LOCAL CONTENT CONSIDERATIONS IN UGANDA's PETROLEUM SECTOR

Oil and Gas Workshop for Ugandan Legislature February 2010

What is local content promotion?

Strategies to maximize the benefits from domestic oil and gas development through maximising the quantity of local content or local value addition in oil and gas sector spending.

Oil and Gas Workshop for Ugandan Legislature February 2010

Factors limiting local social and economic development.

Inefficiencies in public sector expenditure management at national and provincial levels; Risks and volatility inherent in a public fiscal regime dependent on mineral revenues, e.g. Dutch Disease, mineral price variability; Long cost-recovery periods

Oil and Gas Workshop for Ugandan Legislature February 2010

Local Content is a means to an end not an end in itself

The purpose is to increase national wealth through

Economic growth More employment of locals Value creation in the country Local Participation Induced expenditure in the local economy Enhanced human capacity Technology transfer

Oil and Gas Workshop for Ugandan Legislature February 2010

Successful tools to build local content

Concession policies Production sharing contract requirements Technology transfer requirements Tax incentives Procurement & contract strategies Support for SMEs and entrepreneurs Mentor programs Enterprise centers Cluster programs & use of tax free zones

Oil and Gas Workshop for Ugandan Legislature February 2010

What will it take maximize Local Content?

It requires high Government commitment It requires international oil companies to be supportive It requires policies and contracts that will allow service companies to invest in the country It will require high focus on developing human Resources

Oil and Gas Workshop for Ugandan Legislature February 2010

Mapping/Identifying Obstacles to LC Promotion

Lack of domestic manufacturing, fabrication and service capabilities to support the oil and gas sector Few people with the required skills, Lack of adequate power, water and other infrastructure to support an expanded manufacturing base Cumbersome bureaucratic obstacles to development of capacities of small and medium sized enterprises

Oil and Gas Workshop for Ugandan Legislature February 2010

Underdeveloped capital markets Huge proportion imported equipment and expertise must therefore be imported Problem of clarity and stability laws and regulations Capacity and skills in government Fiscal monetary and budget discipline Dialogue between government and civil society Public sector/private sector Partnership

Oil and Gas Workshop for Ugandan Legislature February 2010

WHERE SHOULD THE GOVERNMENT FOCUS?

Exploration Drilling, Well services and Rigs Engineering Fabrication and Construction Logistics (marine, water, land and air) Consulting, and Professional Services

What is Uganda looking for?

Uganda Petroleum Sector Governance - Parliamentarians Training February 2010

Oil and Gas Workshop for Ugandan Legislature February 2010

Production sharing contracts can be an important tool

Most developing countries have signed production sharing contracts with oil companies Most contracts tend to include requirements that could be used to expand

local development Recruit nationals except when qualified persons not available Use local supplies, equipment, services and contractors if competitive on performance, price and availability Provide training But clauses can also be more specific on targets

Oil and Gas Workshop for Ugandan Legislature February 2010

KEY STAKEHOLDERS

Oil and Gas Workshop for Ugandan Legislature February 2010

Ugandas Draft Local Content Policy Objectives

Maximize the benefits of oil and gas wealth generation on a comprehensive local content platform by: Maximizing the use of local expertise, goods and services, job creation for people, businesses and financing in all aspects of the oil and gas industry value chain and retention of the benefit within Uganda

Oil and Gas Workshop for Ugandan Legislature February 2010

Develop local capability in all aspects of the oil and gas value chain through education, skills and expertise development, transfer of technology and know-how and an active research and development portfolio. Achieve a degree of influence or control over development initiatives local/domestic stakeholders Achieve at least 80 percent local content and local participation in all aspects of Oil and gas industry value chain within a decade Increase capabilities and international competitiveness of domestic business and industrial sectors Create supportive industries that will sustain economic development

Oil and Gas Workshop for Ugandan Legislature February 2010

Proposed strategies

Government to ensure Ugandan citizens participate in the ownership of all business in the oil and gas industry. In this regard, the policy objective of Government is to provide for the participation of a citizen of Uganda in an interest of at least five percent in the exploration and production activities under petroleum licenses. Govt to ensure that interest of the citizens of Uganda shall not be transferable to a non-citizens of Uganda.

Oil and Gas Workshop for Ugandan Legislature February 2010

All operators in the oil and gas industry, shall as far as practicable use goods and services produced by or provided in Uganda for their operations in preference to foreign goods and services. The operators shall give priority to the purchase of local products and services from citizens of Uganda if competitive in terms of price, quality and timely availability. A preference for Ugandan entities, even if they are up to 10% more expensive is warranted.

Oil and Gas Workshop for Ugandan Legislature February 2010

'Where a foreign entity is to provide goods and services for the licensee, the foreign entity shall operate from Uganda and partner with a Ugandan owned and registered company. After the commencement of operations, the participation of Ugandans shall be at least ten percent by value in the provision of goods and services or as may be prescribed by regulations. The percentage contribution shall increase to at least twenty percent in the second year and shall increase by at least ten percent each year thereafter or as may be prescribed by regulations.

Oil and Gas Workshop for Ugandan Legislature February 2010

To what extent are these proposals realistic?

Oil and Gas Workshop for Ugandan Legislature February 2010

Thank You

Oil and Gas Workshop for Ugandan Legislature February 2010

Lessons from Trindad & Tobago

Oil and Gas Workshop for Ugandan Legislature February 2010

Oil and Gas Workshop for Ugandan Legislature February 2010

Oil and Gas Workshop for Ugandan Legislature February 2010

Oil and Gas Workshop for Ugandan Legislature February 2010