UNOC offers guidance to SMEs on participating in the Oil and Gas Value Chain.

The Uganda National Oil Company (UNOC) is mandated to manage Uganda’s commercial aspects of petroleum activities and its participating interests in the petroleum agreements. The UNOC roles are specifically to:

1. Develop in-depth local expertise in the Oil and Gas subsector.
2. Promote and participate in joint venture initiatives in the Oil and Gas subsector.
3. Develop the capacity of Ugandan citizens and enterprises in the Oil and Gas subsector.
4. Champion initiatives to support community contractors’ growth and enable them to provide services and materials to the Oil and Gas industry.

UNOC also ensures value is gained across the value chain segments from exploration, production, export pipeline and refinery.

 What is the current landscape of the Oil and Gas Value Chain in the country?

The Oil and Gas Value Chain is phased in nature, and at the moment, the industry is awaiting the Final Investment Decision (FID).

The value chain projects include exploration, production, export pipeline, refinery, refined products storage terminal and an industrial park. The first oil projects’ exploration was completed, and next will be the development and production phase, which can only begin after the FID is made. The power to announce FID is vested in the Minister of Energy & Mineral Development. The FID will be announced after the joint-venture partners sanction the commercial viability of the first-oil projects.

After the FID announcement, the field development stage will commence, and the country will see its first oil within a 3 to 4 year period. The development phase is the most resource-intensive but shortest stage of all and presents enormous SMEs’ opportunities to tap into. Given its nature, SMEs need to prepare and plan for short term financing and investments.

The construction of the central processing facilities and the related infrastructure and the export pipeline from Hoima to Tanga Port, Tanzania, provides SMEs with opportunities. They will deliver construction materials, manpower, logistics services, food, hotel accommodation and other services. It is important to note that although the country is moving into the development phase, more oil exploration is still ongoing. This will ensure continuity of using the already developed sector infrastructure to ensure commercial viability.

What kinds of SMEs are participating in the Oil and Gas Value Chain? 

There are various SMEs engaged in contracts across the Oil and Gas Value Chain.

We have to remember that for SMEs to benefit from the sector, they do not necessarily have to be directly involved in the Oil and Gas Value Chain. Today, 16 sectors were ring-fenced for Ugandan companies. These are (a) Transportation, (b) Security, (c) Foods and beverages, (d) Hotel accommodation and catering, (e) Human resource management, (f) Office supplies, (g) Fuel supply, (h) Land surveying, (i) Clearing and forwarding. (j) Crane hire, (k) Locally available construction materials, (l) Civil works, (m) Supply of locally available drilling and production materials, (n) Environment studies and impact assessment, (o) Communications and information technology services, (p) Waste management, where possible. These are sectors directly linked to the Oil and Gas Value Chain, but SMEs still can get indirect and induced work along the chain like Mobile Money services, hairdressing, recreation services, and many more.

I can give you an example of this kind of participation. Suppose you own a hair salon, and you are strategically located in or near the Oil and Gas region. Many people working in the Oil and Gas sector will come for a haircut or hairdressing. When a customer pays for the haircut, the salon operator pays her suppliers, employees, landlord, etc. The person who transports the Oil and Gas field workers to the salon equally benefits from the value chain.

I have another example of catering and food supply in the oil camps. A farmer growing tomatoes will indirectly benefit from the Oil and Gas sector by supplying the tomatoes to SMEs that offer catering services directly to the oil companies. This shows the multiplier effect of the Oil and Gas sector for SMEs via indirect and induced participation.

How is UNOC supporting SMEs to participate in the Oil and Gas Value Chain? 

UNOC is implementing the National Content Regulations, which have ring-fenced specific goods and services for SMEs, among other things.  

National Content Regulations give first priority for Ugandan to be contracted for all the Oil & Gas contracts, provided that they have the technical capacity, competence and financing to carry out the contract. In case the Ugandan SMEs cannot participate in the first option, the second option is for a Ugandan company to enter into a joint venture with another company or an international company to provide the service. If the joint venture option fails, then the last option is for the international company to supply the required goods and services on its own.   

National Content Regulations also require the international companies to subcontract all work within a contract that can be done by Uganda companies to Ugandan companies. They also have to transfer knowledge to these SMEs to deliver well on the contracts subcontracted. The international companies conduct quarterly supplier development workshops to support SMEs in understanding the opportunities available and bridge any gaps in required standards. Unfortunately, there is always a low turn up of invited suppliers, but those who attend the workshops have benefited. For example, One SME had never received any contract within the Oil and Gas sector. After attending a seminar held in Hoima on how to enter into partnerships and joint ventures, the company implemented the acquired knowledge. Now, they have a partnership supplying sand to the road construction companies. 

UNOC is set to work with the Petroleum Authority of Uganda to facilitate SMEs business linkages to the East African Crude Oil Pipeline through skills upgrades with support from the African Development Bank (AfDB). We also share a lot of information on our website to guide prequalified suppliers on fulfilling the contracts effectively. 

 What challenges do SMEs participating in the Oil and Gas Value Chain face? 

There are several challenges, but the most significant challenge SMEs face is liquidity. 

Most Oil and Gas contracts require significant capital expenditure, and many Ugandan companies may not have the capacity to take them on. To perform the contract, SMEs need some liquidity, which they do not usually have and sometimes cannot quickly get a loan because they lack relationships with their bankers.

The next challenge is related to the “how” of doing business. You find that many people get into a business without the required skills, which compromises business standards. For instance, SMEs could sell food but not follow the storage standards and do not possess the necessary permits for the staff and premises. As a result, they will not secure additional contracts in the sector. 

The sector has many stringent demands as participation calls for additional requirements to supply some goods and services. In the transportation of goods in the Oil and Gas sector, specific gadgets and technologies are required for tracking the goods. This technology ensures that the vehicles being used are in good condition and allow for real-time transportation updates. Many SMEs don’t usually have the technology and expertise required for this.

 What can be done to increase the level of SME participation in the Oil and Gas Value Chain? 

 A lot of effort is required to increase SME participation in the Oil and Gas Value Chain. 

Let me start with what the Stanbic Business Incubator is doing to build SME capacity and share sector opportunities. UNOC has also partnered with the Incubator to provide additional training for SMEs on up-skilling and upgrading to meet the required standards. This is critical if we want to see SMEs participating.

Secondly, SMEs need financing. The government plans to put an Oil and Gas fund in place to finance the sector contracts’ performance will increase participation. The fund will provide low-interest loans to SMEs for ease of entry in sector activities. SMEs also need to develop good working relationships with their bankers and maintain the necessary financial records to access the required financing. 

Information sharing is also critical for participation. Information is only shared with SMEs registered on the National Supplier Database (NSD). Therefore, SMEs are advised to register on the National Supplier Database to access this information. We also believe several players can support the dissemination of information. Such players include banks, certification bodies, and other private sector players. Apart from receiving information, SMEs need to aggressively search for knowledge and ensure that they are responsive to available opportunities. Most contracts are advertised in the newspapers, yet SMEs ignore reading newspapers, thus missing out on a chance for participation. 

SMEs need to become Information Technology (IT) savvy to search and send information online since many bidding processes and training are happening online. The Covid-19 pandemic effects have shown us that you will lose out if you do not have an IT savvy mindset. Reports indicate that businesses that have embraced IT have actually thrived during this Covid-19 period. These businesses are also likely to benefit significantly in the Oil and Gas Value Chain. 

Lastly, all companies that want to be contracted and subcontracted for the Oil & Gas contracts must be registered on the National Supplier Database of the Petroleum Authority of Uganda (PAU). The National Content Regulations state that companies not registered on the NSD shall not be awarded contracts within the Oil & Gas Sector. I encourage SMEs to register online to the NSD for free by logging onto the PAU website to participate as contractors and subcontractors for Oil & Gas contracts.