www.ucmp.ug The Chamber of MINESMINES && PETROLEUMPETROLEUM Issue: 15 April, 2016 A CASE FOR LOCAL CONTENT

TANGA, LAMU BOTH GET PIPELINES

Uganda Marks Uganda Marks Lessons for , 10 Years Since 10 Years Since from Aberdeen Oil Discovery Plot 11/13 Lower Terrace Fax: +256 (0) 312 229 234/5 Website: www.aon.com

2 Bolloré Africa Logistics in Uganda Plot M-611, Road Tel; +256 414 336000 I Email; [email protected] UCMP COUNCIL MEMBERS

Hon Elly Karuhanga, Adewale Fayemi, ChairmanCHAMBER COUNCIL COUNCIL

Partner – General Manager, Total E&P, Associated Advocates and Uganda Chairman , Nile Breweries, BAT and other companies

Hon Richard Kaijuka, Kellen Kayonga, Vice Chairman COUNCIL

Chairman, EA Gold & Africa Managing Director, of Askar Gold Refinery Security Services

Paul Sherwen Jimmy Mugerwa, General Secretary COUNCIL

Tullow, Uganda Country Manager

Jeff Baitwa Matthew Tallarovic Treasurer COUNCIL Partner, Deloitte (Uganda) Ltd Director ThreeWays Shipping Services [Group] Ltd

Xiao Zong Wei Irene Nakalyango COUNCIL COUNCIL

CNOOC, Uganda, CEO, UCMP President Xiao Zong Wei

44 TheThe UgandaUganda ChamberChamber ofof MinesMines && PetroleumPetroleum UCMP COUNCIL MEMBERS

Gordon Sentiba Herman Kasekende ADVISOR ADVISORS ADVISOR

Astor Finance Plc Standard Chartered Bank, Managing Director

Joshua Tuhumwire ADVISOR

Mining consultant, Gondwana Geoscience Denis Kusaasira, Consulting Ltd. Also former ADVISOR Commissioner of the Uganda Department of ABMAK Geological Survey & Mines Managing Partner

Igor Markov ADVISOR

Semliki Rift Trading

Sam Thakkar ADVISOR

UHY Thakkar & Gerald Mukyenga Associates ADVISOR Certified Public Accountants Multilines International CEO

Daniel Pettersson, ADVISOR

Hima Cement, Country Manager

The Uganda Chamber of Mines & 5 6 The Uganda Chamberof Mines &Petroleum Chairman’s Note T I thankyou. toI hope see you at theconference. these greatof opportunities. Ugandans,generation, this especially cannot afford ason look to bystanders midst the in I believe, we can now confidently proclaim that the industrywork in unleashed. is well. as conference in this participating be will authorities other and Energy of Ministry The duecourse.in created jobs 150,000 to professional – 100,000 between and see listen our will that industry including convention an about presentations this players attend industry and come all to leaders and elected UCMP newly the of members community, business entire the to appealing am I decisions, mammoth these makeleaders our Therefore,as to the sharethe companies. pricesof Although the oil price had crushed, the good news is that it has started picking up and so These are for immense openings Uganda andtheentire East Africa region. new upstream of licensing the the appointmentof the National of Company Oil Executive Director. finalization to addition in a round bidding see competitive ever Uganda’s first in now participating companies will we that means also It the next month orsoandthegrantProduction of Licenses following suitimmediately. within finalized refinery the on decision a see to likely are We industry. petroleum the in open doors more even see to likely are leaders regional the by Kampala in meetings Infrastructure Corridor Northern recent the taken at decisions pipeline significant These local of criteria the meet international to content asdetermined with by andlaws. policies our ventures up joint in team capital can and companies experience Local with companies standards. gas and oil the meet to readywere 25 only companies 420 on out survey,carried was baseline lastwhich the In accounting, amongst ICT many others be highlighted whichwill at the conference. services, logistics, construction, and catering, areas of food legal the in opportunities fall people to be ready to takeour on prepare the challenges and and prospects without sensitize missing a step. help These will convention this shape, taking starts industry the As vast because gas sector and oil export portsare developed tandem in the East on African coastline. in the people the opportunities investmentfor oil crude as in two up fields opened various are be going to for positions win-win are These also has agreed to exportthrough itsoil Kenya to apipeline LamuPort. while Tanzania, in PortTanga to pipeline a through oil crude to its decided export has Uganda where leaders African East our by taken been has step giant A Awakening theShattered Dreams ofSuppliers 27-28, 2016 it is one notto one 27-28, 2016itis because bemissed reasons. ofanumber Petroleum comes at a great time. To be held at the Kampala Serena and Hotel, Mines from of April Chamber Uganda the convention organized by gas and oil second he Partnering in Energy for Uganda’s Development;- Contributing to a responsible Oil & Gas future

Total S.A is one of the 5 major international oil and gas companies. With more than 100,000 employees worldwide, it operates in more than 130 countries in all oil industry segments (upstream, downstream and chemicals). We are also a world-class natural gas operator and rank second in solar energy with SunPower. The Uganda Chamber of Mines & Petroleum 7 contents

Local12 Businesses Are Struggling To Stay Afloat In Oil Sector

Local11 Content AG Report16 _ Ugandan Discussions Take participation in Oil Front Seat Sector Can Improve

Local We have19 no choice 22service providers Skilling18 Ugandans to but to meet industry want Govt Aid to boost work in Oil and Gas standards capacity supply chains

FROM24 ABERDEEN TO Swala26 Energy’s HOIMA? Local Content model viable?

8 The Uganda Chamber of Mines & Petroleum contents

Tracing28 Uganda’s 10-year oil journey

Kimberley44 Process Questions

When33 Hoima-Tanga route came into picture

Oil36 price dynamics

Acknowledgements Layout and Design: Editorial to the editorial team assisted Moses L. Katumba Deep Earth International Ltd. by Richard Kaijuka. ([email protected]) ([email protected]) **This publication may be copied in whole or in part for any purpose, provided full credit as to source is given with the reproduction and that none of the material is incorporated into a document for which a copyright is sought.

The Uganda Chamber of Mines & Petroleum 9 Why35 the pipeline decision will not damage relations

10 years42 later, 40 GOVT44 COMMITTED Good Intentions TO FIGHTING MINING could be Uganda’s new for Uganda’s Oil Money BOTTLENECKS oil big brother

SPONSORES SPONSORS

10 The Uganda Chamber of Mines & Petroleum

Epsilon trucks transportating hazardous waste

Local Content Discussions Take Front Seat he second annual oil and gas convention to run from April 27- T28, 2016 at the is one of the ways Uganda seeks to spark renewed interest in the sector.

Running under the theme, “Suppliers’ Roadmap to Operational Excellence”, the conference, organized by the Uganda Chamber of Mines and Petroleum (UCMP) is is largely intended to reassure suppliers and subcontractors about the opportunities in the oil and gas sector amidst the tough industry challenges.

Irene Nakalyango, CEO, Uganda Chamber of Mines and Petroleum, says the conference is aimed at bolstering the industry and highlighting the salient opportunities available.

“It is important that anyone involved in Irene Nakalyango. the supply of goods and services in the CEO, Uganda Chamber of Mines and Petroleum oil and gas sector attends this summit,” noted Nakalyango.

Uganda’s oil industry has been in a Nakalyango said the convention will lull for almost three years mainly due emphasis on helping Ugandans get the thus emphasize local service providers’ to protracted negotiations between requisitefirms. To skills date, so government they are competitive has put critical needs, improvement and the Government of Uganda and the in the industry. Major infrastructure is enhancement, mainly because they international oil companies (IOCs) also being built to boost the industry. are the catalyst for national economic revolving around the two critical empowerment in the years to come. According to the IOCs’ baseline survey required for the future development of of June 2014 titled, “A survey to foster The convention will also feature projects of the refinery and the pipeline the natural resource. opportunities for Ugandans in the Oil and breakout workshops on the sidelines, to directly address these industry Uganda’s petroleum sector Gas sector”, opportunities and challenges and This delay happening amidst falling will generate 100,000 to 150,000, how best the suppliers can prepare global oil prices slowly dampened the direct and indirect jobs. However, the expectations of subcontractors and themselves to serve the interests of suppliers many of whom have had to lay would obstruct people from joining the policies. off workers. survey identified some barriers that sector including limited information, the IOCs and benefit from the national lack of skills, poor infrastructures, and But there still exists vast opportunities administrative bureaucracy among and beverages suppliers, legal service in logistics, foods and beverages, others. It also revealed that only 25 providersLogistics andamongst transport many firms,others foods are industries of the 420 surveyed in expected to attend. management, crane services and in joint Uganda had high potential to supply venturessecurity, finance,with more human experienced resource, foreign waste the oil and gas sector.

The Uganda Chamber of Mines & Petroleum 11 Local Businesses Are Struggling To Stay Afloat In Oil Sector Jeff Baitwa

Activity in Uganda’s nascent Oil and Gas sector has been on ice for more than 24 months now. At the height of the activity and discoveries, able Ugandan companies were supplying goods and services to the lucrative sector. Following the delay in the resumption of activities, which is still ongoing, these companies have been forced to cut staff, suspend down completely. We spoke tooperations Jeff Baitwa indefinitely, (R), the or Group shut Managing Director, Threeways Shipping Services Ltd and below are excerpts:

In light of the delays that have happened in the oil and gas another two years before business returns to normal. So the sector over the last 18-24 months, what is the situation oil and gas sector on the side of the service providers is dead of local service providers to the sector? and many of us will continue to lay off any aspect to do with oil and gas. The irony is we are disengaging yet when all the The delays of course were not envisaged for many of us while we were plotting to invest whatever we had to invest. Because The unfortunate thing is when the time comes to re-engage, of the delays, a big number of players have been affected in boardroombecause many processes local suppliers are finished, are welosing will creditneed to worthiness, re-engage. terms of business continuity. I know of companies that have there will not be any basis to go back to the bank because the folded their activities, people who have lost their jobs and bank will say, “You previously failed”. So I see participation those that have so far braved the situation are struggling. of Ugandan companies being minimal than what we have And things are not about to return to normal because even been craving for. Once the processes that are holding back the pipeline or a production license is granted, it will take quickly because of the lost time to First Oil and so it will be if there was an approval tomorrow say on the refinery, the sector are finished, the oil companies will want to move

12 The Uganda Chamber of Mines & Petroleum a good opportunity for them to tell that Ugandans are not left out? When avoid certain mistakes that we have you that they will not wait and will we have that 30%-40% it is going to seen in other countries that have simply go ahead with those who will be 30% or 40% of $10bn or $15bn discovered and produce oil. To an be ready – and those who will be ready – money that can kick-start a lot of extent, Government has done well but are the big boys with big money – and things, create the linkages that you are remember there is a cost for caution. these will mostly be foreign suppliers. looking for in the economy. When you take less risk, there is a cost So if you work it out logically, I fear so good and bad. As a country, overall there will not be as much local content There is talk in other countries of the delay has been a good in terms of participation as was the case had these some sort of indigenisation; where having the infrastructure in place, but processes to First Oil moved on without at least 48% of any industry supplier in terms of maximising the opportunity, any interruptions. When I look around, is locally owned. Wouldn’t this work as a country we are already behind. many Ugandan companies that had set here? And whether we will maximise on the themselves up to supply services to the opportunity, the answer is likely no. oil majors are folding, many are out of Government needs to look for a You see, there are two ends to this – strategy to do this and the strategy there is the investment opportunity no one can spend money to certify will be what areas Ugandan companies and the opportunities arising out of debtequipment, in terms an ofoperator certification and generally because are targeting to provide goods and the investment and there is money you the interest in the sector is declining. services. Because these guys are saying will be getting out of the investment. So when things begin moving again, In terms of what we will be getting Ugandan indigenous companies will be local companies can provide goods out of this, Government has done very disadvantaged because there will be a theyand services have identified such as theaccommodation, areas where well. However, to an extent, in terms lot to cover and many of us will have security etc. but the question is, of maximising on the opportunities lost credit worthiness. has there been an engagement by that were available as Tullow Oil Government with the players to map and the other explorers made the oil Do you see any solution to a dire out a clear strategy to see that indeed discoveries, Government could have situation? there are Ugandan companies ready to done better in paving way for the private provide these services. For me, rather sector to participate more. I know there The solution I see is for Government than telling me that a foreign company is local content policy and you might to set up some kind of Fund as a way is 48% Ugandan-owned, I would rather have laws safeguarding you as a local of saving these companies that have a Uganda-owned company is given a supplier but when you have nothing, been players in the young sector. contract to supply goods and services you are nothing. So my question here For me, it is important that some of to the oil and gas companies. I would is; will the local businesses have the the pioneers who have been in this rather we say guys we have been at it means to participate? The means and the following services, which will to participate as local suppliers to been operating are buoyed and it is constitute 40% of your spend must be the oil companies has been greatly businessonly Government in whatever that fields can theydo havethat procured from Uganda than telling me undermined or affected by the delays otherwise on their own, very few that Ugandans own 48% of a foreign that have happened. Many who are can survive or redeem themselves. company. That is diversionary, we need hanging on are struggling and may not And you have got to remember that to say to the IOCs that we need to see make a rebound for future business. you might underestimate the role of evidence of a 40% spend in Uganda, the local players who went in early once that is the percentage agreed to Even when the activities were but if people like ourselves and the remain in the local economy. vibrant, according to the Auditor others had not come in and a foreign General’s report, Ugandan service company was doing what we did, Once we agree to that, then as providers were able to procure Uganda’s exploration costs could have Ugandans we mobilise and raise this goods worth $329.9 million at 28% been 50% more than what they are. I money for these opportunities. We are of total spend between 2010 and will give you an example, a truck rent not mobilising for these opportunities. 2013 and the foreignors did the rest, was priced at $1000 per day in the Government needs to avail cheap does that mean the capacity to do beginning, today it is $350 and that is loans of about $100m to $300m to more has been lacking? because we are around – we have many be accessed by local companies in trucks, we have local costs, we don’t the oil and gas supply chain. That is Those statistics can be explained have expatriates – so that is already a what we need to be talking about. because the exploration stage is short good sign. So I made money, was able The mobilisation should run parallel term and there are a lot of specialised to employ more Ugandans and as well to the other developments taking into services which is rigging, drilling, my tax contribution went up. Suppose account the regulatory management of testing and other associated services. there were no local players? In many that 40%. Now, drilling alone, testing and countries these guys lock out the local directional management and the other companies and then they bill whatever If we are borrowing money to put into technical processes to determine and they want. NAADS, the Youth Fund etc why don’t we borrow money to create an Oil and of the oil company’s expenditure and This is largely private business Gas fund for the local investor? findreally the as oil Ugandans, can constitute no local 50% company or more though. Why would public funds be can play in that space so we are not given to the private sector? Beyond such a fund to benefit local yet there. That 28% out of a spend of players in the oil and gas sector, $1.4 billion is a fair view and maybe We need local content as a country what more can government do? we could have done more and gone up because there is a lot of money to be to 40% but like I said the exploration Well, Government cannot reverse stage is more specialised and local infrastructure that will be needed some of the delays. The delays have Ugandan companies do not have that investedto produce both the in oil. the And oil fields how anddo thewe occurred. I think Government has capacity or expertise. However, going maximise on local content to ensure tried to approach this cautiously to

forward, what we are fighting for in The Uganda Chamber of Mines & Petroleum 13 the next stage of the oil and gas development is for the oil companies to spend 40% of their goods and services locally. Now what would 40% of $10 billion mean? That is $4bn that will be coming into the Uganda economy. If we can meet 40%, it’s still good enough.

Do you think the capacity is there to absorb the 40%?

If we had maintained that pace that we had and there had been lesser delays or shorter turn-around times in terms of the processes to get things moving on the ground, I think people had geared up to do the 40%. My worry now is many

peopletechnically, have they burned understand their fingers, the technical they may requirements not be keen. Theand otherso any thing new entrant those people to replace have the is spacethat they vacated already by those qualified that have shut down will be required to work on their technical competence. The challenge is the oil companies might not be as patient for the new entrants to develop their technical side of the business because they too have been affected by the delays. Before there was a patience to accommodate the less technical local suppliers, however when activities resume, it will be crunch time and I doubt these guys will wait for you because time is money; they have to invest and recover their money; their shareholders will not entertain any extra delays.

There is a mood of apathy towards the sector. Won’t there be extra caution on the side of suppliers going forward even after production dates are announced?

Having the cash right now should not mislead you to invest.

YouFor mustthose have who the have contract attained first beforeeducation spending in oil anything. related courses, the situation is not as bad, as employment and a

will not rot and the chances of me getting a job when things businessnormalise investment are high. are two different things. My certificate

Investing in a business on the other hand is different because whereas you may have the money the chances of getting a deal are slimmer so the only way you can overcome that is by being more certain that you will get the deal – and that is by getting contract. If you buy 300 trucks today, and don’t get the contract, what are you going to do with

understanding where the sector is going. them? Caution means having the contract first and then How can confidence be restored for you and other industry suppliers that are struggling?

Wewill arehave confidence a chance thatto participate the international once things oil companies pick up again will invest going forward. But the confidence that a local supplier sector as my line of trade, is low. And it can only be driven orby a the number confidence of factors that like I should what is maintainhappening the on oilthe and ground gas – seeing is believing. The announcements that Governments make will come but they are part of the process that is on-

gained by something on the ground. However there are no going.guarantees Confidence for the restorationlocal players I canbecause tell youby the can time only you be see things happening on the ground, you will have been left behind or maybe you will have failed in the bidding process.

technical. Am very certain if a Ugandan supplier has the The challenge for local suppliers will be both financial and and vice versa. Joint ventures with foreign companies might Threeways Shippings Trucks financing,be the way they to go. might not meet the technical requirements

14 The Uganda Chamber of Mines & Petroleum whoit doesn’t have stopburnt you their from fingers. investing. You mayThe knowsame thatapplies I have to burntthe individualmy fingers, who but has gone back to school to learn a skill that will get him a job in the oil and gas sector. As you skill yourself, you might want to know the relevance of your skill and for how much time your skill will be required in the lifetime of the oil and gas sector. You may skill yourself as a welder but you need to ask yourself; will the welding job be required for the duration of the oil extraction. Your

three years. And there will be many skillsof those might – they be requiredneed to be for managed the first whereby a guy is told his skills will be needed for three years and after that, they need to do something else.

In the region where Uganda leads in terms of exploration knowledge, isn’t there the option of transferring MWC2015. Banks have a key role to play in propping local businesses involved in the these skills and expertise across the Barclaysoil sector Bank’s Mark Muyobo (L) chats with Threeways Shipping officials at the borders? The picture seems bleak but are to take a risk right now to gamble on there any positives? Remember those same countries also People want to match the two; when have their citizens who they have to The positives are the oil companies findingprice is good oil when they will the invest. price is down. look after. Competition will be stiffer are determined to invest. The other but there will be those possibilities. Yes positive is in terms of the legal, In light of what has happened, there will still be those opportunities regulatory environment and I think we for people like you who supply but it will depend on how good you are. tried to put up a good law as a country services to this sector, and generally As soon as this thing begins to settle from what I have seen. These two are Ugandans, how can expectations be down, everyone in the region will begin key and fundamental. managed? saying, “local content”.

How about positives from a local All of us – Government, the private In light of the upcoming investments, suppliers’ perspective? Say have business people and the man on the are the standards real or Ugandan you used the lull to improve your street did not manage expectations businesses have really been low on understanding of the sector through because oil was new in Uganda and East them? staff training and the like? Africa. Indeed, managing expectations is something we have underperformed I think the standards are real – they No. Everyone has shutdown, no one on. It’s something we have to work is improving because to improve you on because even when oil production run your business. For those of us who have to spend money. The oil sector is starts, there will be a plateau of 30,000 benefittook up youthose the QHSE Ugandan (Quality, company Health, to a very expensive sector. Any trainings workers on the sites but that number Safety & Environment) standards, we will drop down to 1000 or 500 people reduced the number of incidents in are costly. Rationally why would you in three to four years’ time and that is andwant certificationsto spend your associated money on withoil and it a short time. So how do you re-absorb equally the standards are required gas when you have no income coming those guys in other jobs so it is critical ourbecause fleet thissignificantly is risky onbusiness the road. that But is in from that division of your business? that we manage expectations because seen by the public as big money so any there will be different charges at claim arising out of these activities is You talked of the determination different times. not small – that is why the buy-in is of the IOCs to invest; doesn’t the not small so I understand where they current oil price deter them? How about lessons learned as the are coming from. Equally if you meet local private sector playing in the oil that bar, it also softens a lot on your They see an opportunity given the and gas sector? side. People have reduced the debate current price. When the price is down, on standards as a tool by the foreign oil then the cost of services and goods for The lesson learnt is to remain cautious companies to kick them out of business infrastructure is down. So they know but you see life is interesting. Once I but we are just being lazy because those the price will recover. In four years’ who understand and have met the time, Uganda’s oil and gas industry person will be ready to go in. People required standards cannot be kicked will reach First Oil. There are other burncannot my learn fingers from at something,others – they another will out. Those who don’t want to bother factors affecting the price right now go and try it until everyone has got themselves will be snubbed of course. but you have to believe that it will have his/her experience. I don’t see lessons Ultimately they push standards not to picked up so that is how they look at being cut across. As am pulling out of kick you out; they push standards to it and it makes sense. However for the business, another guy wants to buy manage their risk. exploration companies, no one wants trucks. So the lessons will be for those

The Uganda Chamber of Mines & Petroleum 15 The Auditor General, John Muwanga.jpg Auditor General Report Shows UGANDAN PARTICIPATION CAN IMPROVE ne thing that the discovery of oil is that while local companies are the Oin Uganda has done is to raise majority, they have failed to match Ugandans’ hopes for a better future. findsA March – how 2015 have Auditor Ugandans General’s fared? report Look, oil is associated with huge money on implementation of national content not just to the international companies in the sector, assessing value for money, internationalThe auditor firms.general says Ugandan – the hope is that the resource would gives the clearest hint so far of how companies comprised almost 73% of touch host communities, local service approved suppliers. providers among others. UgandansThe report have benefited.says the value of And that’s not the bigger problem. procurements from Ugandan service “Hardly any purchases were made from to 6.5bn barrels, with between 1.2 to providers in the oil and gas sector for host communities,” the report said, 1.7bnUganda barrelshas confirmed commercially reserves totalingviable, the period 2010-2013 amounted to $329.9 million, representing 28% of the locals could be passing over their the total spend for all the companies shoulders.indicating the anticipated benefit to accordingBut a decade to government later – from figures. 2006 when (total spend was $1.2bn). To be fair to the host communities, Good progress! The problem, though, they could have offered hotel services, the country officially announced oil

16 The Uganda Chamber of Mines & Petroleum water and even food but it was literally negligible. It brings in another issue: have the local people been prepared to tap the opportunities in the sector.

“How much have we invested to enable host communities to offer something?” wonders Jeff Baitwa, the managing director of Threeways Shipping Group, “What lessons can we learn as a country? We need local content even if we are able to offer at least 40% of the procurements – it would be big. Government needs to look for a strategy to do this.”

The auditor general report says “without national content targets, standardized procurement procedures companies/goods, such levels of local Multilines trucks. Logistics accounted for the bulk of the services and clear definitions of Ugandan offered by local businesses during oil exploration in Uganda.jpg to monitor and evaluate.” procurements companies were difficult others were working without work that would otherwise be provided by It adds that there was noticeable permits,” the auditor general says. Ugandans. inadequate supplier development to enhance the capacity of local service So much lax and disorganization was Regulation 31 provides: “Where providers to participate in the sector. noted on the side of government. For possible, the licensee, contractor or instance, whereas all the oil companies any other entity engaged in petroleum The report also looked at the had made efforts to train their Ugandan activities in Uganda shall carry out employment of the locals in the sector. staff, “none had fully utilized its training fabrication and welding activities in the budgets and they had also deviated country. The authority shall determine Overall, the proportion of Ugandans from planned trainings.” and advise on the capacity of welding employed in the oil and gas sector industry in Uganda.” directly by the oil companies rose from “Thus the objective of involving more 69% in 2012 to 80% in 2014, although Ugandan nationals in the oil and gas The regulations are meant to ensure absolute numbers dropped over the that all metal welding and fabrication same period. training gaps are not addressed,” the services are done within the country to auditorsector maygeneral be observed. delayed as identified offer Ugandans jobs and ensure skills There is no special consideration given transfer. to host communities or women during There was no consolidated plan for the recruitment of skilled personnel. auditor general found. and services to be provided by As at December 2014, women training government officials, the Ugandans.The regulations define certain goods accounted for 30%, 37% and 23% of In addition, although the oil companies the staff at China National Offshore had, over the period, deposited $4.1m They are: personnel, transportation, Oil Corporation (CNOOC) Uganda Ltd., towards the training fund in the Central security, foods and beverages, Total E&P Uganda, and Tullow Uganda Bank, this money had not been utilised hotel services, human resources Operations Pty (TUOP) Ltd respectively. for the intended objectives since they were being transferred as Non-tax clearance, fuel supply, land surveying, Wages & Training Revenue (NTR) to the consolidated clearingmanagement, and officeforwarding, supplies, crane customs hire, There is still a wide range in the wage fund, the auditor general noted. and locally available construction differentials between the nationals and materials. Uganda has developed a National expatriate staff, the report said. Content Policy, which has been On paper, the draft regulations are a In some cases expatriates, on average, awaiting approval by Cabinet. The big deal for Ugandans. The question is earned between 5 to 10 times more Petroleum (Exploration, Development whether they will be enforced. than nationals at Cnooc and Total. and Production) (National Content), Tullow has more Ugandan nationals Regulations 2014, were released last development of the national content in managerial positions than Total and year by the Ministry of Energy and policyAs government and regulations, looks toit is finalize clear a thelot Cnooc. Minerals. still needs to be done. As for Ugandans, “Some expatriates were recruited The regulations provide that Ugandans the hope is that the country puts its act should be lead participants in service together when it is still early for the overstayed past the due date for nationalizationwithout proper of their justification, positions while some should not import services and goods their lives. provision in the sector. And oil firms resource to have a significant impact in

The Uganda Chamber of Mines & Petroleum 17 Skilling Ugandans to work in Oil and Gas supply chains

The Oil and Gas sector needs craftsmen and technicians. During the Oil and Gas Investments many qualified people in construction trades will be needed.

By Christopher Smith employability of people and involving technical vocations. To reach a point the private sector wherever possible. where Ugandans can show this level ecently, diploma courses in Oil and This is important, as only through RGas have become very popular, engagement of private players, we can training at vocational training institutes mostly because people hoped to boost make sure skilling is done according needsof qualification, to be improved. professional SOGA technical does their CVs and get jobs in the industry. to industry needs. The programme is that by upgrading selected vocational However, sector analysis has shown to build on Public-Private-Partnership schools to international levels, in this that the demand for people with models, so that all partners can learn case City & Guilds. Students will be able technical skills and vocational training from each other and increase their to achieve high-level, internationally accepted skills in sector-relevant for diploma holders. This is because trades, such as welding, BCP or in a specific trade is much higher than during exploration and production Companiesbenefits through often a common complain approach. about electrical. most jobs will be created at technician the low level of practical expertise of and craftsmen levels. Taking this graduates, while schools do not have Besides support to skilling, SOGA also into account, a new development access to the newest market know-how supports local supplier companies programme called “Skills for Oil and in the industry, nor do they always have to be ready to win tenders once the Gas Africa” (SOGA, 2015-2019) aims to the newest equipment to offer practical construction projects around the Oil and upgrade vocational training provision training. As a consequence the training Gas investments are launched. SOGA is in Uganda to industry-accepted levels. often remains at a theoretical level. partnering with the Association of Oil This can be remedied through industry and Gas Service Providers (AUGOS) to the UK government, the Norwegian buy-in into skilling. The German Dual enhance HSE standards at company GovernmentThe project is and jointly the financed German by System provides just that, where level. It was found that the lack of HSE Government and is implemented by the students spend as much time in the standards had been a major bottleneck German Development Agency GIZ. workshop at a private company, as they do in the classroom of the vocational in the past. In fact, Uganda is not alone with its school. of firms wishing to supply the industry struggle to produce adequately skilled professionals to work in the industry. Key to preparing Ugandans to work Mozambique, Tanzania and Kenya face for the Oil and Gas Sector is the right If you want to learn more about SOGA very similar challenges. Therefore, level of training. It is known that in Uganda or the region contact the the approach of the SOGA programme Team Leader Christopher Smith under is regional. Its focus is on enhancing to access employment, especially in [email protected] international certificates are needed

18 The Uganda Chamber of Mines & Petroleum We have no choice but to meet industry standards - Thakkar

Sam Thakkar (pictured), Advisor UHY Thakkar & Associates Certified Public Accountants CEO and an advisor on the Uganda Chamber of Mines and Petroleum believes there is more Ugandan businesses can do to ensure they are taken seriously in the highly competitive petro- leum industry. He share his thoughts here:

and act in order to make sense of how economies. If they use local suppliers who do not meet the International decided to take matters into its own Standards for supplies, and if anything handsto work and with to thelearn ‘big about boys’. this Our sector firm goes wrong in that contract, it is their through various resources available name and their reputations that are free of charge on the internet as well at stake and not ours. This is a vital as seeking advice and opinions from aspect of working in this sector that the foreign companies that received every local supplier must accept some of the work in Uganda. We felt so that they understand why IOCs that in order to gain work in this sector are stubborn about meeting their requirements. So it always amuses me operates. when someone says that others are we must first learn how this sector not doing enough for them to develop When IOCs utilize local services, they and achieve yet they are willing to sit don’t face the dilemma of sourcing back and not be bothered to generate internationally which in end has them enough discipline to actually learn it incurring higher costs in order to themselves! This is because we as a operate in this country. IN my opinion, people have become too used to second I would state that whilst all of us are and third class of products. We cannot waiting for the IOCs and Government imagine a road without potholes, it will here is a feeling that there to show us how to develop, what have seem unnatural. We cannot imagine Tis inadequate supplier we in our own capacities done to enhancing the power of the internet development to enhance the develop our businesses to meet their to learn new techniques of farming capacity of local service providers to requirements? In Uganda, we have because we eat what we grow and participate in the oil and gas sector! become used to sub-standard quality of are not worried about quality and Are the IOCs or government guiding goods and businesses have never been standards of the crops we sell (as long them in any way to better their craft? restricted on bringing such items, even as we get paid in cash!). counterfeit ones, to sell to the local As a local service provider, we must try buyers. Yet, we are looking at a Global The IOCs and Government have been harder to understand and get noticed Industry in the Oil and Gas sector working tirelessly to push to develop by the International Oil Companies where the ultimate liability for low our nation and to ensure that we are with regards to the services we can quality output and unsafe work rests putting our own to work before we provide. We must go through dramatic with these huge Oil Companies that are allow others to enter our country and changes in the way we think, work in the country to help us increase our take our jobs. Yet, when we lose a

The Uganda Chamber of Mines & Petroleum 19 UCMP members being taken through a training on Innovation in Oil & Gas organised in collaboration with the ESLSCA institute tender, for whatever reason, we blame created to block people out. It is absurd billions and millions of dollars under the IOCs and the Government for our to suggest that this would be the case. the International Regulations. Try and own negligence. We should instead It sounds more on the lines of what I refer back to the case of BP in Mexico sit back and try and understand what suggested above that when a company where an oil leak became headline our mistakes were in that tender and loses a tender, they start to cry foul news overnight and cost the company ensure we correct them so that the next millions of dollars. Imagine if the IOC tender will be won by us. Currently, themselves. It also goes back to what handed a contract to build the pipelines the Government and IOCs have been Iand believe point has fingers been at everyone else but to a local supplier developing new standards and policies happening in who did not which will ensure that local suppliers Uganda for the Our country is still understand the have a clear statement on what they past 10 years or requirements expect of you and what you should so wherein we a weak sector in nor was he too expect of them. are too used to that information is concerned with low class of goods Health and Safety These standards should not be seen and services and too readily available at work? Do as a cost to the individual or supplier hence we feel about what is you think we but a way to enhance your companies that if we can could use the to provide better quality of service accept this then happening or going same people that and therefore increase your ability to so should the to happen. expand your business even beyond our IOCs. But the potholes on our own borders. IOCs are global roadscome andonly fixfor theus corporations The suppliers claim some standards with a lot of legal issues to handle and 2 months we need to call them back set by the IOCs are meant to lock cannot afford to provide low class of again? Can you imagineto find if thatthis afterwas them out. Is this the case? services otherwise they risk losing a done with the pipelines? And why all lot more than just a contract. They lose this fuss about Health and Safety? I There are no standards which are

20 The Uganda Chamber of Mines & Petroleum the IOCs help these suppliers catch up again once the more critical I also believe that IOCs themselves do not want production stage kicks in? to have international suppliers working directly There has been a lot of debate on the

For those of you in business ask yourself whether and then this long delay in releasing withyou would them aspay it andoes Ex-pat not benefitthe same them amount in any as way. you theexpiry next of set contracts of licenses. in the Indeed, first phaseit can be argued that a lot of the companies would a Ugandan with the same skills? Of course that went through the struggle to you would not. So why would the IOCs pay more develop their people and businesses to if we can provide the same services for less? meet the high standards of this sector suffered directly because of these delays. Looking backwards, we can always provide insight to say that we mean, we all have taken a Boda Boda goods and services not only for the should not focus our entire business without wearing a helmet and even purpose of working in this sector but to one sector, we should have been generally to ensure better living and prepared for such a slowdown, etc knows we are breaking the law, he working standards for our own people! etc. But it is not easy to predict what stillwhen does we not pass stop the us Traffic right? Police So if who we ASK NOT WHAT THE IOCs CAN DO FOR these giants and our Government are want to walk around the oil rigs and YOU, ASK WHAT YOU CAN DO FOR THE planning. Also it is worthwhile noting work barefoot and without helmets or IOCs. that issues in these global markets do goggles we should be allowed. After not rest entirely with our Government all, it is our lives. WRONG. If anything How can mistakes be avoided by or the IOCs but with what the rest of happens to you on the worksites, it is local players going forward so that the world demands. Could we have the IOCs who will be blamed for not they dont get their fingers burnt predicted the dramatic fall in prices of training you correctly. Indeed, the again? company contracted to do this will be develop ourselves in this sector and thencrude? we Once are again,better weplaced must to try criticise to first mishaps. So Standards are necessary to exploration work with local suppliers Government and IOCs with regards to The risks in the first phase of protectthe first everyone ones to but blame more them importantly for any was that when the contracts were what they have done for us or not. I the local suppliers because you are given few bothered to understand the do not believe that either of the two not working in Uganda but in a Global implications and prepare their cash parties had any intention to mislead market and therefore we have to learn the suppliers. Nor do I believe that and follow global standards. This is more money on asset leases when you everything that could have been done flows accordingly. How do you borrow the cost of our generation being the only have 6 months of a valid contract to limit the amount of damage it would pioneers in Oil & gas in Uganda. We left? How do you not plan ahead to make cause local suppliers was necessarily have to unlearn the bad ways we have sure you have up to date information undertaken by the two parties. adopted and learn the right ways of on the movements in this sector in working. Future generations will only Uganda. Our country is still a weak The infrastructure projects that the need to mimic what we have done so sector in that information is too readily Government has embarked on are they will not be as affected as we are. available about what is happening or huge projects and will have even going to happen. Everyone knows What can suppliers do to ensure everyone else! Therefore, information that the IOCs are doing to enhance bigger benefits for all of us. The works they are not ignored by the IOCs? is readily available. The only thing I can our knowledge and understanding suggest here is that local companies of Oil & Gas is even more as even our In order for us not to be ignored, should now ensure that they start their we must show a willingness to be a planning early and ensure that they uphill task in learning all about it. part of this process with them. We are matching their capabilities to the AskGovernment yourself officialswhether haveyou hadhave a more very must understand their needs and works available. It is no use trying to knowledge about this sector now than requirements and in turn we must bite off more than you can chew and you did 8 years ago and then you will then complaining about debts and see how far we have come in this sector. with the rest of the world in this sector. losses. And if your business model is Also understand that whilst we are still UCMPlearn tois a develop perfect ourselvesexample of to how fit to in dependent entirely on just one sector, learning about this sector, so is the gather more information on this sector then I am afraid you are risking a lot Government. We are all in this together as well as on renewable energies and more than you think. and the way forward will ensure, with mineral exploration and mining. From full participation from all of us, that we there we must start looking within Suppliers feel they were misled by will produce barrels of oil which will not only the government but the our own companies to say how can we be proudly marked ‘Made in Uganda by IOCs too about the opportunities improve ourselves to provide better & timelines in the sector. How can Ugandans’.

The Uganda Chamber of Mines & Petroleum 21 Local service providers want Govt Aid to boost capacity “There can’t be local content. You must have the means to participate. That’s what we are saying – the means to participate have been undermined by the fact that those who have been participating, many of them are struggling. And they may not make a rebound for future work.” “On the side of the service providers, the oil and gas sector now is a dead end,” said Baitwa. “And the irony now is that we are dis-engaging [and] when the time really comes we need to engage again. There will be a lot to cover and many of us would have lost credit worthiness.”

An official from Lloyds tests an SWS welding student’s work in , Kampala. There are worries local players may fail to participate fully in the sector. gandan service providers in the able to fully provide goods and services “I see Ugandan participation is going oil industry want government to in the oil sector,” he said. U to be very minimal than even what we set up a fund that would boost local In some oil producing countries, have been craving for,” Baitwa said, companies’ capacity to fully participate “I fear there won’t be as much local in the oil sector. to provide a soft landing for local content as it would have been had this Jeff Baitwa, the Managing Director, businessessuch funds in are case common they specificallyare cash thing gone on smoothly without any Threeways Shipping, says such a fund strapped. interruptions.” can be anywhere “between $200m and Baitwa said local service providers $300m”. This would then help facilitate required capacity that international had played a big role in reducing local suppliers to meet industry companiesMany local firmsdemand say duefor themto lack to of winthe exploration costs. For instance, he said, standards or invest in their capacity the contracts, they have failed to gain a the exploration cost would have been through access to affordable credit. controlling stake in the industry. 50% more than it is today. “We need our own fund where money Meanwhile, the situation for the “A truck rent was $1,000 per day at the can be [put] to help local service suppliers has been worsened by the start. Today, it is $350 because there providers,” Baitwa said. delay to kick-start production. There are now more local service providers. For some time now, the Uganda are many suppliers that had borrowed Because we have many trucks, we Association of Oil and Gas Service money on the premise that the industry have local costs and we don’t have Providers and other bodies have been would progress uninterrupted. Many expatriates – that’s already the good imploring government to consider the can’t pay back; others have folded and sign of how important the local service issue of oil fund. some may not return. providers are,” Baitwa said. Presenting a paper recently on the Government says it has used the time Besides, studies have shown that challenges that local enterprises face to make the necessary preparations, buying local has a multiplier effect on in the oil sector, Emmanuel Mugarura, the home economy since independent the association’s head of secretariat, legislation to govern the sector. locally-owned businesses recirculate said that such a fund would help including putting in place firm a far greater percentage of revenue According to Baitwa, the laws are local companies to borrow money at locally compared to absentee- important but there needs to be a affordable rates to participate in the owned businesses (or locally-owned strategy to keep some local service sector. franchises). In other words, going providers engaged – perhaps local creates more local wealth and “We need a fund to boost local developing their capacity further. jobs, directly, indirectly and induced enterprises. This sector needs a lot of “You may have laws safeguarding you spending in the wider national money; our interest rates are too high, but you have nothing to offer,” he said. economy. yet we need affordable finance to be 22 The Uganda Chamber of Mines & Petroleum FROM ABERDEEN TO HOIMA?

Lessons Bunyoro Town can Learn from Scotland

y name is Gordon McIntosh and I am Ma director of Aberdeen City Council in the North East of Scotland. I was asked to speak at the 2015, Mineral Wealth Conference in Kampala on the subject of how Aberdeen has developed over the past 50 years into being Europe`s Oil and Gas capital. It was a particular honour to be asked to make my presentation in the presence of the Prime Minister and to follow up through this article.

The focus of my presentation related to the lessons that we in Aberdeen have learned along the way to becoming the centre of a world class supply chain and how some of that experience, good and bad might help Uganda maximise the benefits which will arise from developing its own valuable oil and gas resources.

I am 59 years old and was born and brought up in the North East of Scotland and so have been fortunate enough to experience the beginnings, growth and development of the North Sea Oil and Gas industry through my education and working career

Having graduated from Glasgow and Aberdeen Universities I joined Thomson McLintock (Chartered Accountants now KPMG) in their Aberdeen office in 1979 and one of my first jobs was to audit the British National Oil Corporation (BNOC) and I also spent time seconded to Sovereign Oil and Gas drilling north of the 62nd parallel in the North Sea.

In 1984 I joined NESDA (the North East Scotland Development Authority) which had been established to encourage local businesses and new start- ups get into the oil and gas industry and for which I was Assistant Director .In 1995 I was appointed to be the Director of Economic Development for the City of Aberdeen and have been a Director there since then with specific responsibilities including Economic Development, Planning and Infrastructure. Writing this article allows me to briefly reflect on some of the highlights of the “Aberdeen Story” and

The Uganda Chamber of Mines & Petroleum 23 how that might help provide some pointers for further discussion in Uganda

Aberdeen is a very old city dating back to the early 13th century as a Royal Burgh with its own Mayor or lord Provost as the office is termed in Scotland. It is an important seat of learning with the oldest of its two Universities dating back over 500 years with no less than 5 Nobel prize winners emanating from the City.

Much of Aberdeen`s history is focussed on the ability of its people to develop new products and trade around the world. People are often surprised to find however for example that the founder of banking giant HSBC, Sir Thomas Sutherland and Japans Mitsubishi Shipbuilding company Thomas Blake Glover, both came from the city as did the makers of Chivas Regal whisky, the Aberdeen Angus cattle breed and the Thermopolae the fastest sailing clipper ever built. Just prior to oil being discovered off Aberdeen in 1969 our economy was dependant on fishing, farming, textiles ,paper and the granite extraction industry. The economy was not in good health however and outward migration, particularly of educated and skilful people was the order of the day. There was understandably some considerable concern over this and a well- respected economist Professor Gaskin was asked to review the situation and develop a report recommending a way forward for the economy. The report was published in the summer of 1969 and strangely did not mention the possibility of the oil and gas industry and this despite there having been companies based in the city carrying out exploration activities for the previous 4 years. Two months later the Arbroath field 120 miles off Aberdeen was discovered and the city`s economy was set to be tied to the fortunes of the energy industry for at least the next 70 years.

In the early days most of the people working in the industry were American with very few locals. All of the equipment was brought in from overseas and gradually and gradually the Dutch, French, Italian and other international oil companies came to base themselves in Aberdeen with 6 international schools being established to teach the children of these people in their own education systems.

The local authorities quickly realised that there was a need to plan for this increasing influx of people and NESJPC a joint planning committee was established to help manage this huge growth that was happening. Many of the towns and villages in a 20 mile radius of the city were to double and triple in size over the next few years and the Scottish Special Housing Association constructed new houses for “key workers” moving into the area.

24 The Uganda Chamber of Mines & Petroleum for the sub-sea sector. A further important aspect of the support related to advice George Bagonza, and training on quality standards and the procurement requirements of the oil and former chairman- gas operators.

Aberdeen had being growing rapidly through the early 1980s and many were revelling in their new found wealth. In the summer of 1986 however we suffered one of our biggest catastrophes when we experienced the cyclical nature of the oil and gas industry for the first time. The price of Brent crude fell dramatically to under $10 a barrel and within a few months companies were being closed everywhere and whole streets of houses were up for sale as people abandoned the city. It is estimated that 5000 Americans Aberdeen City Council Director, left Aberdeen in 3 months. It was a sharp Gordon Mcintosh reminder that we should not become over dependant on this industry and Of course it was not a forgone conclusion perhaps the best lesson that we could that Aberdeen would continue to develop have possibly received at that point. The another 30 years of oil and gas extraction as the centre for the growing oil and public and private sectors combined their from the North Sea and a growing gas industry in the UK and many other forces and developed an initiative to re- global trade for its businesses including cities tried to win away the business establish confidence and ensure that we internationally recognised locally from the city. Aberdeen was fortunate be the masters of our own destiny as far established companies such as the Wood however in that it had a long established as possible in the future. The oil price Group, Balmoral and the Craig Group to harbour, an airport a railway line going rose eventually and gradually Aberdeen name but a few. south to London and the south as .well recovered and then continued to grow as reasonably good road links .It was and expand. also closest geographically to most of As I sit writing this we are experiencing the fifth significant downturn in the the earliest field discoveries. It also had Today Aberdeen is a global centre of industry in my working life. Businesses other important pieces of infrastructure excellence for the sub-sea industry with are closing others are merging and in place including good hospitals, shops, Aberdonian oil and gas workers being people are losing their jobs. We have banks, professional services and hotels found in every oil and gas province in been here before however and we have which could provide the necessities the world .The City is looking forward to required for the international oil and gas our “heads down” planning on how we community. can reduce costs, be more efficient and The price of Brent crude be more innovative so when the price of The City Fathers also bought a large oil eventually recovers, and it will, we will amount of agricultural land at this time fell dramatically to under be ready to move forward again. and started to develop industrial estates $10 a barrel and within a including “advance industrial units” All good things usually come to an end which could be easily rented by incoming few months companies eventually however and part of our businesses. were being closed strategy for several years has been to diversify our economy further into In 1984 I joined NESDA and it was my everywhere and whole areas such as businesses tourism, responsibility to help local people and streets of houses were biopharmaceuticals and renewable local businesses get into the oil and gas energy. industry as well as providing support to up for sale as people companies moving into the area. Local abandoned the city. It When I visited Kampala in October 2015, content was important and over the I was lucky enough to meet the Mayor next 10 years we helped nearly 1000 is estimated that 5000 of Hoima after an introduction from Eric companies establish themselves in and Americans left Aberdeen Olanya the British High Commissions around Aberdeen, Head of Trade and Investment for Uganda in 3 months. It was a when we had a good discussion around We provided support by helping to the challenges facing growing oil cities. I develop business plans and through sharp reminder that was delighted to be invited to visit Hoima a mixture of loans and grants to help we should not become when I next visit Uganda to discuss how them purchase plant and equipment, we might work together in the future working capital, marketing and perhaps over dependant on this and I look forward with great anticipation most important of all training. We also industry to returning to the beautiful country of provided support for the construction of Uganda. specialist industrial buildings particularly

The Uganda Chamber of Mines & Petroleum 25 Swala Energy’s Local Swala ContentEnergy’s model Local viable? ContentCross-listing Australian model company leads viable?the way with unique model s debate on participation of indirectly by buying equity stakes in (National Content) Regulations 2014 local enterprises (national the oil companies when they cross-list are quiet on whether a cross-listed Acontent) in the lucrative oil on the Uganda Securities Exchange. company where Ugandans have and gas sector rages, Swala Energy of Australia has presented an ownership Speaking at the Mineral Wealth content, the regulations point out the model Ugandans can look at as a way Conference 2015 last October, areasacquires where equity local qualifiesenterprises as should local to participate in the sector. Dr David Mestres Ridge CEO & provide the services. Managing Director, Swala Energy While companies that are locally Ltd said cross-listing their shares The regulations provide that Ugandans owned want a share of the oil pie – onto the local stock exchanges is the should be lead participants in service way they include local participation in provision in the sector. And that oil which has applied to explore for oil their business. inand two they blocks are in justified, the Albertine Swala Energy,Graben and goods that would otherwise be believes cross-listing its shares from Ridge noted that cross-listing providedfirms should by Ugandans. not import services the Australian stock exchange to the provided a means for nationals of Uganda Stock Exchange is a good Tanzania and East Africa to participate Regulation 31 provides: “Where model. in the development of local oil and gas possible, the licensee, contractor or resources. any other entity engaged in petroleum Swala has already done this in activities in Uganda shall carry out Tanzania where it has operations He said there are long-term and fabrication and welding activities in Tanzania’s oil and gas sector. The ‘peripheral’ advantages to ownership in the country. The authority shall company is cross-listed onto the Dar of economic activity that encourages determine and advise on the capacity es Salaam Stock Exchange (DSE) with additional industrial and economic of welding industry in Uganda.” 58.25% of their Tanzania subsidiary development. Swala Tanzania owned by Tanzanians. The regulations are meant to ensure In the presentation, Swala Energy that all metal welding and fabrication According to Swala Energy, early answers the question why local services are done within the country ownership and participation in ownership matters. to offer Ugandans jobs and ensure Uganda’s oil and gas sector by local skills transfer. They give an example of the Basque companies brings the best value to Country of Spain that developed local investors and is the way to go to a global shipping industry which prevent the absence of ‘local content’ and services to be provided by has been a cornerstone of Spain’s The regulations define certain goods on the sector’s supply chain. Ugandans. economy for centuries given the other Ugandans can either play directly industries that have grown as a result They include: personnel, in the oil and gas sector by founding of the shipping industry. transportation, security, foods and companies they run to provide goods beverages, hotel services, human While the Petroleum Exploration, and services in the lucrative sector or Development and Production supplies, customs clearance, fuel supply,resources land surveying, management, clearing office and forwarding, crane hire, and locally available construction materials.

On paper, the draft regulations are a Dr David Mestres Ridge big deal for Ugandans. The question is whether they will be enforced.

shortlist of the seven companies that Swala Energy has made it to the final Uganda’s oil industry. The company hasqualified made applications to bid for licensesfor two licenses within in Uganda – the Karuka-Taitai and the Kanywataba. Ends ……./1

26 The Uganda Chamber of Mines & Petroleum Briefs

Uganda to appoint the nascent sector and opted to pursue a course aligned to the head of Petroleum industry – Bachelors in Oil and Gas Management, from the Uganda Authority Technology and Management overnment is already looking at a University. Gnumber of candidates that can fill up the position of the executive director of However, just like everyone in the the Petroleum Authority. sector, students like Gonza, have also had to shelve some of their well laid Among the minimum qualifications that plans as the international dynamics the government put out for potential shape the direction of this largely UNBS approves candidates was a Masters in Petroleum global industry. Engineering and Geoscience and 10 petroleum, gas years-experience in managing a busy and “I chose to pursue an oil related well-structured institution. course so that I can be in position to get employed in this interesting standards While the Authority already has a board, sector. The slowdown in activities however has affected mine and my he Uganda National Bureau of which President Yoweri Museveni inaugurated in October 2015, the delay fellow students’ progress, seeing TStandards has approved a list of that even internship opportunities are standards, some of which are critical to operationalize it has raised some questions on how Uganda’s oil bidding limited if any,” says Gonza, while in setting up crucial infrastructure in admitting that the lull caught him and the oil upstream industry. round would be handled. The Authority is mandated to advise the Minister in the his peers by surprise. The Uganda Chamber of Mines and negotiation of petroleum agreements and Petroleum played a crucial part in in the granting and revocation of licenses. gathering comments from some of its members over the specification of The government is currently holding standards for the equipment. negotiations with the seven companies that qualified to bid for the oil blocks, and UNBS announced it had approved that production sharing agreements could external coatings for buried or be signed as early as late June. submerged pipelines used in pipeline transportation systems, field joint coatings, among others, that are ‘Internship Would found in the petroleum and natural gas industries. Be of Great Help Us’

In July last year, the UNBS put up a list of 14 different sections of equipment He is all too aware that the to use within the petroleum and gas knowledge attained is not the be- industries, and called on the public all- and-end- all and as such hopes to make comments regarding their that the international oil companies standards. and their associates can occasionally offer trainings to his ilk. He also feels Some of the equipment that the the state can enter student exchange UNBS was keen on were the axial programs with experienced oil compressors, which pressurises the producing countries, where Ugandan gas. UNBS looked at whether the students can get more exposure. equipment’s international standards could be applicable in Uganda’s “Oil courses are worth pursuing local environment. for all Ugandans as we have the resource right here in our midst. The approval of the standards is an But to do this well, we need all the important stage as Uganda looks to necessary support from the state embark in setting up a $10 billion an Gonza (pictured) is growing through the Ministry of Energy and infrastructure programme, which will frustrated by the lack of Mineral Development and the private require building a refinery, central D internship opportunities in the oil sector. We need practical experience processing facilities, and different and gas industry. Gonza is one on to supplement the theory we have pipelines to develop the oil industry. several Ugandans that got drawn to studied so far,” Gonza notes.

The Uganda Chamber of Mines & Petroleum 27 Tracing Uganda’s 10-year oil journey yet, looking back over the last 10 years, pipeline after Uganda had discovered the country has achieved so much in oil. They decided to change the design placing the oil industry on a strong of the pipeline from a single carriage to pedestal, by putting in place the legal a dual carriage to take care of Uganda’s frameworks to govern the industry, and oil interest. Debate would later rage between the the country to oil production. also attract the right oil firms to take this pipeline, over the cost and design, whichLibyan ultimately firm, Uganda led to and the Kenya failure over to GENESIS FROM 2006 sign a Final Investment Decision. When Hardman Resources struck Still in 2007, Uganda licensed another company, Dominion, a wild cat 2006, and discovered that the well company that dared to venture in block couldthe first produce oil well 19 at million Mputa inbarrels January of 4B, where others feared. Dominion had recoverable stock tank oil in place, the task of exploring for oil in the Ngaji, there were still doubts whether the formerly known as the Silverback, country had enough resource in place which was located along Lake Edward. to attract international oil majors. Other wells such as Waraga and Nzizi With no guiding blue print for the were drilled within the same year, industry, Uganda embarked on although Mputa and Nzizi encountered designing its national oil and gas policy, more of gas than oil. drawing insight from countries such as Norway. The National Oil and Gas PEPD Director, Ernst Rubondo Things turned around in late 2006, when Heritage Oil struck a giant oil ganda will this year mark 10 policy recommended, among other well – giant by Uganda’s standards – things,Policy was that finally oil revenues in place will in 2008. be spent The discovery of oil, celebrating a on developmental sectors and that U at about 13,000 barrels of oil per day. journeyyears of an sinceindustry it that made has its shaped first issues of local content needed to be Inat KingfisherOctober, samples mid that of year,the oil flowing were the country like no other resource, and respected. taken to President Yoweri Museveni learn lessons from the pitfalls that the sector has had to overcome to become a Then it was announced that Uganda Oil especially, ramped up exploration ray of hope for many its citizens. to confirm what Uganda held beneath. In the oil fields, the companies, Tullow In celebrating a decade of oil alone, after more appraisals over the up. Of all the oil exploration activities exploration and discoveries, Uganda years,had commercial now holds more oil. than The 500 Kingfisher million activities as investor confidence shot will validate its decision for taking barrels of oil. was the opening up and de-risking caution in managing its oil resource of 2008,the Victoria perhaps Nile the Delta most play, significant where With 2006 seen as a breakthrough year, well, and building the expertise and Kasamene in was drilled and the investors’ thirst for the country’s institutions that have managed to stay discovered in August 2008. One of the oil was further whetted. Tullow Oil, the course of action despite grumblings other wells discovered in this play was which had entered into Uganda in 2004 of delays and wasted opportunities. the Ngege, which was discovered in after buying Energy Africa, entered June 2008. In total, seven discoveries With Uganda constantly compared to into another deal in 2006 by buying were made in 2008, making it one Ghana, which made an oil discovery Hardman Resources in December 2006 of the most active years in Uganda’s and then raced to produce First Oil for a reported $1.1 billion. exploration activities. And the icing on within 18 months, the country has been By early 2007, Tamoil East Africa, a the cake of those discoveries took place accused of frustrating the efforts of in November 2008, when results of the both local and international investors build a petroleum pipeline from Eldoret Jobi-Rii came out. The Jobi-Rii, it was by delaying paperwork and failing to inLibyan western firm, Kenya was awarded to Kampala. a tender The to announced, had at least 311 million dismantle the bureaucratic processes Libyans would alter their plans for the barrels of recoverable oil, making it the that have dragged the industry. And

28 The Uganda Chamber of Mines & Petroleum 10 Year Discovery Anniversary

OIL AND GAS INFRASTRUCTRE FOR THE DISCOVERIES OF ALBERTINE GRABEN If there was any doubt that Uganda did THE REPUBLIC OF UGANDA THE REPUBLIC OF UGANDA second largest after the Kingfisher. 31°0'0"E 31°30'0"E not have enough oil to attract millions War Madi-OkolloAnyiribu of dollars from top investors, that Kuchwiny Zeu

NEBBI debate was settled in 2009. Although " " Agwak p Okoro Pakwach 2°30'0"N 2°30'0"N companies such as Dominion drilled Paidha Oweko Padyere Jonam Nwoya the Ngaji in 2009 and hit a dry well, Goli while Neptune also hit blanks at its Parombo μ Paraa Lodge p

West Nile, Tullow Oil made the kind of Legend Dei Pipeline Route first well, Iti, in the Rhino Camp in p Airstrip Crude Routes )" p " TOWNS Southern Routes Kibanda had commercial oil resources in place. Central Processing Facilities Northern Route discoveries that confirmed that Uganda )" CPF By the end of 2009, Tullow announced Proposed Routes Proposed CPF International Boundary that it had drilled 27 wells, and 26 of ! STS Proposed Refinery Land Oil Discovery those came out with discoveries, a Water Body Licensed Acreage

2°0'0"N Buliisa 2°0'0"N ! D.R. CONGO sorts of odds. D.R. CONGO UGANDA world-class achievement that defied all

Discussions on how Uganda would pButiaba Bujenje Kibanda ! develop its oil had already started. The Biiso t government had already stated that er lb Buruuli A MASINDI . Ihungu L thought otherwise, and instead wanted ! Bikonzi it would refine its oil. The companies To ny a an export pipeline. Bugahya ! Bwijanga And yet 2009 was the year that the p 1°30'0"N 1°30'0"N

HOIMA p " companies and government were Kidoma seeds of conflict between some oil Butema sowed, which would lead to slowing ! Kikube down the pace of the industry. In late Buhaguzi ! 2009, Heritage Oil started making Buhuka )" Ngogole p headway over its plans to exit Uganda. Kiboga

The company got a suitor in Italian oil Pachwa Nalweyo Bugangaizi Bukwiri km Buyaga 0 5 10 20 30 40 signed; Eni would buy Heritage Oil’s Mabale © Petroleum Exploration and Production Department,31°0'0"E 2014 31°30'0"E assetsfirm, Eni. in UgandaA gentleman’s for just agreement over a billion was dollars. the report that showed that indeed Government declined to approve However, Tullow pre-empted its right the deal, setting off a number of tax to buy Heritage’s assets in blocks 1 and venture. disputes. With the Heritage preferring 3A in January 2010, as the company the refinery would be a commercial to run to a London court to appeal It is not clear what Heritage thought was its partner in those blocks. the Uganda government decision, the of government’s condition to pay tax. Heritage pulled the plug on the Eni deal country woke up to the shock over the and went with Tullow. loopholes in its tax loopholes. concluded negotiations, which took For the Tullow-Heritage deal to get placeHowever, in the when Jersey the companyin the Channel finally In August 2010, Hilary Onek, then the approval, government made a number Islands, London and with the deal Minister of Energy, wrote to Tullow Oil of conditions. Tullow would have to and said that the deadline to apply for bring in partners because government Uganda assets to Tullow, the company a petroleum production licence for the did not want one company holding as declinedfinally signed to pay in Netherlands,tax, which had to sell been its assessed to be $434 million. Heritage Another condition was that Heritage argued strongly that it had simply sold license,Kingfisher which field formed in exploration a crucial area part 3A of many licenses as the Irish firm did. had to pay capital gains tax on the deal, its rights and interest in the oil blocks, thehad transaction, expired. Therefore, had been the reverted Kingfisher back which was valued at $1.45 billion. and not assets; that the sale had taken to government. place outside Uganda’s jurisdiction; Elsewhere, away from the drama and that it was domiciled in Mauritius, the government, in early 2010, signed playing out between Heritage, Tullow, Away from the financial transactions, a territory known to be a tax haven an agreement with Foster Wheeler, an and the government, Neptune drilled which has a double taxation treaty with international company, to compile a its second well, Avivi, in West Nile. Like report which showed the commercial Uganda. dry. later that year, issued government with the first, that well, too, turned out to be viability of an oil refinery. The company,

The Uganda Chamber of Mines & Petroleum 29 10 Year Discovery Anniversary

Uganda was still not ready to let STATUS OF LICENSING IN THE ALBERTINE GRABEN OF UGANDA Heritage get away with it. In March 2011, the government, through Uganda THE REPUBLIC OF UGANDA 30°0'0"E 31°0'0"E 32°0'0"E 33°0'0"E THE REPUBLIC OF UGANDA Revenue Authority, slapped Tullow MOYO Oil with an agency notice. This meant LYEC DISCOVERY AREA • Size 27 sq.km that Tullow would act as an agent of • One Discovery; Lyec. μ KITGUM • Licensed to TOTAL E&P Uganda B.V Heritage Oil, effectively making it liable (Operator), Tullow Uganda Ltd, and CNOOC Uganda Ltd. N for the tax money. ARUA " 0 Legend ' 0 ° "" 3°0'0"N TOWNS PAARA DISCOVERY AREA 3 Amuru GULU It was then after Tullow was handed an INTERNATIONAL BOUNDARY • Size 598 sq.km OIL DISCOVERY • Six Discoveries; Ngiri, Jobi, Rii, Jobi- agency notice that it agreed to pay the GAS DISCOVERY East, Mpyo and Gunya in this area. NEBBI government Heritage Oil’s liability, and LICENSED ACREAGE • Discoveries under Appraisal by TOTAL E&P Uganda B.V (Operator), Tullow UN LICENSED ACREAGE decided it would pursue the company Uganda Ltd,LIRA and CNOOC Uganda Ltd.

in a London court. N BULIISA DISCOVERY AREA " APAC 0 ' 0

• Size 427 sq.km ° Tullow’s payment of Heritage’s tax 2°0'0"N • Six discoveries; Ngege, Kasamene, 2 Kigogole, Wairindi, Ngara and NsogaSOROTI in this area. • Discoveries under Appraisal by Tullow to continue negotiations with two oil HOIMA Uganda Operation Pty Ltd (Operator), liability paved the way for the Irish firm CNOOC Uganda Ltd and TOTAL E&P Uganda B.V Cnooc. N " 0 firms, ’s Total E&P and China’s KAMULI ' KIBOGA KAISO-TONYA DISCOVERY AREA 0 ° Uganda had learnt a bitter lesson on 1°0'0"N LUWEERO• Size 122 sq.km 1 KIBAALE BUNDIBUGYO •WobulenziThree discoveries; Mputa, Nzizi, and tax from the Heritage ordeal. In July FORT PORTAL Waraga in this area. IGANGA MUBENDE • Discoveries under Appraisal by Tullow Mayuge 2011, the country put in place transfer Uganda Operations PtyJINJA Ltd (Operator), MITYANA Wakiso CNOOCMUKONO Uganda Ltd and TOTAL E&P pricing rules, which basically separated Uganda B.V. MPIGI KAMPALA Kamwenge transactions among related companies. KASESE ENTEBBE " 0 ' 0

As if that was not enough, around the °

0°0'0" KINGFISHER DEVELOPMENT AREA 0 same time, the country also passed • Size 344 sq.km Production License granted to CNOOC MASAKA KALANGALA• an amended income tax bill, which Uganda Ltd (Operator), Tullow Uganda Ltd, and TOTAL E&P Uganda B.V

MBARARA

RAKAI property, in what was thought to RUKUNGIRI introduced a definition of immovable NTUNGAMO

counter any attempt by companies to S " 0 ' 0 °

describe their transactions as sale of 1°0'0"S 1 interests and not assets. KISORO KABALE

KM 010 20 40 60 80 While Tullow was in the middle of Copyright:© 2013 Esri 30°0'0"E 31°0'0"E 32°0'0"E 33°0'0"E negotiations to bring in new partners © Petroleum Exploration and Production Department, 2014 in Uganda, on October 10 and 11, 2011, Gerald Karuhanga, a youth legislators asked government to place questioned whether it attracted capital member of Parliament for Western a suspension of issuing any licenses in gains tax. On February 22, Tullow paid Uganda, tabled documents in the the oil sector. A special committee was $141.8 million to Uganda’s Tax Appeals House, which purported to show that instituted to investigate the matter. Tribunal as a mandatory 30 per cent of Tullow transferred money to a number the total tax assessed before court can Two years after the oil industry literary of government ministers and East hear the case. Africa Development Ltd, via the Bank came to a standstill, things looked of Valletta, as bribes. The documents up in February 2012 – a month that Earlier, however, on February 8, the purported to show that Aidan Heavey, remains the busiest in Uganda’s 10- cabinet tabled oil bills for the upstream Tullow Oil‘s Chief Executive, authorised year oil history. In that month, Tullow and midstream in Parliament. The Brian Glover of Tullow Uganda sold 66.67 per cent of its interests in upstream bill was crucial in that Limited, to make cash payments of up the Lake Albert Basin to Cnooc and it detailed how much power a to 500,000 Euros to Sam Kutesa, the Total for $2.9bn. Under the terms of government minister had on the sector, minister of foreign affairs, who also the deal, Total was to take the license while the midstream touched on the allegedly acted as a representative of covering exploration area one, Tullow regulation to protect the environment, East Africa Development Ltd. Other would be in charge of exploration area considering some of the pristine areas ministers named in the oil-bribery two, while Cnooc would be in charge of the oil companies were operating. the Kanywataba prospect in Ntoroko claims included then Prime Minister Dominion, which had not done any Amama Mbabazi and then Energy substantial despite drilling the dry government handed back to the oil Minister Hilary Onek. Ngaji well in 2009, got someone to buy companiesdistrict and after the more Kingfisher, than a year. which The oil-bribery issue became a heated debate in Parliament, and aroused However, Tullow disputed Uganda’s Energy concluded the acquisition its Uganda interest. UK firm Orphir public interest, so much so that the tax assessment on the transaction, and of Dominion in February 2012 for a

30 The Uganda Chamber of Mines & Petroleum 10 Year Discovery Anniversary

UCMP members at Total’s Mpyo- where drilling of an appraisal well is ongoing

reported £118 million. any evidence to justify claims over Ngege-Nsoga-Ngara, Kasamene- For Neptune, however, things were allegationsLater on thethat MPsTullow would tried notto bribe find Wairindhifield development and Waraga, plans Mputa for Kigogole-and Nzizi not going well. The company drilled some government ministers. to government, seeking production its third well in the Rhino camp basin, licenses. the Mvule, in the same month, hoping On the government side, land was it would be the one asset that would being acquired to make way for the On the legal front, Museveni assented bring it fortune. Instead, Mvule had to the midstream bill in June, signing it more water than oil, the last straw 2012, a Resettlement Action Plan for into law. that broke the camel’s back. A few construction of the refinery. Still in Project-affected persons had been weeks later, Neptune announced it was completed within the same year. Some quitting Uganda. people opted for cash compensation However, it was Cnooc that got the first Still in February 2012, government while others preferred relocation. production license for the Kingfisher In the end, 2013 registered the highest released its oil and gas revenue field on September 16, 2013. The upstream bill, which grabbed the number of appraisal wells drilled in management policy, a document that public’s attention over the minister’s Uganda, according to the Ministry of would guide the way the country Energy, which totalled 25. Also, the would integrate the oil cash into the in December 2012. largest investment in Uganda’s oil government system without disrupting power, was finally passed in Parliament sector took place in 2013, attracting other sectors. $2.4 billion, coming mainly from Total Cnooc embarked on an aggressive Moving ahead, while Tullow was busy and Tullow. workIn the programme. fields, both Cnooc Total drilled E&P andthe settling matters in regards to its interest Kanywataba prospect in the middle of Taylor DeJongh, a Washington-based in Uganda, the issue of the oil bribery 2012. However, the company hit a dry claims still hanged over its head. On well and relinquished the license back provide transaction advisory services April 11 2012, Tullow submitted its to government. firm that government contracted to position over the claims to Uganda’s parliament. The company detailed Total was not making any positive onBy the2014, refinery, the government started work was in 2013.making the responses it had received from headway too. By January 2013, the strong preparations for attracting the investigations it had carried out over the bribery allegations and how However, only one well came up with government issued a Request for it had found out that the documents positivecompany results, had the drilled Lyec. five wells. investors for the refinery. The presented in Parliament were “so January 2014, who had shown interest In March 2013, Cnooc started making crudely forged.” Proposal to six firms/consortia in

Two days later, on April 13, Total E&P well, where 2D seismic testing survey inHowever, the refinery. only four of the companies also went to Parliament, where it waspreparations conducted, to drillforming the Kingfisher-4the Chinese had submitted detailed proposals by explained the kind of activities it had company’s main work throughout the end of May 2014. carried out in Uganda, and what its 2013. In June, the three joint venture oil plans were. Tullow Oil, on the other hand, issued companies – Tullow, Total and Cnooc –

The Uganda Chamber of Mines & Petroleum 31 10 Year Discovery Anniversary released a joint study on local content, which detailed the opportunities available in Uganda’s oil sector. One of was that the sector could induce at leastthe defining 150,000 findingsjobs. from that study By October, only two consortia were left

Government issued a Request for Finalin the Offersrunning to for RT Uganda’s – Global oil Resources refinery. from Russia and SK Engineering and Construction from South Korea. In 2014, the National Environment Management Authority authorised treatment and disposal facilities in the six firms to set up petroleum waste country. A giraffe near an exploration area in the Murchison park

For at least two one year to 2015, there General released a report on the status Exactly two months after the Kenyatta- was interest in the number of people of local content in Uganda’s oil and gas Museveni meeting, Tanzanian vying for licenses to produce energy sector. The report offered a sobering from Uganda’s oil and gas resources. Some of these companies planned to structure. inofficials October signed to consider a memorandum the crude export of produce power for the oil companies. reflection on Uganda’s local content pipelineunderstanding to be routed with from Ugandan Hoima officials to the For example, the Auditor General Companies such as Albatros Energy, Tanzanian port of Tanga. The signing of questioned the 15 per cent state Lake Albert Infrastructure Services that MOU blew the race for Uganda’s oil participation that government had earlier written to the Electricity pipeline wide open. Regulatory Authority seeking licenses signed within the Production Sharing to produce power from the Albertine Agreements. In late October, President Yoweri Museveni commissioned the board grabben. Other companies like Jacobsen “There are no criteria set in the law, of the Petroleum Authority, a crucial had also shown interest. Uganda’s oil agreement or regulations on how institution needed for Uganda’s and gas sector was bound to spark off and when state participation will be licensing round, with Dr Jane decided. It is also not clear how the 15% Mulemwa as its new head. Museveni interest was arrived at and its adequacy itsBut first in Januaryoffshoot industry.2015, the ministry of also commissioned the board of the in ensuring national participation,” the Energy wrote to ERA and directed it not National oil company. to receive any license applications until report noted. On November 14, three days after a study was done to guide government It added that while the oil companies Parliament had passed the Public on how to go about power projects were training more Ugandans, there Finance Management Bill, which from crude oil and gas. was no special consideration given to created the Petroleum Fund and offered host communities or women during rules on how it would be managed, recruitment. cabinet, in early February 2015, President Yoweri Museveni assented to In a first for Uganda, government’s approved plans to open up six blocks The company that would take care of in the Albertine Graben for licensing in Uganda’s commercial interest through And in December, a few days before state participation, the National Oil it, officially making it law. Christmas, Patrick Pouyanne, the chief round. The six blocks are: Semiliki and Company, was incorporated in early the country’s first competitive bidding Kanywataba blocks, Ngassa block in August 2015. The company, however, Hoima district, Taitai and Karuka block Group, held a meeting with President does not have staff. executive officer of France’s Total in Buliisa district, Mvule block in Yumbe Yoweri Museveni in Jinja, in what was and Moyo districts and Ngaji block in A week later, around August 10-11, seen as a last ditch attempt to get a Kanungu and Rukungiri districts. President Uhuru Kenyatta, while on pipeline that would offer one of the a state visit to Uganda, managed to world’s largest oil majors to make a convince his Ugandan counterpart, mark on East Africa’s extractives sector. Yoweri Museveni to consider routing Uganda finally made its decision over The oil pipeline is one of the key Global Resources later in February. the crude oil pipeline to the Kenyan the refinery, handing it to Russia’s RT projects that are expected to catapult The deal was announced amid port of Lamu. The two presidents Uganda as the main oil frontier for East sanctions slapped against Russia for its issued a joint communiqué that noted Africa in the coming years. involvement in the Crimea war. that they had signed an agreement agreeing to consider the Lamu route.

In March 2015, the Office of the Auditor

32 The Uganda Chamber of Mines & Petroleum When Hoima-Tanga route came into picture

with hosting the pipeline, including the fees for doing so.

But what is the secret to Tanga?

In a government of Uganda draft report dated April 11, 2016, Uganda details why it thinks Tanga would be a better route for oil exportation.

“The Kabaale-Tanga route is the only option to secure First Oil export by mid-2020, with pipeline availability of 99%,” said the report by the Ugandan technocrats.

The report says that on the Kabaale-

only happen in mid-2022, with the pipelineLamu route, availability the first at oil80%. export could

Tanga (Tanzania) route is the least cost route“GOU for firmly the concludestransportation that Kabaale-of crude oil from the region to the East African coast.”

Two major players in Uganda’s oil sector have a different route they favour. UK’s Tullow Oil favours the route through Kenya to Lamu for its interests in the Turkana area, where Kenya has discovered about 600m hen Uganda set out to build the potential development of a crude export barrels of oil. Wcrude oil pipeline to export its pipeline project option from Hoima to resource to the east African coast, the Tanga port of Tanzania,” a statement preferred route was northern Kenya to from Uganda’s Ministry of Energy and equal to 6.5 billion barrels of oil, Uganda has confirmed reserves Lamu port. In August 2015, Presidents Mineral Development noted. with between 1.2 and 1.7bn barrels Uhuru Kenyatta of Kenya and Uganda’s recoverable. France’s Total E&P favours Yoweri Museveni agreed on a proposed This subsequently meant a return to the Tanzania route. It argues that it is pipeline on this route. the negotiating table for East Africa’s cost-effective and does not have the three biggest economies. security threat that the Kenyan route But in October 2015, came an poses. unprecedented announcement. “The In March 2016, Uganda and Tanzania Governments of the Republic of signed an agreement to start A meeting in March in Nairobi, attended Uganda and the United Republic of construction of this pipeline by August by President Museveni and Kenya’s Tanzania signed a memorandum of 2016. A statement from the Tanzanian Uhuru Kenyatta, and representatives understanding to identify and assess presidency said “they hoped the project the least-cost crude oil export pipeline would create at least 15,000 jobs.” group of technocrats to assess both of the oil firms, resolved to set up a to the East African coast. The agreement Tanzania does not have oil yet, but it routes and report in two weeks’ time creates a working framework for the hopes to tap opportunities that come with their findings being the basis of

The Uganda Chamber of Mines & Petroleum 33 constraints, with rich ecological and cultural diversity”.

Some of them are recognized by Unesco. It has coral reefs in the heart of Manda bay; endemic and unique

breeding. On the one hand, Tanga route avoidsmangrove the trees;Coelacanth also important marine park for andfish has minor impact on biodiversity area, the report concludes.

Importantly, the report says, the Lamu port development schedule is not compatible with the pipeline project time frame. The contract for its construction was signed in 2013, but as of March 2016, after two years, only the Adewale Fayemi, General Manager, Total E&P, Uganda construction camp is partially built, the report says. “Additional crude storage volume Corridor Integration Projects Summit will be required to avoid upstream For Tanga, there will be no delays final discussion at the 13th Northern in Kampala in April, 2016. production shutdown,” the report to start importing materials for the reads further. pipeline and upstream projects as The presidents said they would the port is already operational. There go with “a least-cost option for a In Tanga, assessment of the same are existing roads and railways and regional pipeline” and address the period showed that it has only 12 hours available land for marine terminal and “constructability issues along the route (0.5 days) of wind annually, with export yards. to be chosen.” shutdown estimated at just 0.15%, requiring no mitigation measures. Early this year, Total announced that The experts report says the Tanga route it had already secured about $4bn to is the least cost option for transporting Kenya also has land issues. Assessing construct the route through Tanzania. crude oil to the East African coast; from past experiences, technocrats it presents the highest availability; found that it took Kenya more than the route through Kenya. presents the lowest environmental foot two years to compensate people and There is no certain source of finance for print and that it is the shortest schedule pave way for a particular development But there is an issue of Uganda putting project. all its eggs in one basket, according to analysts. That’s depending on one toHighs deliver and firstlows oil export by mid-2020. It took Tanzania only nine months to country – Kenya – for port services if have land free for development, giving she chooses to go with Lamu. Uganda According to the report, the Lamu port Dar es Salaam an upper hand over is land locked and already depends on still has a lot of challenges and the Nairobi. attendant costs would be enormous Mombasa for its imports. In case of a for the parties involved. First, the port Cleaning shutdown in Kenya, with Tanga on her is exposed to the south east waves over side, analysts say Kampala is safe. the banks, with the surrounding islands Uganda and Kenya need millions of Win-Win of Lamu, Manda, Mwamba, Chongoi dollars of to clean Lamu port if it is to be used. The outer channel has a dredging and Pate unable to shelter it. Having said that, East African leaders at thickness of 2-6m; the berthing area the 13th Northern Corridor Integration On the other side, Pemba Island has 6-12m; and the material to be Projects Summit in Kampala, expressed shelters Tanga bay from the South East dredged in the channel is pure rock. their support for Kenya’s plans to build monsoon, reducing the wave heights another pipeline on the from Lokichar to less than 1 meter. The wave heights “Based on the Mombasa experience, in Turkana County and onwards to the reach 3.5 meters off Lamu during the dredging schedule in Lamu is not Port of Lamu on the Kenyan coast. monsoon season, the report says. compatible with the Ugandan crude oil pipeline project schedule,” technocrats These are win-win positions for the There are also strong winds at Lamu, report, putting the cleaning cost at people in the oil and gas sector because averaging about 380 hours (16 days) between $800m and $1bn. “There are vast opportunities for investment in annually between 1999 and 2010. This no dredging needed in Tanga and no means the countries would incur an cost needed.” up as two crude oil export ports are annual average export shutdown due developedvarious fields in aretandem going toon bethe opened East to wind estimated at 4.5per cent. On environment, Lamu port is described as having “major environmental African coastline.

34 The Uganda Chamber of Mines & Petroleum Kampala for petroleum products. Already, the two countries are building a standard gauge railway, which is still an import project for the oil industry in terms of transporting equipment. Uganda remains a key trading partner for Kenya, with a number of Kenyan service companies already in the country. The entry of Tanzania opens a new gateway for the two countries to deepen their trade ties, and possibly widen the

Presidents: Uhuru, Museveni, Magufuli, and Kagame Nairobi. More Tanzanian companies commercialare likely to regional venture influence into Uganda outside as trade ties deepen. James Mataragio, the managing director Why the pipeline decision of Tanzania Petroleum Development Corporation, said at the signing of the memorandum of understanding with will not damage relations the Uganda government to consider the Tanga route that: “this is a great project.” ganda’s tough decision to choose oil pipeline with Kenya. He added: “If executed, it will create the southern route through the U More than anything, however, a great opportunities for the people of Tanzanian port of Tanga for its crude oil pipeline with Kenya could have boosted Tanzania… This project is going to open export pipeline is likely to change the new investment opportunities, and dynamics of the region, and open up create jobs. We have that experience opportunities for companies that build required to build and manage pipelines. confidencecredited for de-risking in Tullow the Oil, potential the oilof infrastructure. I want to assure Ugandans that they explorationhydrocarbons firm within that is,the by two all states.accounts, have got all the support from TPDC and With Kenya going ahead to build On August 12, 2015 Aidan Heavey, the the Government of United Republic of another pipeline on the northern route Tanzania.” albeit from Lokichar in Turkana County said: “We plan to further deleverage to the Port of Lamu it can only mean the business as we look at non-core Already, Tanzania has agreed to hold a more jobs and tender opportunities in chief executive officer of Tullow Oil Plc, assets and our retained equity in our major developments. The decision has more than the 600 million barrels Tanzania remains East Africa’s main by the Governments of Uganda and significant stake in Uganda’s refinery. of oil resources it has discovered so far, extractives industry, with its value of its the region. Kenya is confident that it Kenya with regard to the pipeline route which would still make the construction gas reserves far outweighing any sector of an oil pipeline a commercial venture. within the region. Tanzania is also trying project to move into a new technical to discover oil while its mining sector And in true East African Community [toand Lamu]commercial will phase.” allow this significant has also attracted large international spirit, the 13th Northern Corridor In July 2012, before, Tullow Oil put out a Integration Projects summit in statement which noted how crucial the work have transformed the fortunes of Kampala, in April, 2016, saw all the pipeline was to its Kenyan discoveries. firmsthe country. such as Acacia, whose exploration regional leaders pledging their support The statement noted: “The companies for this move by Kenya. However, there have been few synergies are currently studying the potential between Uganda and Tanzania over the These are win-win positions for routes and design for an export years despite the strong historical ties investors in the oil and gas sector pipeline, which is a critical element of – the Tanzania army helped end the Idi because vast opportunities for the overall project.” And just to protect Amin reign in Uganda. its interest, the statement added: “The to be opened up as two crude oil export implications of Tullow’s Kenyan oil Until recently, Tanzania had taken a backseat in discussions involving investmentports are developed in various in fieldstandem are on going the discovery are being considered as part East African coastline. of this work.” regional infrastructure, where Uganda, Kenya and Rwanda were taking the The crude oil pipeline on the Kenyan The company is expected to clarify on lead on 14 key regional projects. side is a crucial component of the its regional plans in the coming months, LAPSSET project, a regional initiative probably when it releases its trading Nonetheless, the country now says it by the Kenyan government to improve and operational update in late June. is very much on board on whatever the transport network within the regional project comes up since at And yet, even without Uganda’s oil country. the end of the day the countries are going through Kenya, there are still far interrelated. The LAPSSET project offers Kenya to more infrastructure deals that the two intensify its negotiations with South countries have to collaborate on. Also attending the 13th Northern Sudan over the construction of a joint Corridor Integration Projects summit For example, Kenya agreed to take a 2.5 pipeline, which would bring one of in Kampala was DR Congo which is the world’s newest states closer to the interested in being part of the Standard high table of negotiators on matters Gauge Railway project and Ethiopia pershow cent support. stake in Uganda’s refinery, and that has its eye on mainly the electricity on East African issues is likely to be Also,was thethe first two East countries African countrystill need to schemes amongst other infrastructure plans. Eaststrengthened African. with South the Sudan’s execution influence of an to build a pipeline from Eldoret to

The Uganda Chamber of Mines & Petroleum 35 or motorists in Uganda, there is no Fother time than this to enjoy the low- est pump prices the country has seen in recent times. See, the prices of petrol have dropped by more than 25% to Shs 2,800 while diesel by 30% to about Shs 2,100 since a year ago.

The global oil prices have fallen mas- sively, hitting $28 a barrel in January this year, the lowest point since 2003 before edging up to $41 this month.

This was down from the $100 per bar- rel experience in the middle of 2014. To the already producing countries, this was bad news since they had already pegged their budgets on oil income.

To countries like Uganda planning to enter the production stage, it sent shiv- ers down the spine, but gave us an op- portunity to better understand how the resource works.

There were worries that Uganda could be heading to something disastrous with its plans to produce the hydrocarbons. In the outlook report for 2016, Razia Khan, Standard Chartered bank’s chief economist for Africa Global Research, said the markets were not pricing the oil based on strong fundamentals, and that

recover from their $30-a-barrel mark in the bank was confident the prices would the future.

“Standard Chartered is bullish on oil prices,” she added. “We may not have been seeing [an increase in the price of oil] in the very near term but we believe markets are not pricing on fundamentals and when they do, the oil price will come back. That’s ultimately the good news.”

But the most important, Khan said, “Uganda is still seen as one of the win- Oil price: ners.” Adewale Fayemi, the general manager of Total E&P, told The Observer newspaper Where Uganda is a in an interview in January that Uganda was in a strong position to reap from its oil resources, especially when the price winner, need for rethink of oil was low.

36 The Uganda Chamber of Mines & Petroleum Ghana oil workers striking

“When you start a project when the Development (DFID) chief economist, other sectors, but it also tends to hinder price is at the bottom, you can only Stefan Dercon said the fall in oil prices the incentives for tradable sectors to hope that by the time the project [ma- may well delay Uganda’s impending become stronger, and provides strong resource rents, and limit its impact. incentives against good governance and has gone back up. So, it is a win-win political commitment for inclusion,” tures] after four or five years, the price situation [for everyone],” he said. “This is not bad news – a smaller shock, Dercon said. in slower time will offer a better chance There have been hard lessons, though. for the rest of the economy and the state In the 2016 Africa’s pulse report, the For Uganda, sector players have cut to be more resilient to it, and prepare to World Bank said in the face of low down on their investments and slashed take full advantage of it,” Dercon said. global commodity prices, governments their staff. And there is more trouble if needed to adjust to a new lower level of the prices remain low for a long time. He added that it is an opportunity for commodity prices by diversifying their Uganda to go for a more cautious and economies. “The longer the uncertainty over pric- effective re-balancing of governance es, the longer it’s going to be before and the economy to cope with oil. And there are plenty of lessons from the rest of the world that these negative oil,” Khan said. Indeed, Uganda has come with effects do not need to materialise, said Uganda starts to get the benefit of that legislation and regulation, including Dercon. warned last year that a the Public Finance Managed Act 2015 fall in the oil price meant Uganda may passed last year. “For Uganda to take full advantage of experience delays in productions and new resource wealth, the country needs this “has implications on sentiments on But according to Dercon, there is more to take advantage of the possible delay the Ugandan economy, with potential the country needs to do, including “a to invest in high potential tradable effects on a depressing economic out- strong reallocation to more productive sectors, including those focused on look.” and sustained transformation out of regional export,” said Dercon. subsistence agriculture. Rethink “It also must take the opportunity to According to the 2014 census report, think carefully about how to build While Uganda’s hopes had been mostly 69% (5 million households) of all linkages to the oil sector, not through tagged on oil, that it would spur the 7.4 million households in Uganda import content rules, but measures growth and uplift many out of poverty, were stuck in subsistence farming and that encourage the development of it is a good time for a fresh thinking, needed a deliberate intervention to industrial and service sectors in line according to analysts. move them to commercial economy. technological and managerial In a public lecture recently, UK’s “Rapid oil may offer huge opportunities with firms’ existing and potential Department for International for investment in infrastructure and capabilities.”

The Uganda Chamber of Mines & Petroleum 37 Good Intentions for Uganda’s Oil Money

ccasionally, politicians would Until early last year, how Uganda say: “Uganda will manage its Ooil resource well”. It was just intended to put its petroleum that. Over the years, Ugandans have seen public resources mismanaged for revenues to use looked incredibly personal gain, and this ambiguity was not comforting. imprecise. The passing of the Public Finance Management Act 2015 appears to be the game changer. There is no guarantee that those in charge will respect the new legislation, but there is a promise.

The Act does not just detail how oil revenues should be used but also creates a sovereign wealth fund to help invest this money. It also includes proviso that oil money must be invested in infrastructure and to boost agriculture, rather than used for recurrent expenditure.

Legislation on the management of petroleum revenue is a step in the right direction, according to Paul Bagabo, a Ugandan consultant with the National Institute for Resource Governance (NIRG).

“The intention is good,” Bagabo told UK’s Guardian newspaper early this year.

The Act creates a Petroleum Fund where oil revenues will be saved. It includes provisions for the management of funds and a mechanism for sharing a small portion of royalties with local governments in the oil-producing region.

It also makes it hard for any withdrawals from the Fund. For Ariel view of the Kabale-Kisoro

38 The Uganda Chamber of Mines & Petroleum instance, the Act says, withdrawals from the Petroleum Fund shall only be was poised to manage its oil reserves had delayed to produce its first oil, it made under authority granted by an The Act does better than Ghana because of the Appropriation Act and a warrant of the preparations it’s going through. Auditor General—to the Consolidated not just detail Fund; to support the annual budget; The researchers said: “rapid production and to the Petroleum Revenue [in Ghana] was not only unproductive Investment Reserve for investments to how oil revenues unregulated environment.” be undertaken. should be used in fiscal terms, but also took place in an The Act further says the money In another angle of preparations, the withdrawn to support the annual country has instituted the National budget must not exceed the amount but also creates Oil Company to manage Uganda’s authorized by Parliament in the commercial interests within the oil Appropriation Act. a sovereign and gas industry, and new rules bar international oil companies from The Act spells out the kinds of wealth fund to appointing expatriates to positions that investments that government must use the oil money for, including that money sector is expected to create hundreds qualified Ugandans could occupy. The withdrawn from the Petroleum Fund help invest this of jobs. and put to the Consolidated Fund. money. It also But one hurdle remains. The “For avoidance of doubt, petroleum government has remained extremely includes proviso secretive when it comes to the of infrastructure and development Production Sharing Agreements revenue shall be used for the financing projects of government and not the (PSAs). Last December, activists recurrent expenditure of Government,” that oil money launched an online campaign to urge government to reveal to Ugandans what must be invested it had signed with the oil companies. it specifies. The money authorized by Parliament The government is yet to disclose the and the Appropriation Act but is not in infrastructure contents of the agreements. year must be retained in the Petroleum However, Global Witness, an withdrawn by the end of the financial Fund, the law adds. and to boost independent advocacy group, said in 2014 that the PSAs it had seen Meanwhile, the Petroleum Revenue agriculture, represented a good deal for the country, Investment Reserve, which will be run especially for those signed in 2012 – by the Bank of Uganda. And parliament rather than used with government poised to get up 80% of the oil revenues. appropriate money to be paid from would, for every financial year, the Petroleum Fund to the investment for recurrent “Government has succeeded in reserve with approval from the Auditor General. expenditure. these contracts compared with older negotiating a better financial deal in contracts – for which it should be congratulated,” Global Witness said. Investment Reserve be invested. The Yet it is one in the series of legislations The Act also specifies where the options include; an internationally that Uganda has enacted in the last Adding, “But there are some convertible currency deposit or a three years to ensure transparency debt instrument denominated in an in the sector. The government has to be addressed. The contracts lack significant weaknesses that still need internationally convertible currency also taken time to ensure that the some important human rights and that bears interest or a debt instrument country gets the best possible deals environmental safeguards. This is of possible from the production sharing particular concern given the unique agreements. habitats of the oil region in Uganda of a fixed amount equivalent to interest. This sort of legislation restores hope which sits on the border with the in Ugandans that they would see Last year, researchers at the UK’s Democratic Republic of Congo and the the revenues from oil used in public Effective States and Inclusive Nile River.” interest. Development (ESID) said while Uganda

The Uganda Chamber of Mines & Petroleum 39 10 years later, Nigeria could be Uganda’s new oil big brother

they sought licenses in the country’s

round. first ever competitive oil-bidding The entry of three Nigerian oil companies - Oranto Petroleum International Limited, Niger Delta Petroleum Resources Limited, and WalterSmith Petroman Oil Limited – could come as a game-changer in the West African’s fortunes and relations in Uganda.

With weak trade relations between Nigeria and Uganda, the West African’s latest interest in Uganda’s oil industry could open a new gateway of deeper business ties between the two countries. At the moment, South African and Kenyan companies dominate much of the business sector in Uganda.

There are, for example, more Kenyan companies cross-listed on the Uganda Securities Exchange than there are Ugandan; while the two largest taxpayers in the country are South African. Nigeria, Africa’s biggest economy, has remained on the sidelines.

Prince Arthur Eze, n the eve of its 10-year anniversary Therefore, the interest of three oil Osince it struck hydrocarbons, six oil blocks on offer also comes as Atlas Oranto Petroleum Uganda’s young oil industry might firms from Nigeria in a share of the just have received a new big brother – a silver lining for other West African International owner Nigeria. businesses that had earlier ventured into Uganda expecting a windfall of money from the oil industry, only to were all over most of the documents be disappointed by the delays and The West African country’s fingerprints that seven companies submitted disputes that have rocked the sector recently to the Uganda government as

over the last five years.

40 The Uganda Chamber of Mines & Petroleum market share. In the same vein, we It is expected a Nigerian could take which specialises in the construction of want to get ourselves prepared to be over. The bank did not get back to us Nigerian firms such as AOS Orwell, oil wells and drilling, came to Uganda able to take advantage of the emerging when we put questions to them over earlier, expecting to strike a couple of opportunities in the oil and energy the management structure ahead of deals within the mid-stream sector. sector,” he said. Uganda’s plans for the development But with oil activities in Uganda having stage of the oil industry. been put on ice for much of the last Now, the tax disputes over the transfer of licenses and delays in approving Also, Tony Elumelu, the owner of UBA address in the capital Kampala, with group, was in Uganda in June last year, five years, the company simply has an hardly any work being done. where he had a meeting with President company field development plans, Yoweri Museveni and pledged to invest which have defined Uganda’s oil now be a thing of the past as the more money in the country. industry over the last five years, could such Bank PHB, Global Trust Bank, country prepares for a new round of Other Nigeria-owned financial firms owned by Industrial and General exploration activities, with Nigerian Nigerian companies that wish to enter Insurance, bought controlling stakes in companies expected to be at the forefront of this drive. though; at least the three main oil Uganda could find some soft landing 2008 and 2010, partly pegging their companies operating in the country Ugandan financial institutions between hopes on an impending oil boom in Fred Kabagambe-Kaliisa, the have some links to West Africa. For Uganda. However, neither Bank PHB, permanent secretary in the ministry example, China’s CNOOC, which is which bought a controlling stake in of Energy, issued a statement recently, , nor Global Trust Bank that saying the evaluation of the bids will its key African assets in two countries developing the Kingfisher oil field, has be primarily based on the proposed – Uganda and Nigeria. In November last year, Total E&P hired Fayemi Adewale, snapped up Commercial Microfinance after entering Uganda, as a cocktail capability, national content, health a Nigerian, as the general manager Limited, were in operation five years work program, technical and financial of problems back in Nigeria and low safety and environment, proposed of its Uganda unit at a time when the business volumes in Uganda, led to royalty and signature bonus. He added country’s oil industry is heading to the their collapse. that the government would conclude critical stage of development. Tullow the licensing round by negotiating Oil’s exploits in Ghana has made it with successful bidders and sign the an experienced player in the West and ridden the storm of low activities in production sharing agreements and African market and is well-known to Those Nigerian firms that have stayed the oil sector have not had it easy. Take award exploration licenses by the end businesses in that region. the United Bank for Africa, which is yet of June 2016. But overall, the Uganda government years since it launched in the market. Experts say it usually takes a year to get has borrowed heavily from Nigeria’s to break even in Uganda, more than five The Nigerian-owned bank remains the rigs ready and transport them to experience in drafting its draft national the areas where they are to drill the oil. content policies. That Uganda tapped making because the main segment it Nigerian expertise to come up with financially in the red after years of loss- Also, Uganda is set to embark on the its own local content plan offers been in slumber. development stage of its oil industry interested Nigerian companies a better targeted – financing oil activities – has as the country concludes negotiations understanding of what the country is Then there is the NIC Holdings Limited, over the construction of a crude oil trying to achieve with its oil industry. which is also owned by Industrial and General Insurance, that saw its which have a combined value of close Nigeria is one of the biggest oil export pipeline and a refinery, both of to $9 billion. exporters in Africa. With a gross the year before, according to the latest domestic product of more than $500 profitability drop in 2014, compared to A number of West African companies billion, it dwarfs Uganda’s $24 billion. its right issue in late 2013, Folayan are already positioning themselves available figures. While announcing Bayo, NIC’s managing director, said the to tap into the oil sector. For example, Uganda has so far discovered 6.5 billion money they were looking for was to recently, UBA bank carried out a barrels of oil, with about 1.4 billion of partly position the company for the oil management shake-up, as the company that thought to be recoverable. This and gas sector. seeks to turn around its fortune. A team amount has been discovered from of managers from UBA’s headquarters less than half the area thought to be “The funds from the rights issue will in Nigeria were in Uganda recently prospective with oil. Uganda hopes the be used to expand our business and in where it is expected they were laying oil revenues it generates will help push the process increase its turnover and the ground for a new replacement for it to middle income status. the bank’s top most position.

The Uganda Chamber of Mines & Petroleum 41 GOVT COMMITTED TO FIGHTING MINING BOTTLENECKS

he Government of Uganda will continue Tto engage the private sector to bring an end to the remaining bottlenecks curtailing the full exploitation of the minerals sector.

Speaking at 4th Minerals Wealth Conference held in October 2015, Prime Minister Dr Ruhakana Rugunda, said access to land challenges and the activities of illegal miners among others will be handled swiftly so that they do not spread out.

“The mineral wealth belongs to the people of Uganda,” noted Rugunda, at the Uganda Chamber of Mines and Petroleum (UCMP) organized annual event.

Rugunda described the UCMP as a reliable and admirable partner in its advocacy in moving the sector forward by bringing clarity and identifying the bottlenecks.

“I salute you for the long standing constructive engagement with government, the consistent dialogue has resulted in the recognition of the minerals sector as one of the key sectors for the country’s transformation,” noted Rugunda.

The annual mineral conference is important meeting point for shaping direction for a sector whose economic value is estimated to be higher than the discovered oil and gas.

Rugunda commended the idea of the EAC region working together to develop the extractive sector saying the colonial boundaries make no sense.

42 The Uganda Chamber of Mines & Petroleum Guest Speakers came from Aberdeen, Ethiopia, Norway, Kenya and .

Dr Zwelini Mkhize, the African National Congress treasurer general gave the key note address. He asked Uganda to maintain an aggressive marketing campaign and to boldly market its minerals to the world.

Mkhize also noted the need to ease land access for mining investments. “In South Africa, the ownership of the land is with the people, but the resources are owned by the people but administered by the state,” he noted.

Another speaker from South Africa, Otsile Matlou, a director at ENS, Africa called on Uganda to have a comprehensive national the direction Uganda wants to take. beneficiation framework that should shape UCMP chairman, Elly Karuhanga promised investors’ the Chamber’s support in pushing for a more conducive business environment. He reminded delegates that such efforts had seen taxes on exploration scrapped amongst other breakthroughs.

The UCMP has since become a major addition to the EAC Northern Corridor meetings as well as the Presidential Investors’ Round Table, developments Karuhanga attributed to the Prime Minister.

Also a key development at the MWC2015 was the launch of Women in Mining Association in Uganda by Melody Kweba, the head of the South African Women in Mining.

Furthermore, the African Legal Support Facility (ALSF) in partnership with the UCMP held a week long training and members of the private sector along programme for senior government officials the margins of the conference.

The training focused on strengthening participants’ capacity with regards to the institutional, legal, contractual and

The capacity building programme aligns financial aspects of mining agreements. with the ALSF’s mandate to build legal capacity in Africa.

The Uganda Chamber of Mines & Petroleum 43 A Means to an End or an End in Itself? Demystifying the Role of the Kimberley Process Certification Scheme in the Diamond Industry Miners dig for diamonds in Marange, Zimbabwe

By Chiru Nyagah state-sponsored violence? Shouldn’t the buck stop with the respective here is a deceptive presumption incumbent government to ensure Tthat voluntary schemes such as peace and stability?

Scheme (KPCS) and the Extractive Global Witness has been one of the the Kimberley Process Certification Industries Transparency Initiative biggest agitators for reform in the are a panacea for the resource curse diamond industry, putting pressure on phenomenon and several other ills governments to curb the proliferation affecting the extractive industry. Nothing can be further from the truth. published a report highlighting the civil of conflict diamonds. In 1998, it Their goal is to promote transparency war in that had been fuelled by (the means) as a signal response to the resource curse (the end). The term areas. Global Witness took issue with conflict diamonds in rebel-controlled ‘resource curse’ suggests that resource various governments for disregarding rich countries tend to grow much the United Nations Security Council’s slower than less endowed economies. Lack of transparency is one of the It was also concerned that international embargo on Angolan conflict diamonds. contributing factors amongst several diamond markets were taking others including weak institutions, rent in Zimbabwe’s Marange diamond advantage of the lack of transparency to seeking and civil strife. further their own goals. The severity of the problem was evident from the fact fields raising concerns about whether The genesis of this paper stems from should be broadened to include the definition of conflict diamonds remarks made by Global Witness state sponsored violence, since KPCS major problem in Sierra Leone, Liberia that conflict diamonds had become a in 2011 to the effect that voluntary and the DRC. schemes cannot cut it in a multi-polar as, ‘…rough diamonds used by rebel world. Global Witness asserted in a currently defines conflict diamonds In response to this growing problem, press statement that, ‘…KP (Kimberley various leaders converged in movements or their allies to finance Process) has failed to deal with trade in legitimate governments...’ Kimberley, South Africa to discuss conflict aimed at undermining the way forward, culminating in the breaches of the rules by Venezuela This issue was addressed at a 2013 KP launch of the KPCS in 2003. Today, conflict diamonds from Côte d’Ivoire, and diamonds fuelling corruption and Plenary Meeting of Heads of State in the KPCS comprises of almost 99% of state-sponsored violence in Zimbabwe.’ Johannesburg, however no consensus the world’s diamond producers. Its was reached. This begs the question objective is to regulate production, The KPCS has been criticised for not though, what is the role of the KPCS? export and import of rough diamonds tackling ‘state-sponsored’ violence Does its mandate include dealing with

to curb conflict diamonds from 44 The Uganda Chamber of Mines & Petroleum Miners dig for diamonds in Marange, Zimbabwe penetrating the international market. identifying and publishing information in the Core Document into non- It requires every shipment of rough on areas where rebel diamond mining negotiable obligations; however it is diamonds to be accompanied by a duly activity occurs; making known the not immediately clear whether the names of individuals or companies that resolution passed. have been involved in questionable validated Certificate. Confirmation be sent expeditiously to the relevant activities; ensuring that all cash These challenges notwithstanding, the of receipt of the Certificate should KPCS has been effective in promoting refer explicitly to the number of parcels banking channels so as to expose a more transparent diamond industry authority. The Certificate should also purchases are routed through official being transported, their carat weight corrupt and money laundering in certain countries, sometimes as well as particulars of the exporter schemes; and that miners, buyers causing a ripple effect on rebel groups and importer of the diamonds. The role and sellers are all licensed since most whose activities have eventually been of the KPCS therefore is to enhance states engage in alluvial mining which supressed. For example, in Sierra Leone transparency in the diamond trade but is labour intensive. KPCS was instrumental in forcing out illicit diamonds from underground therefrom. To suggest otherwise is The rationale of the drafters of networks leading to an increase in not to end any conflict that may arise erroneous. the Core Document for adopting volume of diamond exports passing recommendations rather than through the Sierra Leone Government Indeed, implementation of the KPCS mandatory obligations was that the has been hampered by factors such former would encourage states to join Gold and Diamond Office (GGDO). the KPCS – states were drawn That said, the KPCS ought to adopt and reluctance by some to the voluntary more stringent measures and heavier as financial and technical constraints governments to alter “The role nature of the penalties for non-compliance if it is the status quo where scheme. In going to be more effective in promoting this is to their of the KPCS 2013, at the transparency agenda. a KP challenge is therefore is to enhance Plenary The writer is of the opinion that benefit. Another that it was left adopting the proposal put forward to the whims transparency in the at the 2013 Plenary Meeting (if not of member diamond trade but not to already adopted) would be a major states to milestone for the KPCS, curbing any adopt the illegal activities that might still be ongoing. arise therefrom. To Meeting, end any conflict that may there Chiru Nyaga is a lawyer specialising in recommendations suggest otherwise is was a oil and gas and energy. The Managing in Annex II of the KPCS erroneous.” proposal to Director of Exin Africa, she also consults Core Document. These transform the for the Kenya Chamber of Mines. recommendations include: recommendations Email: [email protected] & info@

The Uganda Chamber of Mines & Petroleum 45 Top 10 issues mining companies will face in 2016 productivity, embracing innovation and adopting transformative technologies.

On the other hand, some changes seem enduring. China’s shifting economic realities could arguably alter global mining market dynamics for years to come. The changing global energy mix will slowly but surely impel miners to reconsider their asset portfolios. And the ever-expanding view of corporate and personal welfare will continue

programs and devise more effective stakeholderto drive miners engagement to refine strategies. their safety Caption: A staggering Chinese economy hurting the global mining industry Amid this mutable environment, miners are increasingly asking tough questions: n December 2015, Deloitte Energy and stakeholder expectations remain Have the world’s demand factors for & Resources released as high as ever. As a result, miners I “Tracking commodities irrevocably changed? Do the Trends 2016 – Are We There we need new mining approaches? Is Yet?” which discussed the top the proverbial rock and hard 10 issues mining companies will place,find themselvesuncertain how caught to extricate between Can we afford to take out more costs? Is face in the coming year. This is an themselves from the negative spiral. the traditional profit model shifting? executive summary of the same: we reduce unsustainable debt levels? In many ways, the industry has come our financing model broken? How can Despite predictions and hidden to a crossroads. On the one hand, While not all these questions have hopes that the mining sector will opportunities still abound. As with answers, they need to be asked if miners imminently recover, the industry’s previous down cycles, this one too hope to position for growth in what down cycle continues apace. Weak will come to an end once the spectre promises to be an altered future. The commodity prices, declining grades of commodity shortfalls becomes companies most likely to succeed are and a falloff in demand—particularly reality and demand once again those that relentlessly seek to uncover from China—are exacerbating capital outstrip supply. Forward-thinking best practices, reward innovation and shortages and impelling companies to companies are preparing for the take bold actions across the board. cut back on their exploration spending. eventual upswing by strengthening

Yet regulatory mandates, tax burdens their operational excellence, improving

Tanzania’s coal plans music to Uganda’s steel investors

denville Energy, a UK energy Tanzania Electric Supply Company Ecompany, will start searching Limited that could lead to the signing $24 million to $27 million a year. for commercial coal deposits at the of a framework agreement to allow of $48 million, with a profit margin of With Uganda seeking to develop its Rukwa coal deposit within the next negotiations for a Power Purchase rich iron ore deposits, the prospects three months after the government Agreement and Transmission Line of getting cheap coal next door will be formally handed it a 10-year mining Agreement to formally commence. music to mining investors. licence. The award of the license to Edenville Edenville noted that it intends According to the terms agreed with the points to Tanzania’s strong push government, Edenville is expected to to develop its coal resources. For feasibility study for its project. start producing coal within 18 months example, in January, Rukwa Coal Sourcingto commission for money a remains final bankable one of from the date the license was granted. Limited, a subsidiary of Kibo Mining Edenville’s biggest tasks. The company Plc, received three new prospecting Rufus Short, CEO of Edenville, said announced that “since the grant of the licenses from the government, which, mining licence it has moved forward the parent company announced, will “have expressed the strong desire to discussions with numerous potential widen the 109 million tonne Mbeya seeofficials Edenville of the commenceTanzanian governmentpreparatory investors and is considering options Coal mineral resource. ground works within the next three for sourcing and structure of project months, followed by a formal opening Kibo has already hired Tractebel debt and equity.” ceremony to ‘break ground’ in Q3 Edenville will have to carry on 2016 and commercial production feasibility study for the Mbeya Coal to with those discussions without within 18 months.” PowerEngineering Project, to which carry outcould a definitivelead to a 250-300MW plant being established. He explained that the company is chairperson, who resigned recently currently engaged in discussions A pre-feasibility study noted that citingSally personal Schofield, reasons. its non-executive with the energy ministry and the Mbeya could achieve annual revenues

46 The Uganda Chamber of Mines & Petroleum UCMP MEMBERS 2015-2016

Chamber Diamond Members COMPANY CONTACT PERSON SECTOR 1. Tullow Oil Ltd Mr. Abdul Kibuuka Oil and gas exploration and production 2. CNOOC Uganda Ms. Chai Wei Oil and gas exploration & production 3. Total E&P Uganda Mr. Ahlem Friga-Noy Oil and gas exploration & production 4. Bank of Africa Ms. Sarah Muhaise Banking 5. Ms. Judith Owembabazi Banking 6. Zakhem International Mr. Peter Bitarakwate Oil & Gas Infrastructure Construction Ltd

Chamber Gold Members COMPANY CONTACT PERSON SECTOR 7. DFCU Bank Mr. James Mugabi Banking

8. Orient Bank Mr. Nicholas Sennungi Banking 9. Hima Cement Ltd Mr. Daniel Pettersson Cement Manufacturers 10. Stanbic Bank Mr. James Karama Banking 11. Standard Chartered Ms. Cynthia Mpanga Banking Bank 12. Lion Assurance Co. Ltd Mr. Newton Jazire Insurance 13. United Bank for Africa Mr. Wibrod Owor Banking (U) Ltd 14. Barclays Bank Mr. Gibson Nangono Banking 15. Roofings Group Mr. Stuart Mwesigwa Steel Manufacturing 16. Mrs. Beatrice Lugalambi Banking 17. KPMG Mr. Benson Ndungu Audit, Tax and Advisory

The Uganda Chamber of Mines & Petroleum 47 18. AERSUD Uganda Ltd Mr. William Mutlow Mineral Trading & Mining 19. ENS AFRICA Mr. Alexander Kibandama Law Firm 20. Mukwano Industries Mr. Ali Reza Manufacturing Uganda Ltd 21. Sebalu & Lule Mr. Nicholas Ecimu Law Firm 22. Tibet Hima Mining Co. Mr. Alex Kwatampora Copper Mining Ltd-Kilembe Mines 23. UHY Thakkar & Mr. Sam Thakkar Tax Advisory, Accounting Associates 24. International Energy Mr. Dinanath Yadav Electrical Engineering Technik (U) Ltd

Chamber Silver Members COMPANY CONTACT PERSON SECTOR 25. Agility logistics ltd Mr. Lakshmi Narasimha Logistics 26. AON Risk Services Ms. Caroline Athiyo Insurance & Risk Management 27. AUC mining Ltd Mr. Moses Masagazi Gold mining

28. BTS clearing & forwarding Ms. Merian Sebunya Clearing and Forwarding

29. Greenstone Resources Ltd Mr. Nimit Patel Gold mining

30. AIG Uganda Limited Mr. Edward Hire Insurance 31. Citibank U Ltd Ms. Bagorogoza Clare Banking 32. Civicon Limited Mr. Nick Dames Mechanical & Civil Engineering Works 33. Deloitte U Ltd Mr. Tallarovic Matthew Auditors 34. Eagle logistics solutions ltd Mr. David Walabyeki Customs Clearance, Heavy Equipment Hire 35. East African Chains U Ltd Mr. David Mayanja Dealers in Mechanical Tools 36. ORTEC Group Ms. Michele Ottria Lifting Services 37. Epsilon U Ltd Ms. Hellen Nambi Waste Management

48 The Uganda Chamber of Mines & Petroleum 38. Ernst & Young Mr. Muhammed Ssempija Auditors 39. Farm Engineering Mr. T. S Padhaal Equipment Supply Industries 40. Flemish inv. Ltd Mr. Bruce Milne Mineral Exploration

41. GCC Services (U) Ltd Mr. Wesley Musinga Facilities Maintenance & Catering Services 42. Goodlife (U) Ltd Mr. Shem Nnaggenda Training Solutions 43. Namekara Mining Company Mr. Henson Mambo Mining Limited 44. Halliburton International Ms. Natasha Epenu Oil & Gas Services Inc. 45. Schlumberger Oilfield Mr. Denis Bonifay Oil &gas services 46. Kampala Associated Mr. David Mpanga Law Firm Advocates 47. Krone (U) Ltd Mrs. Rose Rugazora Mineral Exploration/ Wolfram 48. ABMAK Associates Mr. Denis Kusaasira Law Firm 49. Lloyds British Testing Mr. Andrew Davies Inspection, Training and Assessment 50. Marsh Uganda Ltd Mr. Paul Mulira Insurance & Risk Management 51. Askar Investments Ltd/ Mr. Kellen Kayonga Mineral Askar Security Exploration/Tantalite 52. Multilines International U Mr. Gerald Mukyenga Clearing and Forwarding Ltd 53. Astor Finance Plc Ltd Mr. Gordon Sentiba Micro-Leasing and Financial Services 54. Oli gold muruli Ltd/ Gold Mr. John Muruli Gold Exploration Empire Ltd 55. Oryx minerals ltd Mr. Garvin Conway Mineral Exploration 56. Ogas Solutions Mr. Patrick Danaux Recruitment and Training 57. Pricewaterhouse Coopers Mr. Francis Kamulegeya Auditing, Tax and Advisory Limited Services

The Uganda Chamber of Mines & Petroleum 49 58. Richflo Lift services Mr. Richard Magezi Lift Services 59. Bollore Africa Logistics Ms. Nancy Kiconco Logistics Service Provider 60. Semliki Rift Rrading Co Mr. Patrick Van Pee Lift Services& Ferries

61. Sino Minerals Investments Ms. Sarah Namara Mineral Exploration Co. Ltd

62. Specialized Welding Mr. Sameer Vyas Welding Services Services/Strategic Logistics 63. Spedag Interfreight U Ltd Mr. Dilip Bhandari Logistics Service Provider

64. Threeways shipping Mr. Jeff Baitwa Logistics Service Provider

65. Toyota U Ltd Mr. Dino Romano Bianchi Car Dealers

66. Uganda Insurers Mr. Faith Ekudu Insurance Association 67. Union Logistics Mr. Hitesh Shan Clearing and Forwarding 68. Victoria Equipment Ltd Mr. Peter Sekandi General Machinery 69. Victoria Motors Limited Mr. Dickson Mwesigwa Car Dealers

70. Woodmore Energy Mr. David Kayemba Oil & Gas Downstream Consultancy Ltd 71. British High Commission Mr. Eric Olanya Diplomatic Mission

72. Sterling Global Operations, Mr. Nobert F. Rugunda Critical Mission Support & Inc Site Restoration Services

73. Let’s Go Travel Mrs. Joan Kantu Else Tours & Travel 74. Achelis Uganda Ltd Mr. Hans Georg Hinterberger Equipment Sale & Rental 75. Africa Ecoinvest Dr. Abdullahi Hajji Mining & Energy 76. Pearl Engineering Company Mr. Gumisiriza Birantana Construction Limited

50 The Uganda Chamber of Mines & Petroleum 77. Enviroserv U Ltd Ms. Jennifer Bangirana Waste Management 78. Goldstar Insurance Co. Ltd Mr. Paul Kavuma Insurance

79. UAP Insurance Uganda Ltd Ms. Ruth Nduhukire Insurance

80. Unifreight Cargo Handling Ms. Jennifer Mwijukye Cargo Handling

81. First Mining Company Ltd Mr. Dorde Grujic Mining

82. The Mineral Group Co. Ltd Mr. Barnabas Taremwa B Mining

83. Gras Savoye Uganda Mr. Ronnie Musoke Insurance Insurance Brokers Ltd 84. Sipa Exploration Uganda Ms. Natasha Venus Mining Ltd 85. Mr. Ian Duncan Hospitality

86. Beta Projects Ltd Mr. Nelson Mugenyi Procurement & Consulting

87. ADT Africa Explorational Mr. Ben Vietnieks Exploration Drilling Services Drilling Services

88. Tower Resources plc Mr. Rashid Mugabe Oil & Gas Exploration and Production

89. Aerophoto Systems Mr. Nalukoola Muwanga Airborne Geospatial Data Engineering Co. Acquisition, Aerial Photography, Surveying, Mapping 90. East African Gold Hon. Richard Kaijuka Mineral Exploration 91. Megha Minerals Mr. Sikander Meghani Mineral Exploration 92. Capital Law Partners Mr. Ronald Asiimwe Law Firm Mitegyeko

The Uganda Chamber of Mines & Petroleum 51 93. Mineral Services Ltd Mr. Edward Kabuchu Construction, Warehousing, Camp Building, Motor Vehicle Support 94. Kenfreight Mr. Amos Dwoka Freight Services 95. Velosi Corporate Services Mr. Willie Rankin Asset Integrity Management 96. Simba Mines and Mineral Mr. Jonny Sasirwe Mining Resources Ltd 97. Mantrac Uganda Ltd Mr. Walid Hassan Caterpillar Products 98. Tororo Cement Limited Mr. Gagrani B. M Cement Manufacturers 99. Beta Minerals Ltd Ms. Jennifer Hinton Mineral Exploration 100. TransAfrica Mr. Madhav Kumar Insurance Assurance Company Ltd 101. Ligomarc Advocates Mr. Joshua Ogwal Law Firm 102. Traminco U Ltd Mr. David K Kawooya Roads, Mining, Consulting, Construction, Earthmoving 103. Quantum Express Mr. George Odeke Freight Forwarding Logistics Logistics Services 104. Nangwala, Rezida, & Mr. Nangwala James Law Firm Co. Advocates 105. Niletrac Uganda Ltd Mr. Mark Davidson Dealers in plant & machinery 106. Geotraceability Mr. Matthieu Guemas Mineral Traceability 107. Ssaka Transport Co. Mr. Rolland Mulindwa Transport & Logistics Ltd 108. Fabrication Systems Mr. Safir Hajee Printing & Packaging (U) Ltd Services Chamber Individual Members

Name Specialty

109. Mr. Brian Kaggwa Lawyer

110. Mr. Joshua Tuhumwire Mining

111. Mr. Malkit Singh Saini Construction

112. Mr. Minaz Karmali Businessman 113. Mr. Rajesh Dewani Construction

114. Mr. Harald Van Aubel Fabrication

115. Rossini Silveira Oil, Gas & Renewable Energy

52 The Uganda Chamber of Mines & Petroleum

3rd Floor, Amber House Plot 29/33 Kampala Road P. O. Box 71797 Kampala [email protected] www.ucmp.ug

APPLICATION FORM FOR MEMBERSHIP

To: The Executive Secretary, Uganda Chamber of Mines and Petroleum P.O. Box 71797 Kampala E-mail: [email protected]

I hereby apply for membership of the Uganda Chamber of Mines and Petroleum Company/Organization…………………………………………………………………….. Address:……………………………………………………………………………………. ……………………………………………………………………………………………… Telephone…………………………………………………………………………………... Contact person: …………………………………………………………………………….

Position……………………………………………..Telephone…………………………… E-mail: ……………………………………………………………………………………... Please provide a brief description of your company/investment, its size and its activities. Description......

Signature of Applicant: …………………………….…….… Date: ………………………

Your application will be considered by the Governing Council as soon as possible.

56 The Uganda Chamber of Mines & Petroleum The Uganda Chamber of Mines & Petroleum 53 93. Mineral Services Ltd Mr. Edward Kabuchu Construction, Warehousing, Camp Building, Motor Vehicle Support 94. Kenfreight Mr. Amos Dwoka Freight Services 95. Velosi Corporate Services Mr. Willie Rankin Asset Integrity Management 96. Simba Mines and Mineral Mr. Jonny Sasirwe Mining Resources Ltd 97. Mantrac Uganda Ltd Mr. Walid Hassan Caterpillar Products 98. Tororo Cement Limited Mr. Gagrani B. M Cement Manufacturers 99. Beta Minerals Ltd Ms. Jennifer Hinton Mineral Exploration 100. TransAfrica Mr. Madhav Kumar Insurance Assurance Company Ltd 101. Ligomarc Advocates Mr. Joshua Ogwal Law Firm 102. Traminco U Ltd Mr. David K Kawooya Roads, Mining, Consulting, Construction, Earthmoving 103. Quantum Express Mr. George Odeke Freight Forwarding Logistics Logistics Services 104. Nangwala, Rezida, & Mr. Nangwala James Law Firm Co. Advocates 105. Niletrac Uganda Ltd Mr. Mark Davidson Dealers in plant & machinery 106. Geotraceability Mr. Matthieu Guemas Mineral Traceability 107. Ssaka Transport Co. Mr. Rolland Mulindwa Transport & Logistics Ltd 108. Fabrication Systems Mr. Safir Hajee Printing & Packaging (U) Ltd Services

54 The Uganda Chamber of Mines & Petroleum The Uganda Chamber of Mines & Petroleum 55 As the licensed operator of the Kingfisher development area, CNOOC Uganda is committed environmentally friendly, sustainable manner.

KF Access Road

CNOOC Uganda Linited Simba Towers, Plot 22, Acacia Avenue, kololo P. O. Box 7862, Kampala, Uganda 137 Tel: +256 204 500 205