By Paul Murungi
The Petroleum Authority of Uganda (PAU) anticipates a surge in contract numbers for local firms once construction on the East African Crude Oil Pipeline (EACOP) begins this month.
Of all ongoing oil projects executed by Total Energies and CNOOC Uganda, the petroleum regulator has so far sanctioned contracts valued at approximately US$7.16 billion. Of this sum, The Infrastructure Magazine understands, nearly US$1.8 billion (about UShs 7trillion) worth of contracts has been allocated to Ugandan companies, with contracts currently at various stages of execution.
Now with the pipeline construction in the mix, the value of contracts is envisaged to go up.
Currently, in the upstream projects (drilling and production), only two Ugandan firms – ZPEG Uganda Limited and Excel Construction – are playing at Tier 1 level.
Information on the PAU national supplier database shows that ZPEG is a Ugandan registered company but acting as an offshoot and a local affiliate of Zhong yuan Petroleum Exploration (ZPEB), a Chinese petroleum engineering service company working in several countries around the world.
Excel Construction on the other hand is an indigenous Ugandan company that was formed in 1992 by a merger between Madhvani Group construction entity and Gomba Construction Ltd. An ISO 9001 certified company, the Jinja based Excel Construction in the past few years became a household name mainly from its civil works – especially at Makerere University where they are the hand behind a few new buildings on the century old campus. They are also the main contractors for restoration of Makerere University’s landmark and iconic building, “The Ivory Tower,” that was gutted by a fire in September 2020.
Excel Construction was contracted by CNOOC to build well pads, access roads and water intake points for the Kingfisher project at a cost of US $23.2m (UShs 83.5billion) in Kikuube District
The other Ugandan companies currently sub contracted at Tier 2 and Tier 3 include; Pearl Engineering, Gauff Engineering, Civtec, Fabrication Systems, GCC Services in Joint Venture with GCC Services Dubai, ICS, Newplan, MSL Logistics, Techlab – A geosciences Company, MBW Consulting, Nina Interiors, GEOTECH Solutions, Bemuga Forwarders Ltd, Hoima Resort Hotel, Biiso FM Radio, SOL Engineering limited.
Most of these companies are sub contracted to supply ring-fenced goods and services for Ugandans which include; transportation, security, foods and beverages, hotel accommodation and catering, human resource management, office supplies, fuel supply, land surveying, clearing and forwarding, crane hire, locally available construction materials, civil works, the supply of locally available drilling and production materials, environment studies and impact assessment, communications and information technology services and waste management services.
On March 26th, Uganda and Tanzania commissioned the East African Crude Oil Pipeline (EACOP) coating plant, nestled at Sojo in Nzege – Tabora region in Tanzania. The commissioning of the coating plant is the first step in the construction journey of the 1,443-kilometre pipeline, expected to start in June-July.
Thermal insulation and coating will be applied to all the 86,000-line pipe joints prior to their dispatch and installation along the route from Uganda to Tanzania. Once insulated and coated, the pipes will be transported to the different Main Camps and Pipe Yards (MCYP) along the pipeline corridor ready for laying in the development of the EACOP.
The purpose of the insulation is to create a thermos flask kind of mechanism – to enable the pipeline to retain the warmth of the fluid inside it, while simultaneously keeping the external environment cool.
Irene Batebe, the permanent secretary of the Ministry of Energy & Mineral Development said for Uganda to achieve the target of achieving her first oil in 2025, at least 100 kilometres of pipeline will need to be delivered every month.
“As these pipelines come in, we will also be doing the work of trenching and laying them,” she said.
Batebe said the pipeline construction will require a huge number of accredited welders but also operating several camps with a huge number of employees requiring additional services like food and catering, which are ring-fenced for local Ugandan firms.
During the construction phase, a total of 500 personnel on site were employed. During the production phase, 270 workers will be involved in front line site activities, including running the thermal insulation production lines, pipe handling, logistics, maintenance and inspection.
The construction of the pipeline is one of Uganda’s biggest construction projects in the country’s history – and will soon be one of the most lucrative in upcoming contracts, considering that it will require heavy civil, mechanical engineering and logistical works. A number of local companies are expected to be sub contracted to perform various pieces of works along the value chain, under the main contractor, China Petroleum Pipeline Engineering Co. Ltd.
At the event to launch the coating plant in Tanzania in March, Ruth Nankabirwa, the Minister of Energy & Minerals, said the project is at the point of no return.
“Today’s commissioning of this (coating) plant is a true testament that the project is on course and at a point of no return. All this is aimed at safeguarding the environment and surroundings as well as prolonging the life span of the pipeline.”
At the same time, the upstream projects in Uganda namely Tilenga and Kingfisher Development Areas are also progressing well with four oil rigs used for drilling development oil wells, already in the country.
Cumulative investment
According to PAU, since discovery of oil in Uganda’s Albertine Graben in 2006, the sector has had a cumulative investment of US$ 8.6 billion (UShs 33 trillion) creating over 13,000 jobs. In the coming couple of years, the cumulative total investment in the sector is expected to hit US$ 20 billion.
To maximise benefits to the local economy from ongoing oil and gas activities, PAU is updating its National Suppliers Database (NSD), and has been beating the drums, urging Ugandan entities and individuals interested in supplying goods and services to the sector, to register.
Peninah Aheebwa, PAU’s director economic and national content monitoring said the Authority is prioritising national content with a focus on value retention.
“We aim to keep as much value as possible within the country. In instances where Ugandans lack the requisite skills and experience, we encourage them to form Joint Ventures (JVs) to compete for contracts at various project development stages.”
So far data from PAU shows a total of 120 such joint ventures have been reviewed and 54 (45%) have been approved by PAU to undertake various contracts. The cumulative value awarded to Joint Ventures since the announcement of the Final Investment Decision stands at US$260 million.
A prospective service provider told The Infrastructure Magazine on the sidelines of a recent PAU service provider conference at Speke Resort, Munyonyo that there is a general feeling among local content actors that opportunities still look remote as the international companies playing in the top tier dominate and shape decision affecting the smaller, local players.
Other developments
Uganda’s desire to expand her oil fields and production beyond 25 years is taking shape with preparations for the launch of the 3rd licensing round expected to kick off in June.
Irene Batebe said the cabinet is set to approve the environmental, social impact assessment for the areas that are due to be opened as the new exploration areas. Currently, Oranto Petroleum and Armour Energy hold exploration licenses since 2017 after the first licensing round, and continue with seismic data acquisition and interpretation activities, aiming for exploration drilling in 2024.
In February 2023 and May 2023, additional exploration licenses were granted after a successful second licensing, to Uganda National Oil Company and DGR Energy Turaco Uganda SMC Limited over the Kasuruban and Turaco contract areas, respectively. The companies are already undertaking studies in preparation for seismic surveys and well drilling.
Key on the Energy Ministry’s calendar for the next exploration is the Karamoja sub region that they recently reported as having “exciting prospects” with first findings suggesting potential for commercial oil and gas in Moroto-Kadam. Similar plans are being initiated to take studies in the Kyoga and Hoima Basins soon.
Oil refinery
After a few snags with a former prospective partner – Albertine Graben Energy Consortium, who flopped on their project framework agreement (PFA) – Uganda secured a new private shareholding partner – Alpha MBM Investments LLC from the United Arab Emirates that is expected to acquire a 60 percent stake in the oil refinery project. Negotiations of the key commercial agreements between Uganda and Alpha MBM Investments LLC started in mid-January 2024.
Uganda’s oil refinery ambitions had hit a dead end in June, 2023 after the Project Framework Agreement with the Albertine Graben Energy Consortium expired and was not renewed.
Nankabirwa said that, at first, the original proposal was to put the project on the capital markets so that an anchor investor buys into it. However, the idea was dropped with the realisation that funding a project dealing in fossil fuels remains greasy at a time when there are global movements de-campaigning carbons.
“We have made noise that we still need these projects, banks that had pulled out from financing such projects have started to come back again because countries like Uganda have spoken,” she said.
