How Ugandans will reap from oil deal

FID in the massively capital intensive oil and gas industry not only matters to prospective investors and industry players; it is everything. It is the point at which oil companies announce commitment to spend, and when in effect money for the project is availed and project execution commences.

With announcement out of the way, signing of the multi-billion Engineering, Procurement, and Construction (EPC) contract is expected in the next weeks, leading to a flurry of activities in the Albertine Graben. This year alone, at least $3b (Shs10 trillion) worth of contracts will be awarded.

Mr Pouyanne, who since assuming office in 2014—succeeding Christophe de Margerie who died in a plane crash in the Russian capital Moscow—has visited Kampala at least five times for the long drawn-out negotiations and show of commitment to the Uganda oil project, yesterday announced investment of $10b (Shs35 trillion) in the development phase leading to commercial oil production, expected to start in late 2025.

“It is a masterpiece of a project,” Mr Pouyanne said of Uganda’s oil project whose upstream operations include oil field in Nwoya and Buliisa districts (Tilenga) operated by his company TotalEnergies EP, Kingfisher operated by China’s Cnooc, and the proposed 1,443km East African Crude Oil Pipeline (EACOP) running from mid-western Uganda in Hoima to Tanga Port at the Indian Ocean in Tanzania.

He added: “Our ambition is to make it an exemplary project in terms of shared prosperity and sustainable development. We are fully aware of the important social and environmental challenges it represents. We will pay particular attention to use local skills, to develop them through training programmes, to boost the local industrial sector in order to maximize the positive local return of this project.”

The $10b (Shs34 trillion), according to Energy ministry Permanent Secretary Irene Batebe is the capital expenditure for development of the infrastructure required to start commercial oil production. 

At least $3.55b (Shs12 trillion) for development of EACOP, $3b (Shs10 trillion) for Kingfisher, and $4b (Shs13 trillion) for Tilenga.

“Uganda’s journey has been steady and measured to ensure that by the time the country progresses to production, it is adequately prepared in terms of the legal and institutional framework, capacity of its people and infrastructure development,” Ms Batebe remarked.

Race to 2025 starts officially
Yesterday’s announcement of FID at Kololo Independence Grounds, where 15 years earlier President Museveni announced that Uganda had discovered commercial deposits, unlocked the single highest value project in the country by far. Officials expect investments in the processes pre-requisite to start oil production to climb to $15b (Shs52 trillion).

The multiplier effect will be realised through Ugandans being employed across the board and Ugandan companies participating in provision of goods and services across the value chain. 
Yesterday, officials  emphasised strict adherence to local content as the only way the oil project would be beneficial pending the country earning petro-revenues from sale of crude oil.

The Cnooc Uganda President, Mr Chen Zhuobiao, revealed that of the $1.6b (Shs5.5trillion) initial investment by his company they expect local service providers to rake in at least $400m (Shs1.3 trillion).

“FID is a step towards first oil, and unlocking more opportunities in Uganda,” Mr Zhuobiao said.

Tanzania Vice President, Mr Phillip Mpango, accompanied by 30-persons attended the ceremony alongside a dozen Ugandan dignitaries and Western envoys, notably the US ambassador Natalie Brown, and the French ambassador Jules-Armand Aniambossou.

Regarding actualisation of local content, the executive director of the oil sector regulator, Petroleum Authority of Uganda (PAU) Ernest Rubondo, indicated that “what we are going to see is not something new but an increment.”

According to PAU, of the $3b (Shs10 trillion) invested by the oil companies during the exploration and appraisal phases between 2006 and 2021, Ugandan supplied goods worth $1b (Shs3.4 trillion).  For the oncoming $10b in investments, Mr Rubondo said the plan is to ensure that Ugandan’s rake in at least 40 percent of that through provision of goods and services.

Already PAU has ring-fenced some 25 fields including hotel and catering, transport and logistics, security, civil works, human resource management, survey, camp management, and provision of labour, among others for only Ugandans, as one of the recommendations in a 2014 industry baseline survey commissioned by government and oil companies on fostering local content.

This is in addition to creating some 14,000 direct jobs, and 45,000 indirect jobs for Ugandans.
Uganda through its national oil company, Unoc, has a 15 percent participating stake in each of the multibillion projects. 

In both Tilenga and Kingfisher, Unoc’s chief executive officer Proscovia Nabbanja revealed the company’s investment will be borne by both TotalEnergies EP and Cnooc, respectively, until oil revenues start trickling for the company to have some financial muscle.

For the 15 percent stake in EACOP, Ms Nabbanja revealed last year they paid $130m (Shs452b) and have an outstanding balance of $178m (Shs620b).

 TotalEnergies Midstream B.V owns majority shareholding in the project of 62 percent in EACOP, both Unoc and the Tanzanian national oil company, TPDC 15 percent, respectively, and Cnooc 8 percent.

Tanzanian Vice President Mpango revealed that his government had committed TzShs259b (UgShs388b) to their equity share, besides ratifying the enabling laws for the project and fast-tracking land acquisition.

With ongoing intensive exploration work for oil and gas in the region; in Uganda, Tanzania, South Sudan, and enormous appetite in oil in eastern DR Congo, albeit in an ecologically sensitive area, President Museveni said “the EACOP may end up being a nucleus of oil in the region.”

The President further allayed fears about the Ugandan oil project running out of steam due as a result of the transition from fossil fuels to clean energy options. He also echoed that while oil will have a bearing on the economy, it is the agriculture and industrial sectors that will transform peasantry economies like Uganda.