Oil drilling rig for Tilenga Oil project/Business Focus photo
The Association of Oil and Gas Providers in Uganda says it is not easy for Ugandans to supply the sector.
Association of Uganda Oil and Gas Service Providers (AUGOS) Vice Chairman, Dennis Kamurasi says while one can be excited about winning the bid, trouble comes when it comes to executing the contract. “Winning the contract is the beginning of problems. It is very easy to put in the paperwork and remember that you are competing with hundreds of other companies. So you are trying to price each other out,” said Kamurasi.
Kamurasi’s advice sounds scary to some of the catering services providers eyeing to supply the East African Crude oil pipeline project’s construction camps, but he insists that those intending to join the sector need to be prepared for the reality.
Sharing his personal experience having supplied the sector, Kamurasi said there are several barriers one has to overcome which include high startup capital, the need for the constant flow of cash as well as the need to ensure a steady supply of the needed goods.
In simple terms, supplying the sector is not just about winning the bid or chasing after them. He says it takes careful planning too.
“So we need to get over the excitement of winning contracts. And get thoroughly into the logistics and the numbers and reconcile them with being able to deliver. And you will find that you are working within a thin margin,” he says.
He said a supplier of catering services could be required to supply 8,400 meals at one camp for just six days.
“If you are in Tilenga that is 12000 meals per day in rotation. You have never done this before, you have probably served 200 people at weddings. This is different,” he said.
Kamurasi that local or inexperienced suppliers are to find partnerships. “You need partnerships with companies that have done that before is crucial because they already have the infrastructure,” Kamurasi advised.
He further advises that “Let us be humble enough not to accept what we cannot manage and be willing to learn. And we must forge strategic partnerships” Kamurasi revealed that one of the biggest barriers has been the lack of capital for local suppliers to meet their contractual obligations.
“So to make sure that you are supplying food on time and you have trucks supplying you trucks on time, you have to make sure that you have a bank that can give you money when you need that money on time and at a cost which is competitive, even the price the interest you are paying,” urged Kamurasi.
His advice comes after complaints that have continued to emerge since the contracting period for the Tilenga and Kingfisher developments began. It emerged that some of the local investments that emerged to chase oil and gas money were not formalized.
But the biggest barrier for many has been the lack of running capital yet the goods supplied to the sector are delivered on the invoice.
Last year, State Minister for Energy Okasai Opolot said the government was going to create a local content fund to help local suppliers to the sector. The fund was yet to be operationalized.
TotalEnergies equally told suppliers who cannot meet their obligations to contact it beforehand to avoid situations similar to what has been witnessed before.
So far, the Association of Uganda Oil and Gas Service Providers (AUGOS) said only 23% of the three billion dollars invested during the nine-year preproduction of oil was retained in the country. Other challenges According to Kamurasi, the suppliers have to cope with the late invoice payment for goods supplied to the oil and gas sector. He said it on average, it takes 45 days for an invoice to be paid.
“While contracts typically have a payment period of 45 days, many invoices have been left unpaid for over 100 days. These delays have created problems for contractors, making it difficult for them to pay their suppliers and leading to defaults on loans”
Also, he said the issue of bid bonds and performance guarantees on submission of bids remain a big challenge. “This practice remains unusual within the oil and gas sector no precedent is to be found across all the oil-producing states of sub-Saharan Africa.
One may argue that this is to assess the financial viability of entities to perform given contracts. And this is understood, however, why is it necessary at the bid submission stage? All it does is to lock up capital for an unspecified period,” notes Kamurasi.
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