The plan is that first oil will start flowing in 2020. The
industry estimates that between now and then at $20b (sh72trillion) will be
spent in preparation for this event.
In the exploration phase at least $3b was spent over eight
years. It is estimated that local companies managed to capture 28 percent of
this figure or $840,000 was captured by local firms.
The challenge is to keep us much more of that money here.
The truth is the capacity to produce oil without the local
help exists. To appease local constituencies back home and retain as much money
as they can for themselves means that regardless of whether we are ready or not
as people the oil will be extracted and we will not even get the crumbs.
The oil industry is very capital intensive and therefore
there is little we can do in the higher end of the value chain where the
outlays are bigger, but there are areas – providing basic services where Ugandans
can participate.
To that end the government through the Petroleum Authority
of Uganda (PAU) has called on Ugandans to register onto a local data base of
goods and service providers, who will be given first priority in getting
contracts, especially those ring-fenced for Ugandans.
Questions still remain about whether our local providers can
live up to the exacting standards of the industry. A lot of work especially in
the private sector is being done to ensure readiness.
"Assuming the $20b of inflows into the country attract two percent insurance premiums that would amount to about $400m (sh1.5trillion). In 2016 the industry underwrote sh634b worth of premiums...
In that line the insurance sector has been gearing up to
participate in the oil industry.
At the end of 2016 they established a Syndicate to
underwrite the risks in the oil & gas sector. The syndicate which was
created with the approval of the Insurance Regulatory Authority (IRA) is
supported by international reinsurers by way of $500m reinsurance facility.
This is important because average claims in the industry
have been put at $25m according to Alliance Corporate Global & Speciality
(ACGS) one of the world’s largest corporate insurers.
Essentially Uganda’s insurance companies have come together
to collaborate in underwriting risk in the sector.
Being as it is a new industry they have contracted the UK
based Total Risk Solution (TRS) with 150 years’ experience to train local staff
in of oil & gas insurance.
And it is not as if they are reinventing the wheel. In Indonesia, Ghana, Cambodia and Nigeria similar arrangements have been put in
place and have not only served the industry well but also ensured more monies
remain in country.
All this is being done to conform to Ugandan Petroleum
legislation which provides for the contracting of insurance services from
locally registered entities.
There seems to be a loophole in that regard in the law under Petroleum Authority of Uganda (PAU) operates. While some basic services have been ring fenced – security, catering, logistics among others and fuel services, for local players, insurance services are not among them...
Some reservations persist at the regulatory level, about the
capacity of local insurers to cover the magnitude of risk in the oil & gas
industry, whether giving the syndicate a green light would constitute the
creation of a monopoly, whether reinsuring our local insurers to do the job
would not add another layer of costs and whether value will be created all
around.
The truth is that foreign industry players given a choice
would use their own insurers. The only way to ensure our own industry players
get a fair shake is to compel the oil & gas industry to give first right of
refusal to our own.
That has to be the guiding principle in ensuring we retain
as much money as we can locally.
The benefits of the insurance company getting a leg up in
the oil & gas industry would have a positive ripple effect throughout the
entire economy.
At the bare minimum it would increase the capacity of the
industry not only financially but technically as well. The industry players
will get new capacity to insure for risk in the oil & gas industry, which
capacity can be employed to win business in the region and further afield.
But just as important it could help boost the country’s
stock of long term savings. The insurance industry took the brunt of the loss
with the breakdown of stability and 1970s and 1980s, people stopped taking out
insurance. The habit was lost.
"As a result the insurance industry is only just beginning to gather steam. The long term savings that insurance hold, in other countries has helped build infrastructure and support long term projects critical for national development...
The insurance industry’s attempts to get ready should not be
lost and may even serve as a useful example of how other industries can
position themselves to take advantage of the coming oil
