Conserve Environment To Absorb Gas Emissions During Oil Mining

By Paul Kato

Since 2016, most of the biggest wetlands like Bugoma Central Forest Reserve, Kafu and Nguse among others in the Bunyoro Sub-region have been encroached on by the likes of Hoima Sugar Limited and out-growers to pave away for sugarcane growing.

Charcoal and timber dealers are cutting down trees while oil activities especially East Africa Crude Oil Pipeline (EACOP) project are expected to pass through wetlands like Kafu, Wambabya and others.

There is enough evidence to show that wetlands continue to be threatened by oil activities and human activities. Putting these critical ecosystems under threat is likely to contribute to gas emissions. This will result in human health problems.

Recently, Hoima Municipality became an (oil) city meaning that more wetlands are going to be cleared in favour of expanding the city and the development of the oil industries in the area. All these are likely to cause more air pollution and more destruction of wetlands in the area.

Uganda should know that currently, air pollution is exceeding the World Health Organization Limit before even the production of the first oil and the development of industries in the newly created cities.

These emissions are likely not to reduce because of the massive developments expected from the oil industry and the newly created cities in the country.

A lot of oil emissions during oil mining and air pollution resulting from oil industries, motorized transport among others are likely to increase therefore we need to conserve critical ecosystems in the Albertine region which will help in absorbing of the oil emission and air pollution from the industries hence reducing on the health problem.

Therefore, I call upon the government institutions like the National Environmental Management Authority (NEMA), National Forestry Authority (NFA), newly elected leaders, environmental police among others to lay out the strategies that are going to reduce the oil emissions during oil mining, air pollution from industries and protection of the sensitive ecosystems from oil activities and human activities.

Paul Kato is a Research Associate at Africa Institute for energy governance (AFIEGO)

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Losing Of Fragile Systems Of Bugoma Forest To Sugarcane Growing

By Spencer Pedun

Recently, media reported that 405 hectares of Bugoma forest land were cleared by Hoima Sugar limited according to the GPS images in the hands of the Save Bugoma Forest Campaign (SBFC).

Uganda losses about 100,000 hectares of forest cover every year and per USAID’s Uganda Biodiversity and Tropical Forest Assessment report, “approximately 25 million tons of wood are consumed annually in Uganda [with the] majority of that wood [being] used as household firewood (65%), charcoal (16%) and commercial and industrial firewood (14%).”

 Indeed as CSOs on the natural resources survey of 2020, indicated that forest cover loss has now increased to an estimated 200,000 hectares annually.

Forests are said to be the life-givers to human beings. But human beings are not paying any heed to this fact and are cutting them mercilessly and endlessly to satisfy their needs. With our population rising at a tremendous rate, the trees and forests are vanishing faster than the blink of an eye. A time will come when the earth will be devoid of trees.

Deforestation has led to many serious problems such as the depletion of the ozone layer. More pollution means more respiratory disorders, so on and so forth. Therefore, it is our duty to make Uganda a lush green country by planting more trees.

Due to deforestation, the weather conditions have changed abruptly and due to global warming, there is a great increase in temperature. Forests are the shelter of flora and fauna. With the cutting of trees of the forests, flora and fauna have been adversely affected.

Trees prevent soil erosion but the felling of more trees has caused soil erosion. So, each and every place is turning into a barren wasteland. Moreover, floods have become frequent due to the same reason. As brick laying is on the rise, the youths in Manafwa and in Bugishu land have started cutting down trees to seek firewood for burning bricks and also charcoal burning which has greatly led to deforestation.

In conclusion, l call upon the youth to desist from cutting tress and opt to using machines that are used for brick laying which doesn’t necessitate tress cutting

Therefore, we call uponNEMA to review Hoima Sugar’s activities with the view of cancelling the certificate that the authority issued to the company due to non-compliance to the certificate’s conditions.

Failure to do so provide environmental destroyers such as Hoima Sugar with an opportunity todegrade Ugandans’ shared precious natural environment.

For God and My Country

Spencer Pedun

Project Assistant at Environment Governance Institute (EGI)

Develop Mitigation Strategies For Reducing Air Pollution

By Patrick Edema

Reports indicate that the air pollution levels in Uganda have exceeded the World Health Organization (WHO) limit. The emerging evidence has linked the smoogy skylines being observed in several cities and towns across the country to high levels of pollution. The fear about the hazy skylines was worsened by the KCCA announcement that detected pollution several times higher than the World Health Organization normal range of 25 microgram per cubic meters.

The results from the 23 air quality monitors across Kampala indicated that average particulate matter (PM 2.5) is at 75 micrograms per cubic meter than the WHO cut off. Particulate matter is the sum of all solid and liquid particles suspended in air many of which are hazardous to human health. Particulate matter 25 are the final inhalable particles.

Today, air pollution is the main responsible for environmental quality worsening in many cities all over the world, with adverse outcomes on people’s health. According to the last World Health Organization (WHO), more than 80% of people living in the urban context are subjected to air quality levels above the emission limits regarding air pollution. The primary atmospheric pollutants are carbon monoxide, particulate matter, nitrogen oxides, volatile organic compounds, polycyclic aromatic hydrocarbons, ozone, and sulfur dioxide. The increase in emission amounts of these pollutants is due to the rapid industrialization and urbanization of developing countries.

Figures from the Real Time Air Quality Index for Uganda measured on a 24-hour basis shows that air in Kampala oscillates between 70 for moderate to over 162, which is beyond unhealthy for breathing. The air pollution has reached worrying levels and exposes people to health risks such as respiratory tract infections. Several studies have linked mounting respiratory tract infections such as asthma and chronic bronchitis to air pollution. Research shows a connection between air pollution and lung cancer, and suggests it may contribute to childhood mortality.

According to a survey conducted by Makerere University College of Health Sciences, 40 per cent of deaths in Uganda are due to non-communicable diseases such as cardiovascular diseases, cancers, diabetes and chronic lung diseases. Yet if there is a malady lurking in the backyard, it’s the air we are breathing, an invisible death-trap that continues to afflict the health of thousands.

Globally, 30 minutes of exposure to air in three cities of Gwalior and Allahabad in India plus Zabol in Iran are just enough to cause harm. For cities in Africa, Kampala City tops the list for cities with the most polluted air in East, Central and Southern Africa. Here, 90 minutes of exposure to the fumes are enough to cause damage to your health. Other cities in Africa include Bamenda in Cameroon where 45 minutes on the road are enough to cause harm.

According to statistics from the Uganda National Bureau of Statistics, close to 50,000 vehicles make their way to the city every day. This makes a total of more than 150,00 vehicles alone in the city, a day, that is spread across 189 square kilometers. Many sources of urban outdoor air pollution such industries and vehicles are well beyond the control of individuals and demand action by cities, as well as national and international policy makers to promote cleaner transport, more efficient energy production and waste management. The latest urban air quality database shows that 98 per cent of cities in low and middle-income countries with more than 100,000 inhabitants do not meet WHO air quality guidelines. Air quality is measured by the amount of particulate matter it contains.

Therefore, for the country to mitigate the air pollution problem, many efforts have to be taken with the aim to decrease the pollutants emissions coming from people. Each citizen may contribute to the mitigation of air pollution through behavioral changes in their lifestyle as the reduction of energy consumption in transportation, households, and supply.

It is also well known that vehicle emissions contribute to air pollution. In this scenario, besides the implementation of increasingly stringent standards for vehicle emissions, the most effective policy is the promotion of the zero-emission vehicle. In particular, by using alternative fuels, respect to the traditional fossil ones, like electricity, bio-fuels, liquefied petroleum gas, natural gas, and solar, this kind of cars can produce lower concentrations of pollutants.

Patrick Edema, Environmental Engineer at Africa Institute for Energy Governance (AFIEGO)

 

Albertine Regional Sustainable Development Project Should Also Invest In Agriculture Sector

By Kato Paul 

At the end of last month, the media reported about the Albertine Regional Sustainable Development Project (ARSDP) which is a multi-sectorial project aimed at improving regional and local access to infrastructure, market and skills development in the Bunyoro Albertine region leaving out agriculture sector the backbone of Uganda.

The ARSDP was initiated by the government of Uganda together with the World Bank funding of $145m to boost businesses in the Albertine region especially along the East African Crude Oil pipeline Route (EACOP).

The project was meant to cover elements like regional access and connectivity covering regional transport, local access, planning and development consisting of planned growth, local area development among other skills access and upgrading.

However, the project left out the agriculture sector the backbone of Uganda which employs around 80 percent of the Ugandan population and provides the largest percent of raw materials to Uganda’s industries.

After the discovery of the oil in the Bunyoro sub-region, the government encouraged farmers in the Albertine region to start investing in the agriculture sector with the purpose of providing enough food for the oil workers. Few farmers started because they were lacking enough money to run their agricultural activities and limited support from the government.

The government of Uganda should know that without boosting the agriculture sector in the Albertine sub region which will provide enough food to oil sector, employments to many unemployed youths among others, the constructed roads, markets and other infrastructures will be of less value.

Therefore, I call upon the government to include the agriculture sector the backbone of Uganda in the Albertine Regional Sustainable Development project because agriculture is the one that employs the largest population of Uganda and is the quickest sector to improve the livelihood of the Ugandans. 

Paul Kato is a research associate at Kikuube Youth Development Forum

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Lessons From Mexico: Pushing For Better & Faster O&G Project Implementation In Africa

By Andres Vega

Once one of the world's biggest producers, Mexico has had a sweet and sour relationship with the upstream industry. In my experience working in the Mexican O&G industry, I witnessed the transition of a nationalized industry, once described by Juan Pardinas, former director of the Mexican Institute on Competitiveness, as "hermetically sealed" and on par with that of North Korea,  to an industry allowing the participation of foreign investment. It has been quite an experience to witness such a rapid movement in an industry where nothing occurred (from a regulatory standpoint) for more than 70 years.

After so many years of stagnancy, the 2013 Mexican Administration pushed for a quick reform and a faster implementation to catch up with the global industry and call upon international investors. In a relatively short period, these efforts resulted in the awarding and performance of 111 exploration and exploitation contracts. While the framework is not perfect, perhaps some of the experience could serve as an example for African countries struggling with implementing reforms or successfully structuring and launching licensing rounds. Countries like Algeria, Nigeria, Ghana, Gabon, Somalia, and Cameron, where the most recent licensing rounds have not yielded the expected results, according to Mr. NJ Ayuk, Executive Chairman of the African Energy Chamber, could maybe benefit from this experience.

Considering how Mexico's upstream sector evolved to allow foreign investment, in this two-part article, I will be presenting certain experiences that might serve as an example in some African jurisdictions with cultural, regulatory, legislative, and even colonial similarities, where oil & gas projects need to keep growing, not only to recover from Covid-19 but to serve as pillars of the economy. 

Mexico's need to reform.

The nationalization of subsoil resources by the revolutionaries that drafted the Mexican Constitution of 1917 marked the beginning of private investment restrictions in the oil & gas industry. With such a move, Mexico had "recaptured oil but could not develop or market it without foreign capital [2]", so foreign involvement in the country continued to be essential for several years. However, nationalistic sentiment, labor disputes, political unrest, among other matters, lead to judicial, political, and social turmoil, which eventually resulted in the 1938 privatization of an industry formerly dominated by foreign majors. Under the premise of "The Oil is Ours" sustained by then-President Cardenas, Mexican citizens of every class, donated money and valuables to the government, including jewelry and livestock, to pay off foreign owners' debt [3].

With the privatization, the NOC Petroleos Mexicanos ("Pemex") was incorporated as a vertically integrated company and granted exclusive rights over exploration, extraction, refining, and commercialization of oil & gas. Since then, and up to the late 2000s, nothing had changed in Pemex's monopolistic grasp of the industry, except for allowing foreign participation through risk services agreements with private companies in 1949 [4], and a modification of Pemex's corporate structure spinning it off in four subsidiaries (each focused on a stage of the oil exploitation process) in 1992, being Pemex-Exploration and Production in charge of upstream. 

Supported by the output of the super-giant Cantarell basin (discovered in 1976), by 2004, Pemex had become one of the world's biggest oil producers, with an output of 3.4 million bbl/d. Cantarell accounted for 63% of Mexico's total production, with peak production in 2004 of 2.1 million bbl/d [5]. In Mexico, Pemex had become a beacon for nationalistic principles throughout the years. Its success gave compelling arguments in support of a model of a government-led industry. At the time, a modification to the industry's legal framework or Pemex's monopoly came with a high political cost. However, with a steady, unstoppable decline, by 2014, Pemex was averaging around 2.5 million bbl/d, thus indicating that Pemex alone could not stop the fall. Pemex is now the most indebted NOC globally, standing at about $110 bn USD in debt and production averaging 1.6 million bbl/d [6]. Due to several reasons, including a tax regime standing at roughly 60%, Pemex has not turned a profit since 2006 [7].

The decline of production demanded reform to the industry. 

The first attempt came in 2008 when President Calderon's Administration reformed specific laws creating the National Hydrocarbons Commission ("CNH"), a much-needed regulator in the industry, and giving Pemex greater budgetary authority and a different corporate structure [8]. Also, Pemex was allowed to tender and execute a form of long-term risk-services agreements with private companies, where Pemex would make payments to the contractors according to performance. Such services agreements known as Integrated Exploration and Production Contracts ("CIEPs") included cost recovery of Capex and payment of a fee per barrel to contractors [9], contingent on Pemex's available cash flow, which resulted problematic. CIEPs were awarded in three different tenders, mainly to service companies, as the contractual-profit scheme did not draw operators.

Finally, in 2013, under President Peña Nieto's Administration, a constitutional reform was approved by Congress, enabling international companies to participate in the O&G sector through service contracts, profit, and production sharing agreements, and license contracts, thereby ending the nationalization of the industry (though not of the ownership of subsoil resources). The constitutional reform was swift, and it counted with the support of the major political parties in the country, following the "Pacto por Mexico" (Pact for Mexico), negotiated right after the election, and signed the day after Peña Nieto was sworn into office. The Pacto por Mexico set the administration's immediate strategic goals for every primary sector of the economy. While currently being accused of corruption, the Pacto por Mexico serves as an excellent example of working together with the political players to get things done, especially in industries as controversial as oil and gas. 

The following year, President Peña Nieto signed into law secondary legislation to the Constitutional Reform, incorporating a new regulatory regime for the energy industry. The reform would become the first (and hopefully not the last) attempt of Mexico to involve private companies in the development and modernization of the sector after more than 70 years of a nationalized industry. 

Involvement of foreign investment was made in a multi-stage process, beginning by allocating to the NOC most of the country's oil reserves, followed by the launching of rapid, attractive, and successful bidding rounds. However, the manner in which such implementation was made will be delivered in part two of this article. 

Takeaways

1. Mexico reformed the framework, incorporated regulators, and adopted international standards in a relatively short period. This strategy was procured carefully by the different governmental bodies and diligently planned at a political level, and it was well-received by investors who showed much interest in participating in the new market. 

African countries looking to exploit their resources should act even more rapidly and diligently to draw international companies' appetite, especially in the post-Covid-19 recovery road. Having a planned strategy for rapid reform is an effective way to attract new capital. Companies do not want to wait for years for opportunities to open. Investors would lose interest and would probably move to other markets that moved swiftly. Such reforms must not only be aligned with political or private interests, but they must connect to the public, who must be able to feel the benefits that the reforms will bring, and not only see it as a political campaign or a ruse by politicians to give money – or even worst, oil reserves - to foreign investors. 

One of the most compelling "counter-reform" arguments of the current Administration in Mexico is that the energy reform did not reach its expected results. It is convincing, as Peña Nieto's Administration might have oversold the short-term benefits of the reform by promising lower electricity and natural gas tariffs, creating several million jobs, and increasing the oil rent, among others, most of which were not met. In fact, since the enactment of the reform, oil output has decreased from 2.5 to 1.6 million bbl/d, making the current government's argument quite convincing for society at large. 

This cannot be allowed to happen while pushing for reform in African countries. Countries should consider implementing adequate communication channels with the public about the industry's benefits to avoid an issue similar to Mexico's. Having a fluid connection and communication between the people, the regulators, and the companies is vital. Oil & gas projects' benefits must not be delivered only in an official address but instead, be fully comprehended and felt. Society must know where the money committed for investment is going, how it replicates in employment and the lowering of gasoline, gas, and electric tariffs, how are profits being spent (or saved), and in particular, the certainty that the money is not just going to the elites or the foreign companies.

2. Prioritizing transparency in the licensing rounds, the resulting contracts' performance, and the allocation of the revenue from the extracted resources, and adopting anti-bribery laws and regulations are primordial to create an optimal investing environment. Especially in countries like Mexico, where inequality, poverty, social difficulties, political turmoil, and corruption scandals are an everyday thing, these matters are of the utmost importance to keep a strong upstream sector.

African countries should strive to connect with the public and avoid passing and implementing "secret" projects or under-the-table deals. The push for transparency needs to be grand. African countries should aim to join and comply in full with the EITI or a similar mechanism to push for transparency, which will also help build a hospitable environment for foreign investors. Efficient communication of the results of licensing rounds, the status of the executed contracts, and benefits resulting therefrom is necessary. This connection to society will also give investors certainty, as a change in public policy would be harder to achieve by incoming administrations if the voters are content with the industry's status.

Laws as the Foreign Corruption Practices Act and the UK Bribery Act, which can be enforced extraterritorially, are great instruments to reduce corruption; however, African countries should also implement local anticorruption regulations in line with international standards to attract foreign investment. Not even the perception of corruption should be welcomed in Africa, as this would (like in Mexico) take the industry several steps back. It is an excellent opportunity for some African countries to implement or improve anticorruption systems in the industry, to serve as examples to other sectors of the economies. 

With a team of energy experts and wealth of experience garnered in advising multi-nationals on over 25 upstream oil and gas investments and over 30 big-ticket midstream investments in 15 countries across Africa, Centurion Law Group is the industry leader on the African continent. We take pride in effortlessly directing and guiding our clients through the vast regulatory uncertainties on the African continent.

Bunyoro Leaders Ought To Focus On Environmental Leadership

By Sandra Atusinguza

With the commercial discoveries of oil and gas in the Albetinegraben, and the ongoing transition from exploration to development phase and a lot of environmental concerns have been observed and multiple yet to be experienced.

The recently concluded elections for parliament shall present Bunyoro parliamentary caucus with a majority of new leaders representing different constituencies, as a way to promote conservation of natural resources in the Albertine region, the new leaders should put efforts to link leadership and the natural environment.

The leaders' much work together with the parliamentary committee on natural resources and other ley players as oil host members of parliament not to ignore the complex era of environmental and social problems such as the ongoing destruction of forests like Bugoma, climate change evident in most flooded fishing landing sites rivers and wetlands, dry spells and massive destruction of other destructed ecosystems. 

We the voters are now demanding for environmental justice through enacting and implementing relevant policies and laws to safeguard the remaining protected or restore the already degraded ecosystems. The next stages in the oil and gas sector have huge negative impacts on the environment hence leaders must prioritize environmental issues to balance development and environment. 

Bunyoro leaders should lobby from stakeholders on models to promote the conservation of natural resources to enable co-existence of communities, wildlife and developments and also adopt strategies to communicate, understand and collaborate on diverse disciplines and traditions to find lasting solutions on problems of the environment. Environmental challenges might be limitless while resources used to meet the challenges are limited; leaders must prioritize environmental demands and needs of the Banyoro and Ugandans.

Sandra Atusinguza, AFIEGO FIELD-OFFICER 

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Prioritize Youths In The Renewable Energy Sector

By Patrick Edema

The government of Uganda has over the past ten years embarked on investing in the energy sector with the aim of increasing access of electricity to Ugandans. The 2019 national budget under the theme “Industrialization for job creation and shared prosperity” largely moored on the long-term goal of transforming the country into a Middle income status through the implementation of the Vision 2040 programme. 

Electricity access remains the key engine for economic development which will be critical if the country is to achieve middle income status by 2040. The path to becoming a middle income nation will bring with it increased demand for energy and the country will need to expand its energy production in order to achieve Goal 7 (affordable and clean energy) and SDG 13 (Climate action).

However, according to Uganda Bureau of Statistics, electricity access still remains low with only 21.6% of the population having access to electricity and 90% of rural communities rely on biomass for their sources of energy liking cooking, lighting and heating.

Therefore, investing in renewable sources will promote the concept of sustainable development, making it part of the educational system, and devoting best educational practices in this area in order to achieve the Uganda’s Agenda and its future objectives with regard to sustainable development.

 It is also critically important that we engage young people in the pursuit of sustainable development and climate action and government should demonstrate its commitment to playing a leading role in the clean energy transition and to adopt a sustainable development model. Working with the Ministry of Education, government can inspire youth to support the action agenda and develop a model of collaboration that can be replicated in countries all over the world.

Youth development is a high priority for Uganda’s visionary leadership and stems from its conviction that when we invest in our youth, we invest in our future. Incorporating renewable energy and sustainable development into different sectors like health and education, this will not only enable us to harness young minds and prepare them to become environmental stewards, but also pique their interest in pursuing careers in the emerging domains.

Therefore, renewable energy is a key solution to climate change and an enabler of universal energy access and it is also a critical contributor to a number of UN’s 2030 SDGs such as Good health and wellbeing, quality education (SDG 4) and sustainable economic growth (SDG 8) among others.

Patrick Edema, is an Environmental Engineer at AFIEGO

South Sudan Pursues Power Sector Revival

By Charné Hundermark

South Sudan is re-directing its focus on power sector development in a bid to dramatically transform its electricity market, which faces a deficit of approximately 170 MW and has led to one of the lowest electricity access rates globally. Through the development of several power generation projects expected to boost installed capacity, along with the implementation of the South Sudan Electricity Master Plan, the country is working to expand distribution systems and increase access to electricity nation-wide.

According to state-owned utility South Sudan Electricity Corporation (SSEC), more than 90% of the population lacks access to the national grid. As a result, an estimated 70% of businesses in the country rely on diesel-powered generators to operate, significantly limiting output. The primary challenge facing the domestic power sector is its lack of quality infrastructure needed for power generation, transmission and distribution.

In conjunction with limited financial resources and technical knowledge, development in the country has been slow and maintenance of existing infrastructure has been weak. That said, financing gaps represent a high-impact opportunity for foreign direct investment, while local capacity limitations provide the opportunity for knowledge and skills transfer. In short, South Sudan is uniquely positioned to attract investors who are looking to build the power sector from the ground up.

Power projects make headway

South Sudan is targeting the rehabilitation of the national grid through infrastructure replacement, grid maintenance and expansion. In November 2019, SSEC began operating the first section of the capital’s distribution network. Through the construction of new 33 kV lines – a replacement of the existing 11 kV lines – and 13,450 prestressed concrete poles, the Power Construction Corporation of China has been instrumental in the development of the grid project, along with a $14.6-million loan from World Development Bank.

“Our plan is to cover everybody in the whole city with grid power,” said Jacob M. Deng, Director of Planning and Projects, SSEC, in an article by IEEE Spectrum. “I hope that Juba will be liberated from this darkness.”

In the same month, South Sudan launched a newly built 100 MW power plant to supply electricity to the capital and surrounding area. Developed by the Ezra Group of Companies, the power plant will be implemented in four phases – 20 MW expected in the first phase, 30 MW in the second phase, 20 MW in the third phase and 30 MW in the fourth phase. Currently in operation, the power plant speaks to the success of private-public partnership models for South Sudan’s electricity sector. Accordingly, the Government is working on the rollout of similar partnerships to bring power to all regional cities.

That said, Deng acknowledges that diesel-fired generation is not a long-term solution for South Sudan. Therefore, the country is turning to renewables to expand power generation capacity. In early-2020, SSEC completed technical evaluations for a 20 MW solar farm and 35 MWh battery storage system planned outside of Juba. Financed by the African Export-Import Bank, the solar farm will offset domestic power deficiencies by providing a sustainable source of clean energy.

Additionally, South Sudan is turning to hydropower developments to expand its electricity market. With a proposed 120 MW hydropower project near Juba, the country is actively looking for investors to aid in the development of hydro resources, as well as has launched a call for consultants to assist in crafting the nation’s renewable energy development program. Clean energy investment will enable the country to reach its target of up to 40 MW of additional power from renewable resources.

Policy-backed progress

South Sudan’s primary energy challenge is its infrastructural deficit. To address this challenge, the Government has initiated the South Sudan Infrastructure Action Plan (IAP) for the development of basic infrastructure that – in conjunction with other policies that prioritize local capacity-building and a skilled labor force – will provide the foundation for industrial growth. By developing infrastructure as a pre-condition for growth and strengthening the environment in which public and private institutions operate, the Government aims to stimulate the national economy as a response to COVID-19 and reduced economic output.

Additionally, the Government of South Sudan has implemented the Juba Power Distribution System Rehabilitation and Expansion Project (PDSRE), an initiative aimed at strengthening the distribution networks in Juba to provide electricity supply from current and future generation facilities. Backed by the South Sudan Development Plan (SSDP) and the IAP, the PDSRE aims to provide reliable electricity access in Juba and prioritizes the development of energy infrastructure across the country. By expanding distribution systems in the capital and increasing access to electricity, the PDSRE is expected to significantly improve quality of life and initiate a process of industrialization.

For Africa's Oil- and Gas-Producing Countries, Negotiating The Current Environment May Require...Negotiation

By NJ Ayuk

In late 2019, as the African oil and gas industry was looking to the future with optimism, Offshore Engineer wrote that the continent was had reason to expect a "more productive 2020." Instead, the unforeseen happened, and the COVID-19 pandemic had a devastating impact on the oil and gas industry in Africa and around the world.

But even at the end of last year, during a fairly strong period for oil and gas, the publication mentioned that "delays and hiccups" were impacting licensing rounds — that is, the processes by which investors can seek oil and gas exploration licenses from the government – and argued that improvements would have to be made going forward.

This is correct. Licensing process improvements were already needed in late 2019, and now that the oil and gas industry is in the survival mode, it's more urgent than ever to streamline licensing.

While the details vary by country, the licensing round process has, in general, become too prone to delays and uncertainty. All too often, exploration and production (E&P) companies have to wait one or two years before the exploration projects they propose are sanctioned. These practices, which help protect the interests of oil-producing nations, made sense when crude sold for $100 a barrel. But they don't make sense now.

After all, conditions are still uncertain. True, crude pricing forecasts for 2021 are cautiously optimistic at the moment, and Goldman Sachs has said Brent oil prices could reach $65 per barrel by this summer, up from the $50-range we're seeing now. But the outlook for Africa's petroleum market remains shaky at best.

And it's not just Africa: The global oil and gas industry continues to feel the negative impacts of the COVID-19 pandemic, which dramatically lowered demand for petroleum products. As a result, oil and gas companies have made dramatic cuts to their capital spending programs, resulting in the postponement and cancellation of numerous exploration and production (E&P) projects around the world.

Under these circumstances, it's up to African oil and gas producers to do everything possible to encourage as much E&P activity as possible, particularly by international oil companies (IOCs). In the long term, of course, African producer states do need to lessen their reliance on oil and gas revenue. But for now, a number of them rely on it for much of their budgets. And as long as they do, they ought to ask for more. They should lobby for knowledge transfers, training, gas monetization programs, and other significant opportunities so that their strategically managed oil and gas operations can create pathways for economic growth and diversification.

I've made a case for the importance of strategic fiscal policies, from revised production sharing contract (PSC) requirements to reduced tax and royalty requirements. Some of my friends in government have strongly criticized me for this and called me a sellout and a whiteboy. I disagree with them and I still love them, but resource nationalism is not the way to go and it is actually dangerous. I truly believe that these changes are necessary to give IOCs an incentive to explore in Africa during the current downturn. But we can't stop there. We need to consider other pain points that discourage foreign operations in Africa and find ways to eliminate those challenges as well.

The licensing round process is one of those challenges. So why not remove this hurdle? Not all countries use licensing rounds; some use direct negotiation to approve exploration and production rights. I believe it's time for more African oil and gas-producing states to choose this route. Negotiating with trusted explorers would help them avoid unnecessary delays and bureaucratic red tape. Making these changes would still allow them to emphasize their own priorities – and it might also make IOCs more likely to keep exploring within their borders.

Licensing Rounds Sound Good In Theory

Generally, during licensing rounds, companies submit bids or grants to issuing governments in hopes of being awarded an exploration license – that is, the right to search for commercially feasible petroleum deposits. In the case of bids, the highest ones get a license. Grant approvals, by contrast, are based on prospective explorers' experience and capabilities. Licenses are awarded for set periods of time, and if commercially viable amounts of oil or gas are discovered, the explorers can negotiate contracts with the government for the right to extract what they find.

The licensing round process does have benefits. For participating countries, it helps make sure interested companies have the necessary financial resources and technical capacity to explore successfully. It ensures that projects are completed in a timely manner. It also helps E&P companies, since the process lays out their rights.

But again, even with their strengths, licensing rounds can create unacceptable hardships for oil companies: Countries tend to take a long time to make their licensing decisions. And when capex budgets have been slashed, waiting one (or even two) years to learn if an exploration project has the green light just won't cut it. In today's economic environment, it just isn't realistic to insist on putting much-needed resources aside on the chance that they'll be needed in a year or two.

And if we're going to be honest with ourselves, we have to admit that we're seeing more and more examples of licensing rounds gone wrong, from extended delays in getting the bidding process started to instances of little to no company participation.

Licensing Rounds Yielding Disappointing Results

Consider Algeria, where oil and gas production rates were already declining in 2019, before the pandemic, largely because of repeated project delays caused by, among other challenges, slow government approval. During four licensing rounds, Algeria saw minimal interest from investors.

Nigeria, too, is known for the less than speedy pace at which it sanctions exploration projects. Even before COVID-19, its slow movement on this front contributed to a decline in oil production over a 10-year period.

And in 2019, as I mentioned, there were licensing round mishaps in multiple countries. "Some rounds, for example, Ghana's First Licensing Round, have seen limited successes, while others have suffered delays or suspension," GlobalData Upstream Oil & Gas Analyst Toya Latham told Offshore Magazine. "Gabon's 12th Licensing Round and Somalia's First Offshore Licensing Round have been extended in 2020 (in part due to delays in enacting pivotal legislation), whilst Madagascar's long overdue licensing round has been suspended."

And we saw licensing rounds go wrong before that. In early 2018, for example, only one company responded to Cameroon's licensing round, in which eight blocks had been available. Think about it, just one and the bureaucrats still think all is right. These issues haven't been limited to Africa, by the way. In 2017, only one bidder responded to an opportunity to explore five offshore blocks in Lebanon. Brazil had a couple of licensing rounds fizzle in late 2019: the Transfer of Rights Surplus Round, which only brought in two bids, and the Sixth Production-Sharing Bid Round, which only attracted one bid.

We Must Consider Investors' Perspectives

Fast forward to the oil and gas industry of 2021. In today's reality, delayed licensing round starts and long waits for decisions are more likely than ever to dim companies' interest. These challenges aren't trivial, since operating in Africa already represents significant risks and expenses for IOCs. Companies must, for example, factor in the possibilities of security concerns and lapses in infrastructure along with the risks that come with every exploration project, including the failure to find commercially viable petroleum stores. Then there are the additional expenses of operating overseas, complying with local content policies, supply costs, and a myriad of taxes and fees, among others.

I'll be the first to trumpet the opportunities for IOCs in Africa, from our vast stores of oil and gas to large swaths of unexplored territory. But we have to be realistic about how businesses work. Companies need to be able to make a reasonable profit in order to justify their outlays. And when the oil and gas industry is in the midst of a downturn, as it is now, excessive risks and expenses are the last things IOCs can consider. So we have to work with IOCs and do what we can to help them profit in order to convince them to choose African sites over other options.

Direct Negotiations Could Be a Win-Win

That's why I think a transition from licensing rounds to direct negotiations makes sense for African countries. For one thing, negotiation periods would not be tied to rigid opening and closing schedules as licensing rounds are, minimizing the risk of unreasonably long waits for a decision. Even better, direct negotiations would allow E&P companies to work with countries to discuss, and possibly adjust, the major terms of their production contracts.

With that kind of flexibility, companies with concerns about a country — whether they have questions about tax laws or local content requirements — might be willing to pursue exploration opportunities that they would have turned down, had they been required to participate in the bidding process.

We Can Make This Work

True, even with a different licensing scheme, African countries will have other unique risk factors to address – factors that could make IOCs hesitant to invest in Africa. High on that list are concerns about corruption. That's why the African Energy Chamber pushes so strongly for meaningful transparency measures.

And again, we can't overemphasize the importance of creating fiscal regimes more favorable to IOCs. Those measures should include, along with fairer tax and royalty requirements, the creation of natural gas-specific production-sharing contracts, rather than relying on crude oil PSCs as a one-size-fits-all template. A lot of countries have a difficult time working with companies to get to FID on natural gas discoveries. Not only will gas PSCs help make it easier for companies to conduct profitable gas projects, they also could help prevent problems and lengthy negotiations when explorers find gas, rather than crude.

IOCs are, and can continue to be, invaluable allies to African nations. Their E&P activities contribute revenue that many oil and gas-producing countries rely on now, but we also can work with them to foster economic growth and diversification for tomorrow. African countries need IOCs to create job and business opportunities today, but we also can work with them to achieve capacity building and technological know-how that will pave the way for a better future. It only makes sense to do everything possible to give explorers the certainty, predictability, and incentives they need to be competitive in Africa.

Rajiv Ruparelia Writes To Cabinet With Post-Covid19 Economic Recovery Proposes

Uganda, make all countries in the world is pondering on which are best policies it can deploy to recovery from the traumatic coronavirus (COVID19) pandemic. As a government, this a giant job to do; it has to listen to proposes from experienced people including those in the private sector.

In this open letter to the cabinet of Uganda, businessman Rajiv Ruparelia, proposes that legalizing medical marijuana and opening up the externalization of labour business will drive economic recovery and create jobs for Ugandans on top of expanding the tax base. Bellow is the letter.

On January 2nd I turned 31 years of age.

Since I started actively running the Ruparelia Group- conglomerates of 28 companies, I usually use my birthday, which is just about the start of the New Year to reflect on business opportunities for the group in tandem with the opportunities in the country and beyond.

I have lived in Kampala for the greatest part of my adult life and I have seen this city emerge from a mere city of seven hills to now several hills and counting. Contrary to a lot of the negativity you see on social media, the reality on the ground is that Uganda is growing.

Matter of fact, Ugandans today, live longer than they used to Uganda’s life expectancy has grown from 48 years in 1986 to 63.3 years today, thanks to government investments in several healthcare projects such construction of hospitals, immunization Programmes, malaria roll back programmes as well a sexual health projects.  

It is also a fact that Uganda has been growing- at a sustained average of 6% for nearly 20 years. It is also fact that today; Ugandans are healthier and are more educated. Naturally, with healthier and more educated population, the next question becomes jobs. Speaking about jobs creation, I must first applaud government’s investment into creating an enabling climate.

First, as the private sector, we acknowledge the significant investments in creating stable and reliable electricity. Generation has grown from 404.4 MW in 2000 to 1268.9 MW as of October 2020. By mid-2021, this is expected to rise to 1,868.9 MW.

We also recognize government’s investment in roads―the total paved roads network as a percentage of total national roads has more than doubled from 8% (1,000km) in 1986 to 21.1% (5,500km) in 2019. I also do understand, from various government papers that about 18 roads, totaling to 1,375km are currently being tarmacked, while the tarmacking of 17 roads (825.3km) is under procurement and should start by 2022. Twenty-two (22) other roads, totaling up to 2,921.2km are lined up for tarmacking, starting in 2021.  

Uganda Airlines has been revamped and we know that the 1,724km Standard Gauge Railway (SGR), starting with the 273km Malaba-Kampala route as well as the 45km Greater Kampala Metropolitan Area Light Rail Train System (GKMA LRT) are all on course.

We also know about the various reforms and the digitalization happening within various government agencies, such as Lands, Kampala Capital City Authority (KCCA), Uganda Registration Services Bureau (URSB) and Uganda Revenue Authority (URA) that have all contributed to make doing business in Uganda, easier, cheaper and more efficient.

For example, it is now possible to register a business in less than 48 hours and an importer/exporter in Kampala now only needs between 3-4 days to move cargo to and from Mombasa. Previously, this used to take forever.

With these government efforts and several other efforts by the private sector, Uganda is surely a much, much better country than it was, when I was born in 1990.

As night follows day, when you have increased life expectancy, coupled with higher education levels, you should expect that the demand for jobs will grow. And in Uganda where our population growth rates are rather too high, it is more likely the job seekers will outnumber the available jobs- in public, private and civil society jobs.

Now is the time to think out of the box I do appreciate that government, under its “industrialization for jobs policy” has so far put up nine (9) industrial parks and plans a a further 25 industrial parks and four regional science and technology industrial parks.

I also know that there are several initiatives by government to attract FDI into the country and therefore jobs, but given the rate and which the demand for jobs is growing- it is about time we also seriously started thinking outside the box.

This is especially in light of the extra challenges posed by Covid-19 which has disrupted several value chains and depressed local, regional and global demand. Thank God, there is a vaccine in sight. If all goes well, Uganda should start getting its doses towards the end of this half, a much-needed effort in the post-Covid-19 recovery.

Like we have seen in many post-crisis recovery plans, there is always a lot of emphasis and sometimes over-emphasis on business-as-usual. Hardly do policy and decision makers ever consider new ways of doing things. Sooner or later we relapse into our old ways, often prolonging misery and suffering especially in the private sector.

For example, even before Covid-19 there are some sectors that were doing already well, with minimal government investment, except regulation, such as the externalization of Labour. According to the Uganda Association of External Recruitment Agencies (UAERA) there are more than 165,000 Ugandans- growing at an average rate of 5,000 monthly, in the Middle East with annual remittances of more than USD700 million (UGX2.8 trillion.) This is just about 50% of the estimated USD1.4 billion in total remittances by all Ugandans abroad.

The sector also directly employs more than 4,000 Ugandans locally and also pays another UGX25 billion annually to service providers and government agencies for services such as passports, Interpol charges, bank charges, vaccination, COV1D-19 PCR certificate fee etc.

Put together, this sector fetches almost twice more than Uganda’s coffee export earnings. This is before adding other benefits such as the skills, exposure and training brought back by returning workers.  

What if post-Covid-19 recovery policy makers put an effort in enhancing this sector so that Uganda’s earning from workers abroad can match that of Kenya- that according to a recent World Bank report reached USD2.3 billion in 2020 and is expected to reach USD2.9 billion in 2021?

Some other countries like Nigeria expect their remittances to reach USD21.7 Billion in 2020 and Ghana (USD$3.2 billion) and Senegal USD2.3 billion. Another emerging multibillion opportunity- Medical Marijuana is emerging and all signs are that if we don’t move first, we could easily miss out on the first mover advantage.

Last October, Rwanda approved the regulatory guidelines on the cultivation, processing and export of high-value therapeutic medical marijuana. While I do not want to compare Uganda with any other country it is a market reality that most times, the early bird catches the worm- and this time we are talking about a global market that is expected to reach between USD40 billion and USD45 billion by 2025.

Uganda still has a chance to move fast and make the necessary regulatory approvals. I wish to reiterate that if there is anything, I have learnt from Covid-19, then it is the danger of relying on the same sets of traditional sources of income.

Uganda is ready for take-off and the next game-changer will be how fast we can create more jobs than the available demand and truth be said, not all of those jobs will be resident here in Uganda.

 

Rajiv Ruparelia is the Managing Director of Ruparelia Group of companies

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