The Discovery of Oil and Gas in Uganda

(Uganda) The discovery of oil and gas in Uganda presents unique opportunities that can steer sustainable economic development. Intensive petroleum exploration activities in Uganda started in the early 2000s with a commercial discovery in 2006. 

The country has approximately 6.5 billion barrels of oil reserves, out of which only 1.4 billion is commercially recoverable. Presently, the major players in the sector are Total E&P Uganda, Tullow Uganda Operations Pty Limited and China National Offshore Oil Corporation, who are all holders of production licences issued in respect of six (6) exploration blocks in Albertine Graben (located in the western arm of the Great East African Rift, which they operate under the terms of a joint venture in accordance with a Joint Operating Agreement. 

The infrastructure required to develop Uganda’s oil sector is significant and includes major construction across the value chain—upstream, midstream and downstream. In May 2017, Uganda signed an agreement with Tanzania over the construction of a 1,450km heated oil export pipeline from Hoima in western Uganda to Tanzania’s Indian Ocean Port of Tanga with development yet to progress as the two governments negotiate the transit tariff. The country has since put the pipeline on fast-track mode, prioritizing critical path activities. There are also plans to develop a refinery, which includes a 205km long pipeline from Hoima to Kampala.

As Uganda gears up to develop the oil and gas reserves, with production expected to commence in 2020, a question has emerged on how the country can leverage these resources     to achieve sustainable development and avoid the resource curse trajectory that other resource- rich countries in Africa have followed. The answer to this question partly lies with value creation through enhanced participation of the private sector in the provision of goods and services, including but not limited to: fabrication and welding services; transportation services; plant hire; security; building and construction; clearing and forwarding; office supplies; catering services; provision of labour; ICT services; hotel/accommodation; and health, safety and environment (HSE) services.

Nevertheless, the lack of understanding of the oil and gas value chain may hinder the effective participation of the private sector, thus affecting their ability to boost local skills development, job creation and inclusive economic development. In particular, small and medium enterprises (SMEs), despite their centrality in socio-economic transformation (contributing about 18% to Uganda’s GDP), lack adequate capability and tools to sustainably thrive in the competitive and complex oil and gas sector. 

A 2015 study, dubbed “The Lake Albert Basin Development Project”, noted that Uganda’s private sector is dominated by SMEs, which largely operate in light manufacturing and retail sectors. The SMEs are however fragmented and weakly integrated into the national, regional and global value chains and markets. They are further characterized by low and declining productivity, low levels of innovation, low competitiveness, informality, weak governance standards, and limited access to finance, particularly long-term finance for growth. These challenges certainly make it difficult for Ugandan SMEs to compete against well-established foreign enterprises.

Against this backdrop, this Policy Brief collates evidence on specific gaps that hinder SME participation in the fast-transitioning oil and gas sector in Uganda. The Brief highlights policy considerations that can help bridge those gaps and scale up SME businesses to regional and global value chains. The brief mainly draws on existing research to inform policy dialogue on how Uganda ought to strengthen private sector engagement in the oil and gas sector.

Source: Strathmore