‘Local content must be enforced’
Is Uganda indebted because the government is counting on the profits from oil and gas once production starts?
Uganda’s government debt to GDP ratio stood at 34.7 per cent in 2014 (Kenya - 52.8 per cent, Tanzania 39.9 per cent), a level generally considered to be sustainable though it is quickly rising on account of a number of new loans to finance electricity, road and rail projects. The increased government borrowing is partly on account of the envisaged oil revenues as the foreign currency denominated debt repayment can only happen if oil revenues start flowing. Recent reports indicate that the country’s absorption rate of committed lines of credit from the World Bank was as low as 10 per cent, an unacceptable level on account of system inefficiencies. As a country, we must curb our appetite for getting loans without proper needs assessment and feasibility work being done.
What are the advantages and disadvantages of owning oil reserves for our country?
Oil, just like other natural resources, is a blessing and no doubt Uganda is gifted by nature. It has, however, been argued for a long time that oil may become more of a curse by leading to slow and inequitable economic growth. Our oil does not have to be a curse because it can propel economic growth and catalyse more than modest improvements in the quality of life for majority of our citizens.
Increased revenues for the country, however, will not take away our ineffective and inefficient service delivery and our lackluster attitude. These are key issues we have to deal with. We have good laws in place to ensure the revenues are well protected but we have to implement them to the dot.
Local content has to be enforced otherwise Ugandan companies and people will end up as spectators.
What are the interests of licensed oil companies versus the interests of Uganda? What do they intend to achieve versus what we want?
Licensed oil companies are primarily in Uganda to make a return for their shareholders. The interests of the country, on the other hand, are to maximise our revenue, use it to grow our economy and exploit the resource sustainably for the next generation.
As you may know, the global oil and gas industry has been beset by oil prices which have continued to drop with many global oil companies facing more than 50 per cent reductions in revenues. It is a tough time for the industry. Our interests and those of the companies are reconciled in my view if the terms of the Petroleum Sharing Agreements which lay out the terms on which revenues from the oil are shared and our well-thought out laws are enforced.
Are we prepared for production come 2020?
Yes and no. Yes, because we have a good Oil and Gas Policy and primary legislation covering the Upstream (exploration, development and production) and Midstream (refining, conversion, transmission and midstream storage) sectors.
No, because our capacity as a people and entrepreneurs needs to be scaled up fast if we are to benefit from the local content obligations placed on the licensees, contractors and industry players on the use of local raw materials, creation of a skilled Ugandan workforce and sourcing goods and services locally. Regarding the timelines, Uganda cleared a major hurdle recently when 25-year production licences were issued to the oil companies. We are also getting considerable mileage on the pipeline and refinery fronts though I am not quite sure we shall meet the 2020 set timeline, let’s wait and see.
Are there signs that we could suffer from the oil curse?
The idea that large resource endowments are bad for the countries that exploit them has been around for a long time. In fact, many studies have shown a negative correlation between an abundance of natural resources and Gross Domestic Product performance. These studies show some of the alleged symptoms as lower economic growth (oil sector booms and renders other sectors noncompetitive), increased wealth inequality, failure of productivity, degradation of the environment and human rights, among others.
Some resource rich countries have not suffered the curse, the merits and criticisms of the resource curse notwithstanding. The question is: ‘Can Uganda join this short list of countries that have ‘escaped’ it?’ We are on the right track as we are establishing institutions (Petroleum Authority, National Oil Company).
We have a good legal framework in place and have committed to spend our oil revenues on long-term public infrastructure and on debt repayment (later on). We, however, must maximise local content of our people and businesses and fully other lucrative sectors such as tourism and agriculture to avoid over-dependence on the sector if we are to fully avoid it.
Mr Cuthbert Kagabo is the deputy managing director of AH Consulting, a role he took in December 2011.
He has more than 10 years’ experience in consulting and is responsible for the overall delivery operational targets.
Mr Kagabo previously worked with PricewaterhouseCoopers’ Assurance and Business Advisory Services where he gained experience in various sectors of the economy.
Mr Kagabo has experience in working on projects in Uganda, Rwanda, Burundi, Sudan, Kenya, Chad, Ethiopia, UK, Ghana and South Africa.
NUMBER OF YEARS THE ISSUED OILPRODUCTION LICENCES WILL LAST.
Source: Ministry of Energy and Mineral Development