Local Content Compliance Requirements For Companies Planning To Do Business In Oil & Gas Sector In Uganda

1.0 Introduction

There has been general excitement on the part of Ugandans at the potential for development, improvement of household incomes and the general standard of living once petroleum revenues start flowing. The Government has determined that this can only be achieved by having in place a robust National Content strategy in form of policy and regulatory measures that focus at increasing the use of locally available labour, technology and other resources in the oil and gas sector. These measures are meant to be complied with by any company licensed or sub contracted to engage in the exploration, development and production of oil and gas in the country.

2.0. Definition Of National Content

The Petroleum (Exploration, Development And Production) (National Content) Regulations, No.44 Of 2016 and The Petroleum (Refining, Conversion, Transmission and Midstream Storage) (National Content) Regulations No. 34 of 2016 define national content in clause 4 to mean; the level of use of Ugandan local expertise, goods and services, Ugandan companies, Ugandan citizens, registered entities, businesses and financing in petroleum activities.

The 2018 National Content Policy For the Petroleum Subsector in Uganda defines it as ‘the value added or created in the Ugandan economy through the employment of Ugandan workers and the use of goods produced or available in Uganda and services provided by Ugandan citizens and enterprises.

By way of comparison, the Nigerian Oil and Gas Industry Content Act 2010, defines Local content as: “the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through deliberate utilization of Nigerian human, material resources and services in the Nigerian oil and gas industry.”

In both context of the definitions of national/ local content, emphasis is on the use of local expertise/ service providers and local resources in oil and gas sector.

3.0. Justification/rationale For Local Content

Under the 1995 Constitution of Republic of Uganda, its National Objectives and Direct principles of state policy Objective No. XIII, provides for the mandate of the state which is to ‘protect important natural resources including land, water, wetlands, minerals, oil, fauna and flora on behalf of the people of Uganda. This notion is emphasized under Article 244 of the Constitution and Section 4 of Petroleum (Exploration, Development and Production) Act 2013 which are to the effect that the Government of Uganda shall hold petroleum rights on behalf of and for the benefit of the people of Uganda.

From the above principles, the people of Uganda must be seen to benefit from their oil resources either directly or indirectly. The Government of Uganda has a duty to ensure that since it holds natural resources on behalf of the citizens, its utilization should involve the citizens as well. The Petroleum (Exploration, Development and Production) Act 2013 was enacted to support the development of state participation and national content in the petroleum industry.

4.0. Compliance Requirements

4.1 REGISTRATION ON NATIONAL SUPPLIER DATA BASE OF PAU

Under regulation 11(1) and (2) of The Petroleum (Exploration, Development and Production) (National Content) Regulations, 2016 the Petroleum Authority shall develop a national supplier database for petroleum activities. A company shall not provide goods, works or services for petroleum activities unless it is in the national supplier database.

The Petroleum Authority of Uganda has developed a National Supplier Database (NSD), a register of entities and persons with interest to provide goods, works and services to the oil and gas sector in Uganda.

Registration is done online but the entity must have the following documents;

  • 4.1.1 Proof of legal status like certificate of Incorporation and/or registration.
  • 4.1.2 Information on the shareholding and management of the company or entity.
  • 4.1.3 Reference letter from the bank/ proof of liquidity status.
  • 4.1.4 Proof of compliance with tax (tax clearance certificate).
  • 4.1.6 Proof of social security compliance (clearance certificate from NSSF).
  • 4.1.7 National content strategy plan (Showing Ugandans employed or to be employed by the entity and the goods and services to be used by the company

4.2. Provision Of Goods And Services By Ugandan Companies

Section 125 of The Petroleum (Exploration, Development and Production) Act 2013 and Section 53(1) of the Petroleum (Refining, Conversion, Transmission and Midstream Storage) Act 2013 states;

(1) The licensee, its contractors and subcontractors shall give preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies.

(2) Where the goods and services required by the contactor or licensee are not available in Uganda, they shall be provided by a company which has entered into a joint venture with a Ugandan company provided that the Ugandan company has a share capital of at least 48% (forty eight percent) in the joint venture.

(3) The licensee, its contractors and subcontractors shall ensure that the Ugandan entities are notified of the upcoming contracts as early as practicable.

In both regulations, preference is to be given to Ugandan companies in the provision of goods and services. There is need to understand what constitutes a Ugandan company.

Definition of a Ugandan Company under the law

Both The Petroleum (Exploration, Development And Production) (National Content) Regulations, No.44 Of 2016 and The Petroleum (Refining, Conversion, Transmission and Midstream Storage) (National Content) Regulations No. 34 of 2016 define a “Ugandan company” under the respective Acts to mean a company incorporated under the Companies Act, 2012 and which; (a) provides value addition to Uganda; (b) uses available local raw materials; (c) employs at least 70% Ugandans and (d)its joint venture with a foreign company has been approved by Petroleum Authority of Uganda.

 

For the joint venture to be approved by the Authority, it must demonstrate;

  • -Technical and financial competence and be able to deliver the goods and services in a timely manner;
  • -Capacity to transfer knowledge and technology to Ugandan citizens; and
  • -Have experience in provision of the required goods and services.
  • A company must fulfil all the above conditions in order to be qualified as a Ugandan company.

4.3. Employment And Training Of Ugandans

The Petroleum (Exploration, Development and Production) Act 2013 under Section 126 states that; (1) The licensee shall, within twelve months after the grant of a licence, and on each subsequent anniversary of that grant, submit to the Authority for approval, a detailed programme for recruitment and training of Ugandans.

(2) The programme shall provide for the training and recruitment of Ugandans in all phases of petroleum activities and shall take into account gender, equity, persons with disabilities and host communities (the inhabitants of the district in which petroleum activities take place).

Regulation 16 of the Petroleum (EDP)(National content) Regulations 2016 also requires the Licensee to develop and submit to the Authority for approval, a transparent policy and plan on training and employment of Ugandans, specifying the required minimum qualifications.

Regulation 17 adds the requirement to submit within twelve months after the grant of a licence, a detailed plan for recruitment and training of Ugandan citizens in petroleum activities. The plan shall include;

  • an outline of the hiring and training needs of the licensee and the licensee’s major contractors with a breakdown of the skills required, the activity-specific training requirements and the anticipated expenditure to be made directly by the licensee in implementing the employment and training plan,
  • (b), a time frame for employment opportunities for Ugandan citizens for each phase of the petroleum activity; and (c) any other relevant information that the Authority may require.

Prior approval of Work permits for Expatriates by PAU

Regulation 21 of The Petroleum (Exploration, Development and Production) (National Content) Regulations, 2016 provides that every licensee, contractor or subcontractor shall apply for a recommendation from the Authority prior to making any application for work permits for expatriates to the Government ministry, department or /agency responsible for immigration.

The application to the Petroleum Authority shall include; (i) job titles; (ii) certified or notarised academic transcripts and curriculum vitae accompanied by recommendations certifying the experience and job history referenced; (iii) a description of responsibilities; (iv) the duration of the proposed employment in Uganda; (v) evidence that Ugandan nationals are not qualified for the job; (vi) list of Ugandans identified for training; (vii) an individual training plan for the replacement of the expatriates; and (viii) any other information required by the Authority.

4.4 Training, Technology Transfer And Capacity Building For Citizens

The Petroleum (Exploration, Development and Production) Act 2013 under Section 127 states that; (1) A licence shall include a clearly defined training programme for the Ugandan employees of the licensee, which may be carried out in or outside Uganda and may include scholarships and other financial support for education.

(2) A licence shall include a commitment by the licensee to maximise knowledge transfer to Ugandans and to establish in Uganda, management and technical capabilities and any necessary facilities for technical work, including the interpretation of data.

5.0. Conclusion

Local content requirements are mainly in form of measures that focus at increasing use of the locally available labour, technology and other resources in the oil and gas sector. The focus is on transfer of technology by companies engaged in the extractive resource sector to the citizens with a hope of assuring them income, employment and ultimately sustainable development.

Participation of citizens in the oil and gas sector will require capacity building and training of citizens to work in the sector. Training needs to focus on building capacity for direct employment and for services auxiliary to the sector.

Every company intending to engage in the oil and gas sector needs to equip itself with the above requirements so as to ensure compliance.