for vocations such as drivers, craftsmen and welders.

Executives from the Joint Venture Partner companies Tullow, Total and CNOOC called for certification of Ugandan workers (for about 5,500 jobs) so as to meet the high standards of the oil and gas sector.

Three years since the study was concluded, little has been done by both the government and Ugandans to build the required labour needs of the industry.

Tony Okao-Otoa, Total’s Coordinator for Corporate Affairs, reveals that the man power gaps still exist.

Okao-Otoa says: “There are serious manpower gaps in this country. But the project will have to go ahead,” an implication that the contracting companies may have to rely on foreign workers to be able to meet their manpower targets.

Whereas government has taken some steps to train Ugandans in technical fields at different institutions such as the Uganda Petroleum Institute Kigumba (UPIK), Makerere, Kyambogo and Busitema, as well as in Trinidad and Tobago, many of the graduates still do not meet standards of the oil and gas sector.

According to Patrick Mbonye, the Managing Director of Q-Sourcing, one of the reputable companies that hire workers for the Oil and Gas industry, the major challenge faced by majority of Ugandan professionals is their lack of certification for their qualifications.

Mbonye however decries what he termed as negative attitudes by some Ugandans to attain the high standard requirements for jobs in the oil sector including certification.

“There is a group of people in Katwe who we are currently working with. They received a grant of $2,000 from donors to study Codded welding and were required to pay an additional $400 but they are reluctant to top up the money,” remarked Mbonye.

“And sadly, this is the attitude of many of our youth,” adds Mbonye. His views were shared by Veronica Namwanje, the Deputy Executive Director of the Uganda Small Scale industries Association (USSIA).

She said: “We have always urged our members on lifting their levels of skills from just welding windows and burglar shutters to heavy duty metal works but they are reluctant.”

Talent register

While the IBS study called for the establishment of a National Talent register, its development is taking longer than anticipated, considering that major construction works are scheduled to start early next year.

According to Dr. Earnest Rubondo, the Executive Director of the Petroleum Authority of Uganda (PAU), the National Talent register is being developed by the China National Offshore Oil Corporation (CNOOC). Recruiting firms will only be allowed to bring foreign workers if they fail to find the necessary qualified personnel in the register.

Accreditation

A number of trained oil professionals are facing difficulties in getting accredited to work in the oil industry.

And yet getting the accreditation from internationally recognised institutions such as City and Guilds or the Offshore Petroleum Industry Training Organisations does not take years or first-class school.

For example, vocational schools as humble as St. Stevens Vocational Training centre in Hoima, have managed to train and organise City and Guilds certification for their students. Ninety (90) graduates of St. Stevens have attained certain levels of City and Guilds certification and 200 more are expected to achieve the same, according to energy ministry officials.

In Uganda, Q-sourcing conducts competence tests for a number of internationally recognised accreditation agencies like City and Guilds, the Offshore Petroleum Industry Training Organisations (OPITO), the American Welding Society, American Society of Mechanical Engineers, South Africa’s National Occupational Health and Safety Consultants for Health and Safety certification of individuals and companies.

And Mbonye, points out that for those interested in securing the technical jobs, it is still not too late.

“It requires some money to train to the level required by the oil and gas sector. But once one has attained the qualification, the opportunities are boundless,” said Mbonye, who noted that some young people who were given internationally accredited certifications and were laid off by oil companies when activity slowed down, almost all managed to get jobs at Karuma hydro-power dam currently under construction.

Oil revenue governance the key

Experts in the industry argue that only smart investment of a country’s oil revenues can guarantee meaningful and lasting employment creation as opposed to focusing on the direct and largely short term jobs in the oil and gas sector.

Dr. Paul Bagabo, a consultant with the Natural Resources Governance Institute notes that: “Countries that push for industrial participation (such as supporting national companies to participate in bidding processes), benefit more than those that insist on employment.”

But Bagabo goes a step further to argue that ultimately, greater benefit to the economy is derived from meaningful investment of oil revenues to sectors that support majority of the population.

“Durable jobs are created not by the oil sector but rather when the whole economy is productive, when the oil revenues are invested wisely in sectors that support majority of the population,” argues Ramathan Ggoobi, an Economics lecturer from Makerere University Business School.

Fear of mismanagement

Initial estimates indicate that at current prices, total revenues from sale of oil, taxes and royalties will bring into national coffers over US$ 1 billion on average per year.

This represents a substantial infusion of cash into Uganda’s budget of about US$8 (2016/17).

But evidence across most of Africa’s oil-producing countries reveals that such lump sum inflows of cash from oil and other minerals has been mismanaged by serving governments leaving behind a trail of economic collapse, environmental destruction, yawning income inequalities, food shortages and political instability.

In fact, one or a combination of those ills have affected all the top oil producing countries in Africa in the recent few years i.e Nigeria, Angola, Egypt, Algeria and Libya.

In Uganda, the latest revelations of alleged misuse of oil revenues, even before the country starts to sell the commodity has raised fears that Uganda may not escape the oil curse or economic and political turmoil that has befallen other African countries.

The allegations of misuse of oil revenues, in what has been baptised as the Presidential Handshake bonuses in which government awarded Ushs6billion to 42 mostly senior public servants, and is being investigated by Parliament, has left many truly worried about the future when more money begins to flow from oil sales and taxation.

The concern of many Ugandans is compounded by the fact that the bonuses were awarded in contravention of Uganda’s laws, ethical principles as well as international best practices to which Uganda claims to adhere.

The Inspector General of Government Irene Mulyagonja testified in Parliament recently that the award of bonuses was illegal. Most importantly, perhaps, Mulyagonja remarked that the scandal consumed nearly all the people who are mandated to advise government on matters of law.

If Uganda does not change course to pursue disciplined management of the oil resource, it is evident, not only will jobs be imperiled, but so will be other aspects of life for millions of Ugandans present and in the future.

Energy minister Irene Muloni toasts to the launch of the FEED study this week with the executives from the Oil Sector. Right is Total’s GM Adewale Fayemi

Dr. Earnest Rubondo, the Executive Director of the Petroleum Authority of Uganda.

Credit: This report was reproduced with material syndicated from www.sunrise.ug Editor.

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