UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

11th July 2013 Phillip Karugaba

MMAKS ADVOCATES

BOTSWANA | BURUNDI | ETHIOPIA | KENY A | MALAWI | MAURITIUS | MOZAMBIQUE | RWANDA | SOUTH AFRICA | TANZANIA | UGANDA | ZAMBIA

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Overview
What is local content What is the law in Uganda? Comparative analysis Uganda: Unpacking the upstream law Recommendations

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

What is local content?

Not

defined in the Upstream Act and Midstream Bill. The National Content Study recommended value 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 . . .

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

"Ultimately the goal here is for Africa to build Africa, for Africans,

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

What is the law in Uganda?

(a) The Petroleum (Exploration, Development and Production) Act, 2013 (the Upstream Act)
Section 125 Requirement Preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies

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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

What is the law in Uganda? (Contd)

The Upstream Act (Contd)
Section 126 Requirement Licensee to submit to the Petroleum Authority for approval a detailed annual programme for recruitment and training of Ugandans Licensee must include clearly defined training program for its Ugandan employees, including scholarships and other financial support for education.

127

Licensee must include a commitment to maximise knowledge transfer to Ugandans

Regulations to prescribe the requirements for technology transfer of knowledge and skills

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

What is the law in Uganda? (Contd)

(b) The Petroleum (Refining, Gas Processing and Conversion, Transportation and Storage) Bill, 2012 (the Midstream Bill)
Clause 54 Requirement Licensee must give priority to competent citizens of Uganda and registered 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.

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

What is the law in Uganda? (Contd)
(b) The Midstream Bill (contd)
Clause
54

MMAKS ADVOCATES

Requirement
Licensee must submit to the Petroleum Authority a report of its achievements and those of its contractors and subcontractors in utilising 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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

What is the law in Uganda? (Contd)

(b) The Midstream Bill (contd)
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 of knowledge and skills

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Comparatives: Kenya
Key legislation is the Petroleum (Exploration and Production) Act, (Chapter 308) Preference to employ and train Kenyans in petroleum 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 comparable with non-Kenyan nationals/suppliers Only Kenyan incorporated or registered companies may sign a PSA

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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.

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Comparatives: Ghana
Policy

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 gas sector 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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Comparatives: Angola
The concept of Angolanization
oCompanies should have a work force consisting of at least 70% Angolan nationals. oOil companies must submit an Angolanization plan 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.

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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
Regime Rule on exclusivity of Angolan businesses Goods and Services 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 equipment materials 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).

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Comparatives: Angola (Contd)

Regime System of semicompliance Goods and Services 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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Comparatives: Angola (Contd)

Regime Competition system Goods and Services Applies to offshore and onshore activities not described in the regimes above High capital services in the oil and gas industry requiring highly specialised know-how. To be provided by partnerships between Angolan and foreign enterprises

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act

Section 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. Comment 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 and companies. How is the preference to be implemented? What happens to price, quality and timeliness of delivery?

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act (Contd)

Section 125(1) (contd) Comment 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 a company 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 noncitizens, and whose articles do not restrict the transfer of shares to non-citizens. o S. 183(3)(x) Upstream Act provides that the Minister may make regulations for the approval of competent 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?

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act (Contd)

Section 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 a share capital of at least forty eight percent in the joint venture. Comment 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.

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act (Contd)

Section 125(2) (contd) Comment 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?

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act (Contd)

Section Comment 125 (3) The licensee, its contractors and Why is this focused on the Ugandan subcontractors shall ensure that the entities entities? referred to in subsection (1) are (a) notified of the quality, health, safety and Why not provide for local tendering? environment standards required by the licensee; and (b) notified of the upcoming contracts as early as practicable 125 (4) The entities referred to in subsection (1) shall (a) have capacity to add value to meet the health, 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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

Uganda: Unpacking the Upstream Act (Contd)

Provision 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 that calendar year. Comment 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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

MMAKS ADVOCATES

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)

UGANDAS LOCAL CONTENT LAW: A CRITICAL AND COMPARATIVE ANALYSIS

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