After experiencing numerous setbacks such as tax disputes, local content regulations, and environment-related protests, the Ugandan oil and gas project has finally started in full swing. The Association of service providers in the sector has shifted its focus from non-involvement in the sector to the implementation of awarded contracts.
Thanks to the efforts of the government, service providers can no longer complain about a lack of participation. Two years into the project, most service providers now have a better understanding of its demands and the challenges of project management and implementation. The reality of the oil sector has proven to be different from what was initially expected.
As service providers transitioned from chasing tenders to winning them, they began to face the harsh realities of their involvement. However, it is worth mentioning that most local service providers have performed well, overcoming obstacles, and delivering within specifications and timelines. This disproves the notion that local companies lack capacity.
That being said, there have been issues along the way. One major concern is the late payment of invoices. 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 own suppliers and leading to defaults on loans. This not only affects the contractors themselves but also creates a negative impression within the banking network and hinders the sector’s growth. If this situation continues, local content will suffer, leading to foreign companies dominating the industry and capital flight from Uganda.
Another issue is the small percentage of advance payment provided to contractors. Contractors are expected to complete projects without receiving full payment upfront and must wait for 45 days before being paid. This has put some companies in a challenging position, especially those with limited experience in the sector. The lack of advance payment also makes it difficult for contractors to secure financing from banks.
These challenges are not only affecting contractors but also impacting the banking sector. Banks have to reserve funds for these unpaid loans, limiting their capacity to provide new facilities in other sectors. The lack of working capital for contractors has also resulted in employee layoffs, reversing the progress made in youth employment. In summary, late invoice payments have far-reaching implications for both the oil and gas sector and the entire economy.
As an association, we urge Petroleum Authority of Uganda, as the regulator and the International Oil Companies to address these issues promptly. Our hope is that these challenges are resolved so that we can realize the vision of a strong economy driven by Ugandans.
By Dennis Kamurasi, the Vice Chairman, Association of Uganda Oil and Gas Service Providers (AUGOS)