How partnerships can aid SME participation in the Oil and Gas Value Chain

Whilst we are a local company, Conexus Oil & Gas  has  established several partnerships with international companies; for example, we partner with OGINS in India and other global players in Dubai and Italy. The partnerships' objective is to tap from these players' experience and knowledge to enable us to develop local content in Uganda’s Oil and Gas Value Chain. 

 What is the landscape of the Oil and Gas sector in Uganda? 

  The Oil and Gas sector has three major operational phases.

The exploration phase, which is what we went through before 2004 to discover the oil reserves, followed by the development phase, which is about putting in place the necessary infrastructure to support the third phase of production. When drilling the oil out of the ground starts, the required infrastructure to transport and processes should already be in place. The phases are dependent on each other.

The sector has moved from the exploration to the development phase. This is evident in Hoima District, with a lot of infrastructure development taking place. Contracting discussions with companies are ongoing for further development from the oil fields - upstream to the crude oil pipeline-midstream and the refinery. Many research studies have been done on the upstream and midstream segments, and the results will inform the Final Investment Decision (FID).

The Final Investment Decision (FID) is set to happen when the international oil companies and Government confirm the sector viability and approve capital investment for operations. The FID was earlier anticipated in 2020; however, this did not happen.  The significant delays on the FID were due to several reasons, including the Covid-19 pandemic; however, we speculate that the decision will be reached by the end of March 2021 to kick off the massive activities. The total expected investment is USD 20 billion in projects split into the production, crude oil pipeline and the refinery.

 What is the nature of SMEs participating in the Oil and Gas Value Chain? 

 The scope of SMEs in the Oil and Gas Value Chain is wide. 

There is room for any SME to take part in the Oil and Gas Value Chain. Participation can be in three areas: specialist oil and gas, specialist (across the sectors), and non-specialist players. The local SMEs have mainly engaged in the non-specialist space. The National Oil and Gas policy encourages SME participation in value chains by incentivizing sector resources and ring-fencing local firms’ opportunities.

Some funds are paid to local SMEs dealing with goods and services to fuel participation in different spaces. Currently, over 1,000 SMEs have provided services across the chain. Some of the services include logistics, civil works, environmental consulting services, catering and hotel accommodation, cleaning and fumigation services, transportation, communication, medical services and manpower/ recruitment services.

 How is your company supporting SMEs to explore the available opportunities? 

  We support SMEs through capacity building and knowledge sharing.

We have established a critical partnership with the Mangala Oil field project in India for knowledge and information sharing. Mangala presents a similar structure and characteristics to that of Uganda. Both countries have waxy and heavy crude oil transported in a heated or insulated heating pipeline. Although the Mangala pipeline development of 200km is currently the longest heated pipeline globally, once the East African Crude Oil Pipeline (EACOP) of 1400 kilometre is completed, it will be the longest heated pipeline. Such information is critical to guide the SMEs on how to engage in the value chain.

We also share cases and experiences of what developers and communities went through in Mangala through our news bulletins. Together with the Stanbic Business Incubator, we provide SMEs training to equip them with the necessary knowledge about the sector. Apart from classroom training, we provide hands-on training through placements for skills acquisition. Our SMEs' critical training areas are business management, health and safety, and environmental standards.

  What policies and regulations exist in the Oil and Gas Value Chain?

  Uganda has a robust legal framework to guide operations in the Oil and Gas sector. 

We have the Draft National Content Policy and The Petroleum (Exploration, Development and Production) Act 2013. The regulations are clear and support local participation, with 16 areas ring-fenced for SMEs to provide goods and services. Some of these areas include transportation, security, food and beverages, hotel accommodation and catering, human resource, management, land surveying, civil work, clearing and forwarding, crane hire, and supply of locally available construction materials.

Similarly, the policies provide for production sharing agreements through joint venture partnerships with international oil companies. This allows local SMEs to participate in spaces where they would not have had capacity to deploy independently. The policies also advocate for oil companies to invest in SMEs training and development for compliance.   

What can be done to increase SMEs' participation in the Oil and Gas Value Chain? 

 To increase SMEs participation, we need to look at the challenges they are going to encounter.  

While we identified training and accreditation as key areas of participation, there are still issues with accessing finance to implement them. Therefore, it is necessary to establish a fund to support national content development through SME participation. SMEs need to understand contractual obligations and get the appropriate financing to execute the contracts. We are taking steps to work with the SMEs to help them understand the sector, interpret the contracts, and source appropriate funds.   

Participation can be increased by establishing an industry enhancement centre to support SMEs through private and government partnerships. SMEs can also embrace joint ventures with international companies that have experience and knowledge in the industry. This will facilitate the transfer of knowledge to the local SMEs, thus empowering them to participate in the value chain's different stages.