Tanzania, Uganda in bid to help locals tap into $3.5billion pipeline project

Saturday February 20 2021
Magufuli pic

President John Magufuli and his Ugandan counterpart, Yoweri Museveni, in a tete-a-tete during one of the visits by the latter to Tanzania. The two leaders have successfully led good diplomatic relations between the two countries. Under the relationship, the East African Oil Pipeline worth over $3.5 billion would be constructed from Hoima in Uganda to Tanga port in Tanzania. PHOTO | FILE

By The East African

The governments of Tanzania and Uganda have belatedly begun to build capacities of micro, small and medium scale enterprises seeking to benefit from the $ 3.5b East African Crude Oil Pipeline Project. 

The project, which includes training  is funded by the African Development Bank at a cost of $500,000.

About two years ago oil investors placed huge technical and financial demands - requiring governments to produce required talent on one hand and goods and services that meet international standards and the needs of oil companies on the other hand. 

Tanzania and Uganda approached the bank to help foot the bills. The two countries acted jointly basing on the Intergovernmental Agreement they signed in 2017. The agreement enables the two countries to corporate in the development of the pipeline project.

In the latest case, the two countries want to build capacities of pipeline host communities as a means to manage growing expectations.

   “The project seeks to support inclusive private sector growth and creation of an estimated five hundred jobs along the pipeline route,” says Emmanuel F. Mugunga, the Ministry of Energy undersecretary.  


Services providers at variance 

But the oil and gas service providers argue that government is not doing what is urgent in the circumstances.

“Local suppliers want capital. These are the things that government should be working on at the moment,” argues Emmanuel Mugarura from the Association of Uganda Oil and Gas Service Providers and wonders what the oil funds are doing.  Since 2014, most service providers in the oil sector have basically been redundant following a scale down of procurement for goods and services - because of reduced field activities by the oil companies.

Gradually, activities are expected to pick up with procurement of goods and services as the companies prepare to start construction of infrastructure projects such as the Central Processing Plant, and pipeline networks leading to oil production.

The East African Crude Oil Pipeline Project is a 1,445km export pipeline that will transport Uganda’s crude oil from Kabaale in Hoima District, north-west of Kampala to Chongoleani peninsula, near Tanga port in Tanzania.

The 24 inch diameter heated pipeline will export a flow rate of 216,000 barrels of crude per day.

In 2018, joint venture partners Total E&P and China National Offshore Oil Corporation, released an extensive Industrial Baseline Survey report, which showed that the countries are ill-prepared to take up job opportunities in the sector.   However, under the AfDB funded project, according to Mugunga, the “overall objective of the training is to help develop capacity of local entrepreneurs along the pipeline route by enabling them to access new market opportunities and building linkages with larger national, regional and international companies”.

Data from oil companies shows that the Lake Albert Basin Development project will create between 100,000 and 150,000 jobs through direct, indirect and induced employment.

However, there is concern if citizens in both Uganda and Tanzania are up to standards to take up the jobs.  

“To this end, and in order to reduce imports, it will be crucial that both government, private sector, development agencies and oil companies embark on measures to implement recommended actions,” a joint statement by oil companies, reads in part.

Joint ventures 

Uganda’s National Oil Policy of 2008 for example, requires that oil companies provide employment to locals.  In case of lack of local expertise, the regulation demands that firms with capacity and capability form joint ventures with local companies in order to qualify for contracts.  “I can comfortably say that we have over 12 joint ventures between local and international companies by far. The biggest challenge for local companies is money to be competitive,” says Mugarura.

Q Sourcing, a human capital management firm, for example, formed a joint venture with a French based company, Servtec International.

But, financial capacities are affecting some local companies. According to Mugarura, some ventures have collapsed before coming to fruition because some local companies are unable to raise capital requirements.

The Petroleum Exploration and Production Act 2012, defines a local company by shareholdings of at least 48 per cent. This means that some local companies are failing to raise 48 per cent for the joint ventures to materialise.

“The reality will be different if businesses do not have the capacity and experience to participate in oil and gas activities. We believe businesses have major impacts on growth, income and employment” says Mugunga. A 2021 update on the National Supplier Database shows that 1,299 Ugandan companies have registered while 508 are foreign entities. 

The current training seeks to enable the local companies to register in the database.  Uganda has capacity to produce 6.5 billion barrels of oil per day.  It is anticipated that the production phase will completely transform some sectors in order to be at par with the future needs. The transport and logistics sector for example, will need trucks of at least 20 tonnes carriage capacity

Bemuga, a local logistics company, for instance has partnered with Famy, a Chinese company dealing in constructions equipment, in a move intended to boost its capacity.