Experts call for streamlining of funding as Uganda gears up for oil exploration

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Uganda has proven crude oil reserves of 6.5 billion barrels, about 2.2 billions of which is recoverable (File photo).

Experts have called for the streamlining of the Oil and Gas sector in a bid to lay a firm ground for Uganda’s future exploration.

While commemorating the 6th Annual Oil and Gas Convention 2020, experts noted that funding in the oil sector needs to be streamlined stating government’s participation and how to spur growth in the private sector.

According to Prof Waswa Balunywa, the Principal Makerere University Business School who moderated the discussion, avenues how the private sector can benefit from the oil sector, who are the drivers of this and how the government facilitate the process all need to be spelt out.

“We are looking at how the state will participate and facilitate the development of the sector. It is taking some bit of time for us to be able to enjoy the benefits of what we discovered as a country and there have been challenges. In terms of funding Uganda National Oil Company (UNOC) is a government company, we cannot say it is a private company,” he said.

Prof Balunywa added that although the government of Uganda has not resolved some issues, on ideological strategy, it has committed itself to taking 15% in the oil sector and it raises other issues.

Mr Moses Kaggwa, the Director Economic Affairs in the Ministry of Finance, explains that the total investment that is required for all the projects for state participation is $845.9m that includes the crude oil pipeline which is about US$213 and the refinery which is about US$480.

“With financing, we are looking at how much we can get from our domestic budget, out of the Shs45t from this year, we could only give them Shs31b because of the pressing needs. Next year we do not see much revenues coming in from our domestic resources because COVID has impacted greatly, so we have to sort for other areas to get the needed revenue,” he said.

Mr Kaggwa added that they are also looking at doing this (securing the funding) through an infrastructure bond partnering with the National Social Security Fund (NSSF) to see how they can finance the project.

“The delay in financing will cost us dearly because we have delayed taking the Final Investment Decision (FID). It should have been taken like four years ago but because of the challenges we have, we delayed and we want to take it in this financial year. If we do not take it, then it will cost us a lot in terms of money.”

According to Mr Emmanuel Katongole, the Board Chair, UNOC, the ministry of finance has been doing their best to make sure the funds are availed.

“We all know the funds [USD845m] if all borrowed could exceed the borrowing limit as a country. We have got all the assurance that the government of Uganda is doing whatever it takes to make sure this money is available and I have no doubt in my mind that the money will be available,” he explained.

Drawing examples from International Oil Companies, Mr Katongole argues that other than commitment from their national treasury, National Oil Companies have access to direct exploration licences and in Uganda this has been provided for by law.

Mr Richard Byarugaba, the Managing Director NSSF, shares that as a fund; they cannot participate in debt but can only participate in the equity structure.

He explains that people tend to avoid the different stages of financing and come in at the process where production has started and there is visible part of the market that is available and customers identified.

This, he says, enables them to go in knowing how much the company will be making, how the product is being distributed, who the customers are and the cash values generated out of the business.

“I have seen nothing and I really can’t say anything about whether we can put in money or not. I think it is important we look at what has to happen, we look at the structure of the company, we do not know who the shareholder is, we do not know what the corporate governance structure is, we do not know who calls the shots and this is really an opaque structure that does not give any comfort to an investor.”

Mr Jimmy Mugerwa, an expert with over 25 years’ experience in the Oil and Gas sector said 19 out of the top 25 Oil Companies in the world are National Oil Companies because they own the resource.

“We are talking about funding and we seem to be looking at issues and losing out the opportunity. The opportunity we are talking about from a project perspective is a project that is going to generate 200,000 barrels a day of which the government will take 15% of this. Yes, at the moment it seems we have issues with funding but if this project is bankable, you will actually discover that funding is a smaller issue. 90% of resources in the world are owned by National Oil Companies. What we are looking at is a baby in UNOC that is being born and I can tell you the potential is huge,” he shared.

Mr Mugerwa added that he wants to encourage the government to start dialogue on how they can fund themselves to ensure that they capture this opportunity since at the moment, the government has spent a lot of time negotiating how it can turn this into an opportunity.

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