Local Content Law: A Critical and Comparative Analysis


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UGANDAS LOCAL CONTENT LAW: A CRITICAL

AND COMPARATIVE ANALYSIS

Overview

What is local content

What is the law in Uganda?

Comparative analysis

Uganda: Unpacking the upstream law

Recommendations

MMAKS ADVOCATES


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What is local content?

Not defined in the Upstream Act and

Midstream Bill.

The National Content Study recommendedvalue addition in Uganda, by Ugandans in the

oil industry, by the use of Ugandan materials,

services produced by Ugandans and Ugandan

firms, and the use of facilities in Uganda.

Local content = value addition

- in Uganda

- by Ugandans

- using Ugandan . . .

MMAKS ADVOCATES


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AND COMPARATIVE ANALYSIS MMAKS ADVOCATES

" Ul timately the goal here is for Afr ica to bui ld

Afr ica, for Afr icans ,


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What is the law in Uganda?(a) The Petroleum (Exploration, Development and Production) Act, 2013 (the

Upstream Act)

MMAKS ADVOCATES

Section Requirement

125 Preference to goods which are produced or available in Uganda

and services which are rendered by Ugandan citizens andcompanies

Where the goods and services required are not available in

Uganda, they must be provided by a joint venture company in

which a Ugandan company has a share capital of at least 48%

Licensee to submit to the Petroleum Authority an annual report

on use of Ugandan goods and services


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What is the law in Uganda? (Contd)

The Upstream Act (Contd)

MMAKS ADVOCATES

Section Requirement

126 Licensee to submit to the Petroleum Authority for approval a detailed

annual programme for recruitment and training of Ugandans

127 Licensee must include clearly defined training program for its

Ugandan employees, including scholarships and other financial

support for education.

Licensee must include a commitment to maximise knowledgetransfer to Ugandans

Regulations to prescribe the requirements for technology transfer

of knowledge and skills


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(b) The Petroleum (Refining, Gas Processing and Conversion, Transportation

and Storage) Bill, 2012 (the Midstream Bill)

MMAKS ADVOCATES

Clause Requirement

54 Licensee must give priority to competent citizens of Uganda andregistered entities owned by Ugandans in the provision of goods and

services.

The Ugandan entities must

ohave adequate resources and capacity to add value to the

petroleum operations carried out by the licensee; and

obe approved by the Authority in accordance with the criteria

prescribed by the Minister by regulations.

Licensee must give priority to the purchase of local products and

services from Ugandans wherever they are competitive in terms of

price, quality and timely availability.


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(b) The Midstream Bill (contd)

MMAKS ADVOCATES

Clause Requirement

54 Licensee must submit to the Petroleum Authority a report of its

achievements and those of its contractors and subcontractors inutilising Ugandan goods and services within 60 days after the end of

each year

Consequences of non-compliance - fine not exceeding UGX

2,000,000 or imprisonment not exceeding three years or both

55 Training and employment of Ugandans

Licensee must submit to the Petroleum Authority for approval an

annual detailed programme for recruitment and training of Ugandans

Programme on technology transfer provided for in the Upstream Act

applies


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(b) The Midstream Bill (contd)

MMAKS ADVOCATES

Clause Requirement

56 Licensee must include clearly defined training program for its

Ugandan employees including scholarships and other financial support

for education.

Licensee must include a commitment to maximise knowledge

transfer to Ugandans and to establish management and technical

capabilities and any necessary facilities for work in Uganda

Regulations to prescribe the requirements for technology transfer ofknowledge and skills


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Comparatives: Kenya

Key legislation is the Petroleum (Exploration

and Production) Act, (Chapter 308)

Preference to employ and train Kenyans inpetroleum operations and to give preference to

use of products, equipment and services locally

available

Model PSC says that provided prices, quantities,

quality and timelines of delivery are comparablewith non-Kenyan nationals/suppliers

Only Kenyan incorporated or registered

companies may sign a PSA

MMAKS ADVOCATES


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Comparatives: Nigeria

Key legislation is the Nigeria Oil and Gas

Industry Content Development Act, 2010

Nigerian Company

oformed and registered in Nigeria in

accordance with their Act and with 51%

equity shares held by Nigerians

Sets up Nigerian Content Development and

Monitoring Board and the Nigerian Content

Consultative Forum

First consideration to be given to Nigerian

independent operators, goods and services and

to Nigerians in employment and training

MMAKS ADVOCATES


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Comparatives: Nigeria (Contd)

Bids with higher Nigerian content win provided

within a 10% price range

If no local capacity, Minister may authorise

import for 3 years

1% of all contracts upstream to be paid to

Nigerian Content Development Fund

Maximum 5% management may be taken by

expatriates: Succession plan for maximum of 4

years before position is Nigerianised

Legal, professional (where practical), insurance

services must be from Nigerian institutions

MMAKS ADVOCATES


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Comparatives: Nigeria (Contd)

Periodic reporting requirements to the

Minister

Applies to all operations in oil and gas

sector including exploration and

production/service companies

All operators, contractors and

subcontractors must maintain bank

account(s) in Nigeria in which they shall

retain a minimum of 10% of their total

revenue accruing from its Nigerian

operations.

MMAKS ADVOCATES


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Comparatives: GhanaPolicy objective 90% Ghanaian participation by 2020

First consideration to Ghanaian independent operators

in award of oil blocks, oil field licences and in all projects

for which contracts are awarded in Ghana oil and gassector

Bids with highest Ghanaian content to be preferred

Non-Ghanaian owned entities to have 5% citizen interest

in exploration and production activities

Oil and Gas Business Development and Local Content

Fund to support development of local capacity, education,

training, research and development

MMAKS ADVOCATES


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Comparatives: Angola

The concept ofAngolanization

oCompanies should have a work force consisting

of at least 70% Angolan nationals.

o

Oil companies must submit an Angolanizationplan to the Ministry of Petroleum annually,

detailing how they plan to achieve their targets.

Angolan companies benefit from preferential treatment

in competitive tenders for services and goods if their

bid is no more than 10% higher than the foreign bids

Company must have the majority share capital owned

by Angolan citizens

The Minister publishes annually consumer goods of

national production to be used in the services which

support the oil activities.

MMAKS ADVOCATES


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Comparatives: Angola (Contd)

The legal framework ensures that business relationships to be established

between national companies suppliers of goods and services and those in the

oil sector are based on three operating regimes

MMAKS ADVOCATES

Regime Goods and Services

Rule on exclusivity of

Angolan businesses

Goods and services that do not require substantive

investment and expertise are reserved for Angolan

companies

Examples:

catering, pressure tests on oil and/or gas storage

tanks and pipelines, transportation of equipmentmaterials and foodstuffs or sounding and production

platforms, supply of industrial and drinking water,

supply of technical material, general cleaning and

gardening, general maintenance of equipment and

vehicles, operators and managers or supply points (air

ports and service stations).


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MMAKS ADVOCATES


System of semi-

compliance

Goods and services that require a reasonable level of

investment and know-how may be performed either by

Angolan companies or by joint ventures between

foreign and Angolan companies.

Examples:

Purchase and/or processing of geographical data,

geographical or geodesic surveying, vertical directional

and/or horizontal drilling of wells, geological control of

drilling (mud logging), production tests, calibration of

storage tanks and measurement instruments,construction and assembly of mechanical electrical

structures and production and drilling installations,

inspection and supervision of consignments of oil or

natural gas, cargo transport of oil or natural gas,

cement and drilling sludge products


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MMAKS ADVOCATES


Competition system Applies to offshore and onshore activities not

described in the regimes above

High capital services in the oil and gas industryrequiring highly specialised know-how.

To be provided by partnerships between Angolan and

foreign enterprises


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Uganda: Unpacking the Upstream Act

MMAKS ADVOCATES

Section Comment

125(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.

Goods may be produced or made available in Uganda,

by anyone, not necessarily Ugandan citizens or

companies.

Services must be rendered by Ugandan citizens and

companies.

Does this mean the same? The licensee, its

contractors and subcontractors shall give preference to

goods and services which are produced or available in

Uganda or rendered, by Ugandan citizens andcompanies.

How is the preference to be implemented? What

happens to price, quality and timeliness of delivery?


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Uganda: Unpacking the Upstream Act (Contd)

MMAKS ADVOCATES

Section Comment

125(1)

(contd)

What is a Ugandan company?

o Companies Act (Cap. 110) says foreign companies are

companies incorporated outside Uganda. Is a company

incorporated in Uganda a Ugandan company? Or is it just acompany incorporated in Uganda?

o Land Act (Cap. 227) defines a non-citizen corporate body

as one where the controlling interest (majority shares) is held

by noncitizens, or where shares are held in trust for non-

citizens, and whose articles do not restrict the transfer ofshares to non-citizens.

o S. 183(3)(x) Upstream Act provides that the Minister may

make regulations for the approval ofcompetent entities

owned by Ugandans for the provision of goods and services.

Is Ugandan company then one owned by Ugandans? Does

the place of incorporation matter?


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MMAKS ADVOCATES

Section Comment

125(2) Where the goods

and services required by

the contractor 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 ashare capital of at least

forty eight percent in the

joint venture.

This provision applies only for the supply of goods and

services, which are not available in Uganda. Suppliers

of goods and services available in Uganda are not

subject to the joint venture requirement and may be

supplied by wholly foreign entity subject to the

preference in subsection (1)

When can goods and services be said not to be

available in Uganda? Consider banking services, legal,

audit, transportation, catering.

Only provides for Ugandan ownership in suppliers to

licensees and not licensees.


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MMAKS ADVOCATES

Section Comment

125(2) (contd) What is a Ugandan company?

The joint venture must be incorporated. This has

implications for balance sheet, track record and would have

to be provided for in the bid process that parent company

support can be relied on. What would happen for regulated

services like legal services that cannot be rendered by a

such a corporate entity?


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MMAKS ADVOCATES

Section Comment

125 (3) The licensee, its contractors and

subcontractors shall ensure that the entities

referred to in subsection (1) are -

(a) notified of the quality, health, safety and

environment standards required by the

licensee; and

(b) notified of the upcoming contracts as

early as practicable

Why is this focused on the Ugandan

entities?

Why not provide for local tendering?

125 (4) The entities referred to in

subsection (1) shall

(a) have capacity to add value to meet thehealth, safety and environment standards

of the petroleum activities carried out by

the licensee; and

(b) be approved in accordance with criteria

prescribed by the Minister by regulations.

Regulations awaited


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MMAKS ADVOCATES

Provision Comment

125 (5) Within sixty days

after the end of each

calendar year, the licensee

shall provide the Authority

with a report of its

achievements and its

contractors and

subcontractors

achievement in utilising

Ugandan goods and

services during thatcalendar year.

What are Ugandan goods and services? Should

the provision not extend to require a report on

suppliers of the goods as well?

What is the consequence of non-compliance?

The Act does not have a general provision creating

an offence for non-compliance of any provision


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Unpacking the Upstream Act (Contd)

Recommendations for the Regulations

Definition of the key phrases;

o Ugandan company,

o Ugandan goods and services,

o goods and services not available in Uganda

Criteria for Ugandan companies under this Act (S. 125(4)(b)

Local tendering requirements

Criteria for the exercise of preference with respect to margins on price, quality

and timeliness of delivery

MMAKS ADVOCATES


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Unpacking the Upstream Act (Contd)

Recommendation for the Regulations (contd)

Criteria for evaluation, stronger monitoring and enforcement mechanism

Maintain focus also on training and technology transfer requirements (S. 126

and 127)

How about a Fund to develop local content?

A register of available goods and services?

The legal nature of the joint venture under S. 125(2)

MMAKS ADVOCATES


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Local Content Law: A Critical and Comparative Analysis