ABSTRACT

The (un)successful implementation of local content policies (LCPs) is often attributed to the oil and gas industries’ corporate demands. Uganda discovered commercially viable oil and gas in 2006 and consequently adopted LCPs. However, limited research has looked at how private sector actors have responded to LCPs. This article analyzes how they have responded to the LCP requirements and to what effect. Sixty-seven key informant interviews with public, private, and civil society actors were conducted together with analysis of local content public and private sector reports and legal and policy documents. Findings indicate that local suppliers have adopted joint-venture mechanisms and enhanced their capacities through on-the-job training offered by international oil companies in response to both LCPs and industry corporate requirements. International companies have also changed their structures and policies to develop local suppliers’ capacities. I conclude by arguing for the establishment of all-inclusive local content development programs.

Understanding of the effectiveness of local content policies (LCPs) is partly based on the extent to which the policies benefit stakeholders such as local companies, host communities, international oil companies (IOCs), multinational companies (MNCs), and governments, among others (Ihua et al. 2011). Yet LCPs have two opposing effects (Semykina 2017). On one hand, they promote local participation in the oil and gas sector (Ovadia 2016). On the other hand, they encourage elite dominance if not carefully designed and consequently implemented (Byaruhanga and Langer 2020; Lange and Kinyondo 2016; Ovadia 2012; Witte 2018). These outcomes highly depend on the approaches of public and private actors during policy-making and implementation (Byaruhanga and Langer 2020). Furthermore, in cases where the policy has been successful, local companies have had to develop their capacities to achieve the policy requirements and petroleum industry “corporate expectations” (Acheampong et al. 2016; Calignano and Vaaland 2018, p. 104; Nwapi 2015). However, the least examined premise is that participation depends on the available local capacities, which also depend on the local companies’ ability to change their operational behavior to meet the LCPs and industry expectations (Calignano and Vaaland 2018; Neuman et al. 2019). This article explores how Uganda’s local companies have integrated the LCPs and consequently changed their operational behavior to be able to participate in the oil and gas sector (OGS) supply chain and how such changes correlate with Uganda’s LCP requirements. I analyze the approaches applied by IOCs and MNCs to implement Uganda’s LCPs and/or development of local companies’ capacities. Thus, I answer two questions: (1) How have the private actors in Uganda’s OGS implemented the LCP requirements? (2) How have the LCP implementation approaches of private sector actors affected their operational behavior? I conceptualize local content development (LCD) as actors’ (public, private, or civil society) efforts to promote local human capital, enterprises’ financial, technical, technological capacities, and national infrastructure development to facilitate the participation of local companies in a given sectors’ supply chain.

In Section 1, I review the literature on how private sector actors respond to LCP requirements and on the nature of Ugandan companies and LCPs in the OGS. Section 2 presents the methodology of this study, and Sections 3 and 4 present the discussion of findings and the conclusions, respectively.

1. Literature review

The concept of “resource nationalism” has been advanced to denote resource-rich countries’ adoption and implementation of LCPs to benefit their citizens (Caramento 2020; Kolstad and Kinyondo 2016). Most African countries, such as Zambia in its copper mining subsector, have embraced resource nationalism through ensuring that nationals, as opposed to foreign suppliers and/or service providers benefit substantially from their extractive industries (Caramento 2020). Similarly, the government of Uganda has always pushed for “resource nationalism” in the governance of the country’s OGS (Hickey and Izama 2016). To ensure that nationals benefit from the oil and gas sector, efforts have been devoted to capacity development (Vaaland et al. 2012). Moreover, a country’s capacity to supply goods and services to the petroleum industry depends on how well developed its local content is (Byaruhanga and Langer 2020; Unam et al. 2012). Local content development (LCD) is a new concept in the oil industry that has recently been the subject of academic studies (Byaruhanga and Langer 2020; Caramento 2020). As the term “development” suggests, LCD is a process that entails building the domestic private sector capabilities and human capital in line with the petroleum industry’s upstream, midstream, and downstream activities (Kazzazi and Nouri 2012; Monday 2015). Thus, LCD is a deliberate effort to promote the capacities of local petroleum industry service providers and personnel through “oil sector linkages” and “development of educational and professional competence of indigenous personnel” to increase their competitive advantage (Monday 2015, p. 79).

LCD in the petroleum industry is said to be a role of both public and private actors (Ablo 2017; Byaruhanga and Langer 2020; Kalyuzhnova et al. 2016; Vaaland et al. 2012). Thus, it includes networking and collaborations between government and IOCs, and between IOCs and local companies. Moreover, local participation in the oil and gas sector supply chain depends on how well developed their human resource, technical, and financial capacities are. Capacity development efforts entail policy interventions by the public sector. No wonder oil-producing countries have adopted numerous LCD approaches (Kazzazi and Nouri 2012; Ovadia 2016; Byaruhanga and Langer 2020).

1.1. The petroleum industry private actors’ adoption of local content policies

Just like their international counterparts, local investors and/or nationals often anticipate participating in and benefiting from an emerging petroleum industry (Monday 2015). Such anxieties and anticipations (Ogwang et al. 2018) compel them to prepare for participation by changing their operational behavior. Such changes are usually in response to the adopted LCPs and the petroleum industry’s corporate requirements (Ablo 2017; Byaruhanga and Langer 2020; Calignano and Vaaland 2018; Neuman et al. 2019). Thus, some local companies enhance their technological, human resource, and financial capacities while others change their management structures, strategic plans, and operational procedures to meet the industry standards (Calignano and Vaaland 2018; Monday 2015). This is due to petroleum industry requirements of high international quality, health, safety, environmental, and quantity standards, most of which are lacking among SMEs in oil-producing African countries (Kalyuzhnova et al. 2016). Meanwhile, IOCs also adapt in response to a country’s LCP requirements (Ihua 2010; Ngoasong 2014). According to Ngoasong, this entails “the formulation of local content strategies that are implemented through programs and initiatives aimed at developing and using host country suppliers and workforce” (2014, p. 471). However, the extent to which local companies in Uganda’s OGS change their operational behavior in response to LCPs has not been ascertained empirically. Studies that have examined the way IOCs and local companies respond to LCPs have paid less attention to how such changes have been made and to what effect.

Local companies and IOCs adopt skilling programs to enhance the capacity of local employees (Ihua 2010; Kalyuzhnova et al. 2016; Monday 2015). However, there is a concern that after local companies have spent enormous resources in training, their employees are “poached by the bigger oil companies—as these individuals willingly move on to join multinational firms to seek greener pastures” (Ihua 2010, p. 8). Thus, while skilling is one of the ways local companies enhance their capacity to participate in the oil and gas industry supply chain, they are faced with the competition posed by MNCs for the same trained personnel/workforce (Ihua 2010). This further drains the already limited technical capacities of local firms.

Alongside skilling, local companies and IOCs also enhance the technological capacity, adopt different operational mechanisms, and employ new experienced personnel in response to LCP requirements and/or industry corporate standards (e.g., Calignano and Vaaland 2018; Ihua 2010). However, the employment of skilled and/or certified personnel depends on whether or not local companies already have contracts to supply the OGS. Also, the technological intensity of the oil and gas sector necessitates that local companies adopt new technologies before even being shortlisted to participate in the OGS supply chain (Kalyuzhnova et al. 2016). Some of the activities necessitating the adoption of new technologies include (but are not limited to) drilling companies, fabrication and welding, transportation and industrial supplies, storage services, food supply and catering, and civil engineering. Thus, the oil and gas corporate standards require changes that meet international quality, health, and safety standards. Further, it is generally believed that such changes in operational behavior promote economic diversification in the long run (Kalyuzhnova et al. 2016) and are thus considered a central aspect of LCP implementation.

Nevertheless, understanding these changes necessitates an understanding of the approaches of public, private, and sometimes civil society actors involved in the implementation of LCPs (Byaruhanga and Langer 2020) and how they relate and/or collaborate (Ablo and Overå 2015; Byaruhanga and Langer 2020). Moreover, the bottom-up and policy network (largely power dependence school of thought) approaches are essentially situated in terms of the power relations and collaboration that exists between the state and nonstate actors (Schalk 2013). Nonstate actors include IOCs, local companies, nongovernmental organizations, labor unions, and individuals. Though public and private actors might have different interests, collaborations facilitate capacity development for local companies (Ablo and Overå 2015; Ablo 2017).

LCP implementation entails “formal and informal” networks that facilitate the participation of local entrepreneurs in the oil and gas industry (Ablo and Overå 2015, pp. 395–403). This is done through the exchange of information, expertise, and resources (Ablo and Overå 2015; Byaruhanga and Langer 2020). However, Ablo and Overå (2015) consider only “party politics, religion, ethnicity, kinship, and the public sector bureaucracy networks” (p. 396). To them, information from such networks is what they refer to as “insider” information (p. 402).1 Thus, their study ignores some of the most important networks and/or collaborations among public and private actors and local and international companies. Yet, as argued by Ablo (2017) and Ngoasong (2014), the successful implementation of LCPs depends on the negotiations and interactions that exist between IOCs and the government. Furthermore, Byaruhanga and Langer (2020) showcase the importance of collaborations that exist between and among state and nonstate actors. Their study indicates that state and nonstate actors (re)-negotiate policy requirements vis-à-vis their interests; the most powerful actors have more influence on the outcomes.

Likewise, Vita et al. (2016) showcase the collaboration between state and nonstate actors. They use stakeholder analysis to identify strong stakeholders in their study of Nigerian LCP. Their findings demonstrate that “local pressure groups, journalists, and trade unions are in a weak category of LCP stakeholders while IOCs, indigenous operators, the federal government and multinational oil and gas service companies are in a strong influential category” (Vita et al. 2016, p. 63). Yet they tend to ignore the importance of collaborations among such actors. Thus, it is important to understand the collaborations that exist between public, private, and civil society actors in the implementation of LCPs conceptualized in this study as “cross-sectional collaboration.”

Accordingly, Vita and others seem to suggest that successful implementation of LCPs takes into account both bottom-up and top-down approaches by considering the roles of both policy-makers and other actors. Thus, the approaches of local companies in response to LCPs are paramount. However, the actors at the bottom level are said to be less influential (Vita et al. 2016). Furthermore, they demonstrated that the Nigeria Oil and Gas Industry Content Act 2010 does not include local oil and gas service providers as influential stakeholders (p. 60). Therefore, there is a government failure to acknowledge the relevance of LCP beneficiaries in achieving the same. Besides, as noted by Morse and Struyk (2006), stakeholders considered to be “less influential” are equally important in achieving the goals of LCPs. Thus, analyzing their roles in policy implementation is paramount (Paudel 2009). Furthermore, Vita et al. (2016) pay less attention to the contributions of each of these actors on a case by case basis. For example, though they identify key stakeholders in the sector, they did not study the effects of collaborations and coordination between and within government and private actors.

Though actors have different interests, public–private collaborations in LCP implementation facilitate local companies’ capacity development (Ablo 2017; Bakare 2011; Vaaland et al. 2012; Byaruhanga and Langer 2020). Ablo (2017) argues that “the extent of Ghanaian firms’ participation in the oil and gas industry can be enabled or constrained by techniques and practices of MNCs, state institutions, and local firms” in response to LCPs (p. 70). Therefore, whereas one of the major objectives of LCPs is to enable local companies’ participation in the petroleum industry, companies’ contributions to achieving that are paramount. After all, there are always industry quality, health, and safety standards that local companies must meet to participate in the petroleum industry’s supply chain (Ablo and Overå 2015; Byaruhanga and Langer 2020). Alongside this, local companies are also in one way or the other promoted by the practices of MNCs and/or government institutions through collaborations (Ablo 2017). However, they also form joint ventures (JVs) among themselves to enhance their capacities to participate in the petroleum industry supply chains (Byaruhanga and Langer 2020; Calignano and Vaaland 2018).

Collaborations in the form of JVs are paramount, since LCD is believed to increase operational costs for MNCs and IOCs (Ablo 2017). As Ablo pointed out while quoting an interview transcript with one of the MNC officials, “awarding contracts in smaller units could increase the MNCs’ operational costs” (p. 73). Yet contract unbundling2 is one of the LCP instruments in countries such as Ghana and Uganda. Therefore, to successfully implement such a requirement, both private and public actors have to collaborate to bridge the higher operational costs gap. Moreover, it has been argued widely that joint ventures among local companies, instead of competing for contracts singlehandedly, can remedy the limited capacity challenge (Ablo 2015; Ablo and Overå 2015; Ngoasong 2014).

1.2. Nature of the Ugandan petroleum industry and companies

Uganda is endowed with natural resources and minerals such as gold, diamonds, lakes, rivers, natural forests, and flora and fauna. The most discussed in recent times are oil and gas, which were first discovered in Uganda’s Albertine region in the 1920s (Vokes 2012). Exploration by IOCs only began in the 1930s, when Shell Oil began drilling its first oil well in 1938 (Vokes 2012). Since then, not much has been done because of the colonial policy that zoned West Africa for oil production and East Africa for agriculture, as well as political instabilities. It was not until the 1990s that the Ugandan government, under President Yoweri Museveni, adopted a policy of training Ugandans to meet the manpower needs of the country’s petroleum industry (see Byaruhanga and Langer 2020). Those who were trained in the period soon took over from foreigners.3 Commercially viable oil and gas (6.5 billion barrels of petroleum and 500 billion cubic feet of gas) were discovered in 2006. It has been estimated that 1.4 billion barrels of oil will be recoverable (Hickey et al. 2015).

Since 2006, Uganda’s petroleum industry has transitioned from the exploration phase to the development phase. Some local companies have been part of the petroleum industry supply chain (Kasande 2013; Byaruhanga and Langer 2020). When production starts, it is anticipated to be at about 125,000 barrels per day (bls/d), though some expect that it could rise to 200,000 bls/d (Nakhle 2015). If the latter is the case, then Uganda will be ranked among mid-sized oil producers such as Trinidad and Tobago, Sudan, and Yemen (Nakhle 2015). Currently, the country is in the process of developing the necessary infrastructure, such as the 1410 kilometers of electrically heated export pipeline from the oil-rich region in Hoima, Uganda to Tanga port in Tanzania. The other infrastructure planned or being developed includes an international airport, a refinery, a central processing facility, an industrial park, storage terminals, and roads. Most of this infrastructure is in the oil-producing districts of Hoima and Buliisa. Thus, some local and international players have been attracted to the region and Uganda’s OGS in general (Wamono et al. 2012). They range from locals seeking employment in the oil sector to investors from different sectors.

After the discovery of commercially viable oil and gas in Uganda, investment in in the sector grew rapidly (Kasande 2013). Yet Uganda’s business base is dominated by SMEs that compose over 85% of the total business firms (Uganda Bureau of Statistics 2007). Most of these firms have limited capacities to participate in the oil and gas supply chain (Ministry of Energy and Mineral Development 2011). Thus, “by international standards, small scale production dominates all industries” in Uganda (Ministry of Energy and Mineral Development 2011, p. 29). However, what remains unclear is how the adoption and implementation of LCPs have contributed to local companies’ adoption of other business management standards that enable them to participate in the OGS supply chain. After all, meeting the corporate demands of the petroleum industry is important for their participation (Calignano and Vaaland 2018). Furthermore, the Ugandan LCPs require IOCs and other MNCs to contribute to enhancing local capacities to participate. This requires them to adopt such requirements into their corporate strategies (Republic of Uganda 2016).

1.3. Nature of Uganda’s local content policies

Since the 1990s, Uganda has had a resource nationalism approach to the management of the sector.4 The policy of training Ugandans for the OGS is believed to have been the first step toward local content development in Uganda. After the discovery of commercially viable oil and gas reserves in 2006, most of the laws, policies, and PSAs governing Uganda’s OGS were made to contain local content objectives and/or requirements. This top-down approach was and still is geared to filling the personnel gaps in the Ministry of Energy and Mineral Development (MEMD), the Petroleum Authority of Uganda (PAU), and the Uganda National Oil Company (UNOC), among others. But Uganda’s LCP objectives have transitioned from only training Ugandans to technology transfer, employment, monitoring of local content, and local companies’ participation in the supply chain, among others.5

The primary objective of the LCPs in Uganda is “to ensure optimum national participation in oil and gas activities”6 and more specifically the “participation of the country’s private sector and its entrepreneurs in the oil and gas activities.”7 Whereas some of the Ugandan local content legal, contractual, and policy instruments are mandatory, others allow some level of compromise, and others are criticized as ambiguous (Office of the Auditor General 2015), that is, allowing room for multiple interpretations and understandings by different actors. Therefore, some requirements can be (re)negotiated by IOCs and the government. For example, the definition of a “Ugandan company” and the requirement to “give preference to goods which are produced or available in Uganda and services which are rendered by Ugandan citizens and companies”8 are often regarded as ambiguous because they provide avenues for overlapping and multiple interpretations.

The Ugandan LCPs define a Ugandan company as “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) is approved by the Authority [PAU]” (Office of the Auditor General 2015, p. vi). Therefore, according to Uganda’s oil and gas LCPs, as long as a company is registered in Uganda (regardless of the owner[s]) and adds value and/or uses local raw materials (when available) and employs 70% Ugandans (irrespective of nature of positions they hold), such a company qualifies as local. This ambiguity has provided room for foreign-owned but Ugandan-registered companies to be considered as local (Office of the Auditor General 2015). This puts foreign-owned companies into the indigenous category (from the oil-producing region), which disadvantages Ugandan-owned companies from other parts of the country (Office of the Auditor General 2015).

2. Data collection and analysis

This article relied on qualitative methods of data collection and analysis. The empirical analysis is based on the data gathered from 67 key-informant semistructured interviews with public, private, and civil society actors and analysis of local content policies, reports, and documents in Uganda’s OGS. The interviewed informants were purposively sampled based on their experience, rank, and influence in the implementation of Uganda’s OGS LCPs (e.g., Morse and Struyk 2006, pp. 37–54). Thus, the key informants interviewed had hands-on knowledge and experience of LCP implementation in Uganda’s OGS. This study does not give a statistical view of different indicators of change in behavior of local and/or international companies but rather a narrative of how and why they have changed. Moreover, Neuman et al. (2019) provide a statistical view of how “how prepared Ugandan firms are to becoming suppliers to the oil industry” (p. 293). Therefore, my analysis is largely about their transformation and/or the implementation process of LCPs.

This study’s fieldwork was conducted in Kampala and Wakiso districts (central business and administrative centers) and Hoima district (one of the oil-producing districts in the Albertine region). Semi-structured interviews were conducted with officials in government institutions engaged with LCP implementation, enforcement, and monitoring.9 In this category, 16 key informants from those government institutions were interviewed based on their roles, seniority, and experience in the petroleum industry. The second category of respondents interviewed were from 37 key informants the private sector.10 Three key informants were purposively sampled from the three IOCs. Four respondents from the OGS were sampled, one from each international company operating in Uganda’s petroleum industry. For local companies, to avoid bias, this study considered five categories of goods and service providers (food supply, transportation and logistics, cleaning and facility management, forwarding and clearing, and civil works).

These categories are singled out by the Ugandan National Content Regulations of 2016 as key local service sectors in petroleum industry upstream activities. From each of the five categories, at least four companies were selected from the National Supplier Data Base of the Petroleum Authority of Uganda (PAU). At least one respondent from each company was interviewed (preferably CEOs or Operations Managers), making up a total of at least 20 respondents from all categories of service sectors. The process that guided the selection of interviewees assisted in checking the researcher’s bias (e.g., Palinkas et al. 2015; Burnham et al. 2004). Fourteen key informants from the civil society (third category) were interviewed.11 These included trade associations and groups that directly and indirectly influence LCP making and implementation processes. These were selected based on their program activities to get an “outside view” of how LCPs are being implemented and their roles in the process. Only civil society organizations with program areas on local content and oil and gas governance were considered for this study.

Secondary data and the primary data from the key-informant semistructured interviews were coded and sorted using NVivo software. Based on the themes under study, the software assisted in sorting, categorizing, and scrutinizing relationships (e.g., Burnham et al. 2004). The respondents’ views were coded based on the forms of collaboration (public–private, private–private, and public/private–civil society collaboration) and LCPs’ implementation approaches adopted by public, private, and civil society actors. The most common themes were considered for reference and/or quotation in this article. Thus, whether public, private, or civil society sector respondents, their responses were quoted based on the theme under discussion. Such views were considered to be more authoritative, and hence could be the basis for drawing certain conclusions. For anonymity reasons and political sensitivity of the issues involved in Uganda’s oil and gas sector, the attributes of respondents that might disclose their identities are kept anonymous. Therefore, to share their experiences freely, I assured them that the names of their companies and the respective respondents would not be published in any research reports.

3. Findings and discussion

3.1. Local content policy and change in operational behavior of international companies

The recent nature of the Ugandan petroleum industry and the limited capacities of local companies pose a local capacity building challenge to public, private, and sometimes civil society actors (Ministry of Energy and Mineral Development 2011). It is little wonder that local private actors in Uganda depend on IOCs and MNCs for resources, expertise, and industry knowledge that have facilitated local companies’ capacity building and participation in the OGS supply chain. How IOCs and multinational service companies respond to Uganda’s LCP requirements affects the participation of local companies directly or indirectly (e.g., Ngoasong 2014).

In part, the need to enhance local companies’ industry knowledge and skills has required some IOCs to put in place “contract managers” and hire some expatriates. Although the contract manager position was not new (for some IOCs), the job descriptions in all companies interviewed have been changed to ensure training of Ugandan companies and knowledge transfer. The contract managers work closely with local contractors and/or subcontractors during the execution of contracts in the OGS. For example, when asked about the IOCs’ responses to the limited local capacity and the LCP capacity requirements, a local company operations manager acknowledged that they “have most of the expatriates on-site [who] come with a wide experience in a lot of things.”12 According to him, these are not only company-hired expatriates but also those appointed by the IOC to support the work of (sub)-contractors whose industry experience and skills are limited. Thus, this initiative takes both a top-down and a bottom-up approach. That is, it involves the inputs of both IOCs and local companies. As expressed by a senior IOC official, they “have Contract Managers” who work with local (sub)-contractors to “train and communicate standards” to them.13 This is due to the LCP requirements to “train” and “give preference” to local companies in contracts awards.14 Otherwise, international companies would have preferred suppliers with already established capacity, skills, and knowledge of the industry (Ngoasong 2014). Thus, a respondent from an MNC reaffirmed that “we know we have the capacity to get something from Dubai, but we need to comply with the national content requirements and buy from Uganda.”15

The IOCs established national content coordinating offices to ensure compliance. Such offices, by the time of research (2016–2019), were being held by Ugandans.16 They are charged with “developing national content strategies and plans for field development as a fulfillment of local content requirements in the laws, PSAs, and the Production Agreements.”17 That is, they facilitate the training of suppliers and monitor vendors’ performance to ensure that the local content requirements are adhered to.18 In some instances, these approaches have been developed incrementally by IOCs from their already existing international operations as part of their internal LCD strategies.

Thanks to such changes in IOCs’ contracts management structures, local suppliers have been able to attain industry knowledge and skills. However, the challenge associated with such on-the-job training is that only local companies that are part of the petroleum industry supply chain have benefited (Byaruhanga and Langer 2020). This includes subsidiary companies (locally registered but foreign-owned) and Uganda’s elite-owned companies from Kampala. Thus, whereas the arrangement has benefited insider local companies, the majority of companies, mainly from the oil-producing region, have not benefited (Office of the Auditor General 2015). This is associated in part with limited capacities of companies in the region, the ambiguous nature of the definition of a “local company,” and “minimal demand” in cases where there was capacity (mainly food supply; e.g., Office of the Auditor General 2015, p. 22). This has raised more concerns about the industry being captured by powerful elites under the disguise of LCD (e.g., Byaruhanga and Langer 2020; Witte 2018). After all, the indigenous Ugandan companies (from the oil-producing regions) and their potential benefits from the industry are not defined by the LCPs. This has created room for either subsidiary or Ugandan-owned companies from other regions such as central Uganda, with more financial and technical capacities, to outcompete SMEs from oil-producing regions either through JVs or singlehandedly (e.g., Office of the Auditor General, 2015).

Nevertheless, IOCs’ and MNCs’ policies and/or processes have incorporated Ugandan LCP requirements. Thus, IOCs “internal policies on local content [have been] adjusted [to] sort of fit the Ugandan LCP requirements.”19 Moreover, their internal local content policies and tendering procedures barely include their countries of operation’s national requirements. Thus, they update such policies and/or processes or adopt new ones. As vividly pointed out by one IOC senior official in an interview as part of this study, they have

adopted new contractual and tendering approaches to suit the national content policy requirements. Where policies say a certain number of Ugandans should be employed or services be supplied by Ugandan companies, we have adopted that in our processes and tendering procedures and requirements.20

Therefore, the IOCs’ integration of Uganda’s LCP requirements (such as giving preference to Ugandan companies and goods and services and setting aside of services and goods to be supplied by only local companies) into their internal procurement and employment policies and procedures has partly facilitated local value creation (Tordo et al. 2011). This was made possible through the oil companies’ local farmers’ development initiatives (Office of the Auditor General 2015, p. 21). However, this has been primarily reported by farmers’ associations in Hoima and Buliisa districts only in a few isolated cases. Besides, as reported by the Auditor General’s office and further ascertained by this study, the beneficiaries of such programs (farmers) managed to supply oil camps on a very small scale because oil companies scaled down their operations in the region. Nevertheless, findings demonstrate that such companies would not have participated otherwise because of factors such as limited capacities vis-à-vis the corporate requirements of the industry.

Unsurprisingly, Tullow Uganda Operations started a JV project with the Hoima District Farmers Association to support value addition to farmers’ produce to “achieve international standards.”21 Consequently, the farmers’ capacity was developed and they “started supplying [food to] Kisinja and Buliisa oil camps.”22 The Tullow project came up following not only Tullow’s internal strategy of “Shared Prosperity”23 but also the LCP requirement that earmarks food supply from only Ugandan farmers or suppliers. Though this program started before these farmers were part of the petroleum industry supply chain, findings indicate that such programs are rare in Uganda’s OGS.

Furthermore, Uganda’s LCPs require IOCs to submit their local content plans for approval by the PAU.24 Therefore, IOCs tailor their strategic plans to incorporate the country’s LCP requirements. These strategic local content plans are mainly developed based on the company’s overall local content objectives and requirements vis-à-vis the available local capabilities. Thanks to the IOCs’ Industrial Baseline Survey (IBS), which was done to ascertain the nature of the available local capacity, IOCs have adopted local companies’ capacity development plans.25 One of the survey’s major recommendations was to provide “assistance to Ugandan companies by creating an industry enhancement center and offering appropriate support to specific sectors” such as “agriculture, steel production and protective personal equipment.”26

Findings further indicate that IOCs put effort into developing local companies’ capacity to supply personnel protective equipment (PPE). As a result, some PPE manufacturing companies have seized the opportunity to develop their capacities in the process. For example, one of the local companies contracted to supply PPE to IOCs has through “on job training acquired knowledge of PPEs required for petroleum industry [and through] JV with an MNC been able to understand and cope with industry operations.”27 Therefore, JVs with MNCs and on-the-job training by the IOCs have facilitated industry knowledge and skills transfer to local companies. Nevertheless, on-the-job training has mostly favored local companies that are already part of the industry’s supply chain, with less regard to those that intend to be. The former category entered the industry at an early stage of exploration because they had financial capacities and political connections (e.g., Hickey and Izama 2016; Witte 2018). As a respondent observed, the “real owners [of some local companies] are hiding because they have a conflict of interest, they are government officials.”28 Furthermore, because they have been part of the supply chain for a long time, IOCs and other MNCs have developed trust in their ability to supply (as part of their network), which has enabled them to dominate the industry’s supply chain. Therefore, most local companies in the latter category still struggle to develop their capacities to match the industry’s corporate requirements and consequently penetrate the supply chain.

However, findings also demonstrate that foreign-owned Ugandan companies take advantage of the JV arrangement because of the ambiguity in the definition of a Ugandan company.29 Besides, the JV requirement necessitates that

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 JV with a Ugandan company provided that the Ugandan company has a share capital of at least forty eight percent in the JV.30

Yet, for large contracts, few of the indigenous and/or Ugandan-owned companies can afford the 48% of the total value of the contract. No wonder then that “the oil companies to a large extent procure from companies that are wholly foreign-owned but Ugandan registered” (Office of the Auditor General 2015, p. 19).

Notably, there are changes in the IOCs’ and/or MNCs’ operational processes and procedures to integrate and/or operationalize Uganda’s LCP requirements. Such changes have benefited local companies in terms of skills and knowledge transfer. However, findings also show that there is no identified holistic mechanism to develop the capacities of all local companies, though there are efforts to develop local suppliers’ capacities. Thus, it is worth re-emphasizing that local companies that are part of the supply chain have benefited from these programs and activities more than those that are not. The latter category have largely depended on the general training workshops and conferences hosted by the IOCs and other actors (Byaruhanga and Langer 2020). Though such training programs have also been vital in creating awareness, they contribute less in terms of industry skills and knowledge transfer. However, there are prospects that the Industrial Enhancement Centre, if fully implemented, will provide a holistic local companies capacity development program.31

3.2. Local content policies and change in operations of Ugandan companies

Even with the ambition of participating in the OGs supply chain, reports indicate that local companies lack the required capacities or capabilities (Ministry of Energy and Mineral Development 2011). Yet “there will be no company which will be allowed to work in the oil and gas without proper management systems . . . because it is a minimum requirement.”32 The requirements are quality-, quantity-, environment-, and health-related. This means that the recent nature of the Ugandan oil industry and the limited industry knowledge, experience, and capacities (Nalumu et al. 2012) require local companies to change their operational mechanisms, structures, policies, and in some cases strategies.

The required changes are geared to attaining industry corporate capacity to deliver quality and quantity products promptly, as required by National Content Upstream Regulations 2016 (s. 3(b)). It is little wonder that Ugandan companies have formed JVs among themselves and with international companies to gain a competitive advantage (Byaruhanga and Langer 2020). Thanks to the Petroleum Upstream Act 2013, which mandates international companies to enter into JVs with Ugandan companies, most local companies participating in Uganda’s OGS do so through JVs and/or partnerships. For example, just like many other private actors in the industry, an international (but locally registered company) senior official acknowledged that they consider their local partners “when reporting” their local content achievements to the IOCs.33 Thus, JVs are part of their local content plan(s).

Moreover, JVs between local and MNCs are paramount as proof of compliance, a way of minimizing operational costs and getting the social license to operate (e.g., Nwapi 2015; Vaaland et al. 2012). Further, local companies partner among themselves to attain the capacity to compete and win big contracts in the OGS supply chain. For example, Hoima district farmers formed groups of 20 farmers each (under their umbrella association and company) to supply food to some Tullow camps in Hoima and Buliisa.34 Similarly, two local companies (one with waste treatment and another with waste transportation experience) were able to execute a waste management contract in Uganda’s OGS through a JV arrangement.35 Notwithstanding JV challenges such as limited trust and due diligence, in these dependency relationships, local companies rely on each other for expertise, knowledge of the industry, resources, and capacity development in general. This has in many cases contributed to their eventual winning of contracts.

Meeting LCP requirements and OGS corporate standards is mandatory for local companies while bidding for contracts. Besides, the PAU considers the structures and standards of a company before a JV is approved.36 Therefore, local companies have changed their management systems, policies, and organizational structures. In doing so, companies have adopted new processes, policies, and procedures. For example, some transportation companies that never had “water containers on trucks, because of oil and gas sector requirements, the company now has a policy where drivers move with a carton of water for drinking and first aid purposes.”37 The same company (like many others according to interview transcripts) has adopted “thirty-one policies” including “fraud, anti-corruption, HIV/AIDS, employee attendance policies.”38 Similarly, a local company Managing Director (MD) acknowledged that the company’s “whole system has been changed such as the Environmental, Health, and Safety policies [and] simple things like walkways, signage within the production area.”39 Furthermore, some with limited capacity to train their employees have had to employ personnel with already acquired petroleum industry skills, knowledge, and certifications40 thanks to the LCP requirements and industry’s corporate demand to have skilled and certified employees.

Thus, findings demonstrate that Uganda’s LCPs implementation takes both a top-down and a bottom-up approach. Local companies’ internal developments have enabled them to compete favorably in the industry and at times win contracts. However, companies with limited capacity have found it costly to invest in changing their systems to meet the LCPs and/or petroleum industry standards. Moreover, contracts are not guaranteed. Thus, companies that are already part of the oil and gas supply chain are mainly the ones that have changed their systems, because of their financial capacities.

Furthermore, “IOCs require companies to be certified to do business” with them.41 Thus, some local companies have had to acquire health, quality, safety, and environmental certifications and/or accreditations. As a local company MD vividly noted, they have updated and acquired “certificates,” such as “ISO 9001: 2015, ISO 14001: 2015, the Occupational Health and Safety 18001: 2007 and the Integrated Management Policy Objectives.”42 Another local company MD acknowledged that while working with Tullow, they have “achieved HACCP [certification], to keep with the international food health and safety standards”43. Most respondents interviewed acknowledge that these changes have widened their opportunities to get contracts in the OGS.

Consequently, there were acknowledged (1) changes in the quality and quantity of goods and services supplied by local companies in the OGS and (2) development or acquisition of petroleum industry experience and skills.44 In both scenarios, local companies that are part of the OGS supply chain have consistently improved the quality, quantity, and timely delivery of goods and services and acquired industry knowledge and experience from IOCs.45 This can in part be attributed to the industry standards and LCP requirements. Furthermore, such improvements have been made following the assessment of the industry’s corporate requirements. Thus, local companies, through working with IOCs and assessing the industry requirements, have improved the quality of their products. As noted by the respondent, they “changed materials 4 times until [they] somehow got it right through engaging with the IOCs.”46

Thanks to “on-the-job training,” which has been a very significant approach to achieving most LCP objectives (Byaruhanga and Langer 2020, p. 307), it is also through this approach that most local companies’ employees have been trained to acquire industry knowledge, skills, and consequently certifications. Thus, most local companies that have participated in the petroleum industry supply chain have consistently “upgraded their standards and developed experience to supply the sector.”47 Some local companies that joined the industry while small, with little equipment, “are big companies because of the contracts they have got.”48 A similar observation was also made by a CSCO senior official who observed that “if you look at service providers like Threeways Shipping Services (GP) Ltd., they have learned their way through the hard way but now they are organized, they also provide insurance to their workers and have gone regional.”49 Capacities developed by insider local companies have given them a competitive advantage over other local companies that are not part of the supply chain. However, what is evident is that some fully Ugandan-owned companies are growing with the sector, thanks to the LCD agenda.

4. Conclusions

From qualitative analysis of oil and gas policy documents, reports, and semistructured key-informant interview transcripts of public, private, and civil society actors in Uganda’s OGS, this article analyzes the integration of LCP requirements by private sector actors in the form of changes in operational behavior and their consequent impacts. The findings demonstrate that IOCs and MNCs change or adjust their operational mechanisms, structures, and policies in response to Ugandan LCPs, petroleum industry requirements, and local companies’ current capacity needs and/or challenges. Such changes are done to (1) ensure local content consideration and monitoring in the execution of contracts by both local and international suppliers, (2) orient local suppliers of the OGS standards, and (3) facilitate industry knowledge and skills transfer to local suppliers. It is little wonder that these changes have been instrumental to local companies’ capacity development.

The newly adopted contractual and tendering procedures of IOCs and MNCs have in some cases enabled consideration of local content in every tender offered. However, this has been to the benefit of a few local companies that are already part of the supply chain. But the priorities given to local companies depend on the terms and nature of the contract(s). It is little wonder that certain local capacity development programs have been implemented by public and private actors in the petroleum industry. Furthermore, there are limited holistic local company capacity development programs. Thus, on-the-job training has only benefited the suppliers or contractors, but not all local companies intending to participate in the OGS supply chain. In addition, awareness programs implemented by government institutions and sometimes civil society actors do not necessarily facilitate industry skills and knowledge transfer, but are rather theoretical in nature. However, some local companies have had to acquire and/or adopt new industry standards and LCP requirements to fill the capacity gap through JVs, on-the-job training, and companies’ strategic investments. This has only worked for companies with considerable capacities, that is, those already in the industry’s supply chain. This is thanks to the LCP requirements—to train and transfer knowledge and skills to the local suppliers. In addition, most local companies lack financial capacity (Ministry of Energy and Mineral Development 2011) and/or they fear taking big investment risks because contracts are not guaranteed. It is little wonder that indigenous companies (from the oil-producing region) have not been able to fully acquire petroleum industry knowledge and skills and consequently participate in the supply chain. Yet the quality and at times quantity of local companies’ (with national presence) products have improved considerably following their participation in the OGS supply chain. That means that, given the chance, most local companies have the potential for improving their capacities.

Three major findings have emerged. First, the policy has positively affected local companies in the supply chain. Second, the elite-owned companies from the central business districts have benefited more than those from the oil-producing region because they have had more access to contracts and consequently capacity and skills development programs in the industry. Last, these changes in operational behavior are attributed to both the LCP requirements and industry standards. However, it is worth reemphasizing that because the policy is not clear on the definition of a local company, foreign-owned but Ugandan-registered companies and other elite-owned Ugandan companies are likely to continue dominating the industry’s supply chain. Therefore, though (to some extent) the Ugandan companies will benefit, the indigenous Ugandan companies from the oil-producing region might continue not to participate in the supply chain due to lack of capacity, industry knowledge, experience, and skills. I therefore recommend that public, private, and if possible civil society actors initiate programs to develop all local companies’ capacities irrespective of whether they are part of the petroleum industry supply chain. Furthermore, a local content development fund can be established to achieve this endeavor. Also, drawing lessons from Ghana, other oil-producing developing countries could consider a step-by-step consistent local content development approach. Under this approach, the ratio of local participation is phased in terms of years based on the available capacity or levels of capacities developed. This enables MNCs to consistently develop local capacities until the locals are able to completely take over the supply chain.

Therefore, some of the important lessons this study offers for other developing countries implementing LCPs include the following. First, local companies’ participation in the OGS supply chain requires that public, private, and sometimes civil society actors work together to first develop local capacities before the industry activities commence. Alternatively, LCD can be done jointly step by step by the same actors through the operation of the industry. Relatedly, the participation of local companies with limited capacity will mainly depend on their ability to form JVs with each other. Second, both local and international private actors need both to adopt local content requirements and to put local capacity needs into consideration. Thus, they need to be flexible in changing their operational behavior to consider such factors. Third, if local companies in oil-producing developing countries have limited capacity, it is important that both the OGS regulators and operators (IOCs and/or MNCs) become flexible in (re)-negotiating some of the local content and industry requirements, but without compromising industry standards. Thus, LCD is the role of regulators, operators, and policy beneficiaries.

Further studies could examine local capacity building and capacity sustainability initiatives of public and private actors in Uganda’s OGS. Furthermore, it is important to have additional studies of the costs incurred in local capacity development vis-à-vis the benefits to Ugandans and Ugandan companies.

Notes

1.

he information from “insiders,” according to Ablo and Overå (2015, p. 402), means the information that local companies get from their friends or contact persons involved in government activities, either as political actors or as senior officers in petroleum industry operations within the IOCs.

2.

his is an LCP instrument that requires IOCs and/or MNCs to split contracts into small units manageable by local companies that have limited capacity to compete for big contracts that require enormous human, financial, and technical capacities.

3.

Interview: Senior Government Official, 12/08/2016, Entebbe.

4.

Interview: senior MEMD official, 17/08/2016, Entebbe, Wakiso

5.

Petroleum (Exploration, Development, and Production) (National Content) Regulations 2016 (hereafter referred to as Upstream National Content Regulations, 2016).

6.

he Republic of Uganda, The National Oil and Gas Policy for Uganda, February 2008, Ministry of Energy and Mineral Development, Kampala (Objective vii).

7.

Ibid., Issue No. 7.

8.

Petroleum (Exploration, Development, and Production) Act 2013 (section 1(f)).

9.

Public sector institutions include the MEMD, Ministry of Finance, Planning, and Economic Development, Ministry of Gender, Labour, and Social Development, Ministry of Trade, Industry and Cooperatives, Ministry of Education and Sports, Ministry of Agriculture, Animal Industry and Fisheries, Parliament of Uganda, Uganda Bureau of Standards, Uganda Investment Authority, the Office of the Auditor General (OAG), local government personnel Hoima district local government, and the PAU.

10.

Categories of private sector actors include UNOC, IOCs, MNCs in Uganda’s oil and gas supply chain, and local companies in the following categories: food supply; transportation and logistics; cleaning and facility management; forwarding and clearing; civil works.

11.

he purposely sampled civil society organizations include the Hoima District Farmers’ Association, the Civil Society Coalition on Oil and Gas (CSCO), the Association of Oil and Gas Service Providers (AUGOS), the Uganda Chamber of Mines and Petroleum (UCMP), the Private Sector Foundation Uganda (PSFU), the Africa Institute for Energy Governance (AFIEGO), the Advocates Coalition for Development and Environment (ACODE), Transparency International – Uganda (TIU), and Living Earth Uganda.

12.

Interview: Operations Manager, local company, 28/11/2017, Kampala.

13.

Interview: Operations Manager, local company, 28/11/2017, Kampala.

14.

Policy document: Upstream National Content Regulation, 2016 (sections 3 and 8).

15.

Interview: senior official, international company, 30/01/2018, Kampala.

16.

hat is, for the case of Tullow, Total, and CNOOC.

17.

Interview: former senior official, IOC, 04/03/2019, Kampala.

18.

Interview: former senior official, IOC, 04/03/2019, Kampala.

19.

Interview: senior official, IOC, 01/02/2018, Kampala.

20.

Interview: senior official, IOC, 30/01/2018, Kampala

21.

Interview: senior value for money auditor, OAG, 29/07/2016

22.

Interview: Coordinator, local company and Farmers Association of Hoima, 05/03/2018, Hoima

23.

See Tullow Oil. Shared prosperity, https://www.tullowoil.com/sustainability/shared-prosperity (seen 11/08/2019).

24.

Policy document: Upstream National Content Regulations, 2016 (Sections 16, 17, and 18).

25.

Report: CNOOC Uganda limited, Total E&P Uganda & Tullow Uganda Operations Pty Ltd, 2014. Planning for the Future: A Demand and Supply Study on the Oil and Gas Sector in Uganda (p. 2).

26.

Report: CNOOC Uganda limited, Total E&P Uganda & Tullow Uganda Operations Pty Ltd, 2014. Planning for the Future: A Demand and Supply Study on the Oil and Gas Sector in Uganda (p. 23).

27.

Interview: MD, local company, 14/12/2017, Kampala.

28.

Interview: MD, local company, 13/12/2017, Kampala.

29.

Interview: Human Resource Manager, international oil and gas service company, 30/01/2018, Kampala.

30.

Petroleum (Exploration, Development, and Production) Act 2013, section 125(2).

31.

Interview: National oil company official, 30/01/2018, Kampala

32.

Interview: MD, local company, 03/08/2016, Wakiso.

33.

Interview: senior official, international (but Ugandan registered) company, 30/01/2018, Kampala.

34.

Interview: Coordinator, local company, 05/03/2018, Hoima.

35.

Interview: MD, local company, 13/12/2017, Kampala.

36.

Interview: senior official, regulatory agency, 29/10/2018, Wakiso.

37.

Interview: MD, local company, 03/08/2016, Wakiso.

38.

Interview: MD, local company, 03/08/2016, Wakiso.

39.

Interview: MD, local company, 14/12/2017, Kampala.

40.

Interview: Director, local company, 06/03/2018, Hoima.

41.

Interview: senior official, international (but Ugandan registered) company, 30/01/2018, Kampala.

42.

Interview: MD, local company, 03/08/2016, Wakiso.

43.

Interview: MD, local company, 25/01/2018, Kampala.

44.

Interview: MD, local company, 14/12/2017, Kampala.

45.

Interview: MD, local company, 14/12/2017, Kampala.

46.

Interviews: MD, local company, 14/12/2017, Kampala; senior IOC official, 30/01/2018, Kampala.

47.

Interview: senior official, IOC, 01/02/2018, Kampala.

48.

Interview: senior official, PSFU, 30/10/2017, Kampala.

49.

Interview: senior official, CSCO, 12/02/2018, Kampala.

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