What matters in adopting local content?

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What matters in adopting local content?
What matters in adopting local content?

Africa-Press – Nigeria. National content (or local content as it is sometimes referred to) is a concept that seeks to define the value that a certain section of the economy (for example an industry or sector) brings to the national or local economy beyond the direct benefits and revenues generated by that section. It is a mechanism that Governments use to create sustainable and inclusive economic growth. It is common with the extractive industry and critical infrastructure projects that bring significant value into an economy.

In some cases, the definition of this value is primarily focused on local investment in form of ownership of shares by local citizens and companies in foreign owned companies. In other cases, the focus has been around maximisation of value through usage of local goods, services, financing, human resources and other necessary resources. And still in other cases, a combination of both approaches.

How has it been approached for the Oil and Gas Sector in Uganda?

For the oil and gas sector in Uganda, the national content laws and regulations have focussed on the level of use of goods, services, skills and resources available in Uganda and the maximisation of value derived from them.

Compliance

The law ring fences specific goods and services to be provided only by Ugandan companies, businesses or individuals (citizens). These 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, supply of locally available drilling and production materials, environment studies and impact assessment, communications and information technology services, waste management, where possible.

For other goods and services that are not ringfenced, the law requires preference to be given to goods and services provided by Ugandan companies, businesses and individuals. Where the required goods and services are not available in Uganda, they should be provided by a company that has entered into a joint venture (“JV”) with a Ugandan company having a minimum interest of 48% unless no Ugandan company meets the prescribed quality, capacity, expertise and standards.

Where a Ugandan company, business or individual is not able to meet the required capacity, expertise and standards, the goods and services may be procured from a foreign company for a specified period, with the approval from the Petroleum Authority of Uganda (PAU). In such a case, there is a requirement to put in place a plan for local supplier capacity building to ensure that Ugandans are eventually well equipped to participate in the sector.

Employing Ugandans

To qualify as a Ugandan company, one should employ atleast 70% Ugandans except if the Ugandan company can demonstrate that they were not able to find sufficient Ugandans with the required qualifications. Further, companies are expected to employ at least 20-30% of Ugandans in positions of management, 30-40% in technical positions and 95% in support roles. These numbers are expected to grow over a period of 5-10years under close monitoring from PAU.

The national content laws apply to all players in the oil and gas sector including the licensees who the operators and developers of the projects, their contractors and sub-contractors. The licensees have an obligation to ensure that their contractors and subcontractors have national content plans that are aligned to national content requirements under the law.

The author Pamela Natamba is the tax and oil and gas leader at PwC Uganda.

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