The Association of Uganda Oil and Gas Service Providers (AUGOS) has issued a warning, emphasizing the challenges faced by Ugandans seeking to supply the oil and gas sector. Dennis Kamurasi, Vice Chairman of AUGOS, cautions that winning a bid is merely the beginning of difficulties, with execution proving to be a formidable task.
Kamurasi highlights the intense competition in the sector, with hundreds of companies vying for contracts, making it a challenge to stand out. He notes that the process goes beyond paperwork and involves strategic pricing to outdo competitors.
Drawing from personal experience, Kamurasi outlines the barriers suppliers face, including the need for significant startup capital, continuous cash flow, and a steady supply of goods. The Vice Chairman emphasizes that successful participation in the sector requires meticulous planning and careful consideration of logistics and financial realities.
Kamurasi reveals that local or inexperienced suppliers may find it beneficial to form partnerships with companies that have prior experience in the sector. He advises humility in accepting manageable contracts, a willingness to learn, and forging strategic partnerships to navigate the complexities of the oil and gas industry.
One of the major impediments identified by Kamurasi is the lack of capital for local suppliers to meet their contractual obligations. He urges the establishment of a local content fund, as promised by the government, to assist local suppliers in securing the necessary capital.
Highlighting challenges faced by suppliers, Kamurasi points out the issue of late invoice payments, with an average payment period of 45 days. He notes that many invoices remain unpaid for over 100 days, causing financial strain on contractors and resulting in defaults on loans.
Additionally, Kamurasi identifies the unusual practice of bid bonds and performance guarantees at the bid submission stage as a significant challenge within the oil and gas sector. He questions the necessity of locking up capital for an unspecified period during the bid submission process.
The AUGOS Vice Chairman’s warnings come amid efforts to address concerns raised during the contracting period for the Tilenga and Kingfisher developments. The association reports that only 23% of the three billion dollars invested during the nine-year preproduction of oil was retained in the country.
