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Oil and gas projects: Value at stake
Peninah Aheebwa argues that whereas some Ugandans have joined foreigners to fight oil projects, they must first of all understand what is at stake. Photo | file
What you need to know:
Whereas some Ugandans have joined foreigners to fight oil projects, especially the East Africa Crude Oil Pipeline, the Petroleum Authority of Uganda says they must be aware of what is at stake and what they stand to lose
Government expects to earn an average of $2.8b per annum from oil activities, which is projected to be 47 percent of government’s annual revenue collection during the 2022/23 financial year.
However, in this article we shall focus on the non-fiscal benefits of oil projects through national content development and sectoral linkages.
National Content
National Content is regarded as value added on the economy through employment of Ugandans and the use of goods and services produced or available on the local market.
This seeks to drive development of human capital in oil and gas related disciplines, achieve in-country value creation and retention as well as development of competitiveness of Ugandan enterprises to supply the oil and gas Sector.
Out of the $15b investment in oil, the Petroleum Authority of Uganda is working with partners to ensure that at least 40 percent is retained in the country through national content.
Employment
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 peak.
The investments in the sector will also stimulate indirect and induced employment in the region of 35,000 and 100,000 Uganda respectively valued at more than $1b.
Capacity development
Contractors and subcontractors from more than 145 awarded contracts have proposed training for Ugandans to the tune of $20b.
This will be in addition to already committed capacity building of Ugandan companies through supplier development programmes, promotion of joint ventures and the industry enhancement centre. At least $7.7m has been committed to these programmes under the Tilenga Project.
It is projected that at least $5m will be spent on capacity building of suppliers and their contractors throughout the development phase in the Kingfisher Development and the East African Crude Oil Pipeline projects.
Supply of goods and services
During the exploration phase out of $3.5b spent in the country, $980m (28 percent) was retained in the country.
Therefore, with more than 145 contracts worth $6.8b in the development phase in both the upstream and midstream stages, the value of contracts confirmed to be executed by Ugandan companies at tier one and two is currently worth $1.73b.
Knowledge and technology transfer
The formation of joint ventures between Ugandan and international firms presents a huge opportunity for knowledge and technology transfer.
In addition, knowledge transfer through expatriate understudies, training in the use of petroleum and geoscience software, internships, and graduate programmes will facilitate this process.
TotalEnergies under the Tilenga National Content programme has already committed 30,536 manhours worth $3.86m towards technology transfer initiatives. EACOP and Kingfisher are projected to contribute at least $2m towards technology transfer initiatives.
Benefits through sector linkages ($8.4b)
Experience has shown that development of oil and gas can create an enclave economy if its development is not integrated in the wider economy.
Therefore, harnessing the linkages between oil and gas and other sectors of the economy is key for broad based, inclusive economic development.
Studies have shown that every $1 directly invested in the oil and gas sector is expected to yield indirect growth of the GDP by $0.6.
Therefore, a direct investment of $15b (33 percent of Uganda’s current GDP estimated at $45.7b) in the oil and gas sector is expected to yield indirect growth of GDP by close to $9b (close to 20 percent of current GDP) by the time first oil is achieved.
This will be in addition to the targeted $6b through fulfilment of national content requirements, which implies that through exploitation of sectoral linkages and national content, could cement its middle-income status even before first oil.
Exploitation of the linkages with agriculture, financing or insurance, manufacturing, education, transport, tourism, health, land use planning and housing is already ongoing.
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 others.
Additionally, 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.
Oil projects are also expected to help in closing the housing gap given that demand has been identified in all aspects among which include residential, industrial, office spaces and hospitality.
Therefore, as some Ugandans help foreigners to fight oil projects, they must be aware of what is at stake.
The perceived environmental impacts have been fully addressed through established environment and social impact assessment processes to the highest international standards.
Oil projects will deliver jobs, revenues of a magnitude that this country has not seen before from a single sector, improved standards of living for Ugandans, accelerated economic take off, diversification, balanced economic growth, and an improved investment rating among others.
There are enormous opportunities that every Ugandan will benefit from, directly or indirectly, in which ever sector they are active.
Peninah Aheebwa is an Energy Economist and Petroleum Authority of Uganda director technical support services
