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UGANDAS LOCAL CONTENT
LAW: A CRITICAL AND
COMPARATIVE ANALYSIS
11th July 2013Phillip Karugaba
BOTSWANA | BURUNDI | ETHIOPIA | KENY A | MALAWI | MAURITIUS | MOZAMBIQUE | RWANDA | SOUTH AFRICA | TANZANIA | UGANDA | ZAMBIA
MMAKS ADVOCATES
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UGANDAS LOCAL CONTENT LAW: A CRITICAL
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Overview
What is local content
What is the law in Uganda?
Comparative analysis
Uganda: Unpacking the upstream law
Recommendations
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UGANDAS LOCAL CONTENT LAW: A CRITICAL
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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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UGANDAS LOCAL CONTENT LAW: A CRITICAL
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)
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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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What is the law in Uganda? (Contd)
(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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What is the law in Uganda? (Contd)
(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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What is the law in Uganda? (Contd)
(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
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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
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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
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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.
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UGANDAS LOCAL CONTENT LAW: A CRITICAL
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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
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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.
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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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Comparatives: Angola (Contd)
MMAKS ADVOCATES
Regime Goods and Services
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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Comparatives: Angola (Contd)
MMAKS ADVOCATES
Regime Goods and Services
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)
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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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Uganda: Unpacking the Upstream Act (Contd)
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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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Uganda: Unpacking the Upstream Act (Contd)
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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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Uganda: Unpacking the Upstream Act (Contd)
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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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Uganda: Unpacking the Upstream Act (Contd)
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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
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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)
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