Uganda’s Billion Dollar Oil & Gas Industry: Exclusive Interview with Ernest Rubondo

By Barrel Reporters

On Wednesday, 7 th August, 2024 Barrel Reporters paid a visit to Ernest Rubondo, the Executive Director of the Petroleum Authority of Uganda (PAU), at Petroleum House, 21-29 Johnston Road in Entebbe. We arrived early at the headquarters, for the interview, and were warmly welcomed by their Corporate Affairs Officer, Yusuf Masaba. After taking the lift to the fourth floor, we were ushered into the reception where we sank into plush, leather sofas and were served refreshments as we waited. We finally met Rubondo, who was smartly outfitted in a tailored, navy suit and matching tie, a white shirt and dark shoes. His spacious office befits his status as the head of the Authority; for its huge glass windows overlook Lake Victoria, the office furniture is high-end and behind his desk, on two wooden stands, are the flags of Uganda and the East African Community. After the interview, Rubondo graciously offered us lunch in their cafeteria, which we happily accepted. You can watch the filmed interview on our website www.barrelmagazine.com or on our X (formerly Twitter) account @BarrelMagazine.

B: Thank you for having us, Mr. Rubondo. What role does PAU play in the development of Uganda’s oil and gas sector?

R: PAU is one of the major institutions that are taking the country’s oil and gas sector forward. It’s established by law, following a recommendation of the National Oil and Gas Policy for Uganda, 2008. The oil and gas sector in Uganda is implemented along regulatory best practise, which requires that you separate policy, regulation and business. In Uganda, MEMD handles policy and licensing, PAU handles regulation, while UNOC handles business. The role of PAU is really to regulate the country’s oil and gas sector, meaning we ensure or check that the companies, which are licensed in the sector with the contractors and subcontractors, are undertaking their work in accordance with the country’s laws and that they are following the agreements they signed with the country, in terms of delivering. We are also required to ensure that the work that is done in Uganda’s oil and gas sector is in line with international best practise. If there is a good practise out there that has not yet found its way into Uganda’s framework, PAU is required to ensure that the companies we are regulating implement that best practise. We work along five major avenues. One of them is resource management, resource management means the management of oil and gas; we need to ensure that the country knows where the oil and gas is, how much it is, and ensure that it is optimally produced. The second aspect is cost management, the Authority regulates to ensure that costs are managed well, no inflation, because the costs that these companies are spending, in doing this work now, will be recovered when oil production starts, so it’s important that at the time of recovery of this money only the optimum amounts, or the amounts that were spent properly are recovered. The third area is data management. If you don’t have your data, or you don’t know where it is, or you haven’t managed it well, you don’t have the oil, because your data is the information you have about the oil. The Authority is also responsible for ensuring that data received, from all the people that are working in the industry, is properly archived and made available for the people who need to use it. The fourth aspect is to regulate the environment, health and safety aspects of the oil and gas sector and we work with the National Environment Management Authority (NEMA) to regulate the environmental aspects of the sector. The fifth one is the regulation of the participation of Ugandans in the oil and gas sector. Here, the objective is to ensure that Ugandans and Ugandan enterprises participate optimally in Uganda’s oil and gas sector and developments.

B: What role does PAU play to ensure value retention in the oil and gas sector?

R: The participation of Ugandans, in the oil and gas sector, is one of the avenues of achieving value in the sector. The avenue that most people know is getting revenue, when you sell the crude oil, and the country has already set policies on how the revenue will be used, so that will bring value along that direction. Of course, you get value from using oil and gas resources. If you use gas to provide Liquefied Petroleum Gas (LPG), then it is used by people as an energy source that means you have created value out of the resources. The participation of Ugandans does not wait for the production of oil for it to be achieved, you can start getting value out of the participation of Ugandans even before oil is produced. In this regard, value comes from the opportunities for skills development, the oil and gas sector is giving a lot of opportunities to build skills of Ugandans in technical, vocational and professional aspects. If you visit the field, or Uganda National Oil Company (UNOC) offices, or PAU offices, you find a lot of Ugandan professionals in the oil and gas sector. Over ten thousand (10,000) Ugandans have had their capacity built in vocational skills, like heavy goods vehicle driving, welding, plumbing and electricity—built to such a level that they are certified. Previously, they were many vocational people who were trained, but their training was not certified; because they aspire to work in the oil and gas sector, they have to be certified. The skills development has enabled tens of thousands of Ugandans to acquire skills, which they deploy in the oil and gas sector and in other aspects. Secondly, building the capacity of enterprises, enterprise development. The Ugandan enterprises that are providing goods and services in the oil and gas sector have had to upskill themselves, because the oil and gas industry is a high-quality industry. A Ugandan supplier must be able to supply high-quality goods and services and the processes need to be uplifted. Aspects like environment, health and safety become important in your work. So the Ugandan companies, which are in the hundreds, actually approaching thousands, which are providing goods and services in the oil and gas sector have built their enterprises into better enterprises and they can compete much better now internationally. Thirdly, the enterprises that are participating have been able to provide goods and services and earn money, a source of income. Once these enterprises earn money, they improve their lives and their businesses. The amount of money that Ugandan companies have gotten out of the industry so far is approaching two billion United States dollars (US$2bn)! US$2bn is a lot of money! That is more than the entire cost of Karuma Dam! The participation of Ugandans in the oil and gas sector, so far, is like Ugandans building the Karuma Dam alone without a foreigner. This is a significant achievement. The fourth aspect is technology transfer. This is mainly being achieved through joint ventures. Ugandan enterprises are partnering with foreign enterprises that have technology. As they work together, to deliver a good or service in the sector, it rubs off on these Ugandan enterprises, when they participate in the technology these international companies are using.

The law requires that all contracts that are given in the oil and gas industry are authorised by PAU. So far, PAU has approved contracts close to eight billion dollars (US$8bn) in the oil industry. PAU also tracks the participation of Ugandan enterprises, in the implementation of these contracts. In the contracts that we have approved, we have seen close to US$2bn, about one point eight billion dollars (US$1.8bn), going to Ugandan companies. It’s not going to four companies, where each one got hundreds of millions, this is an accumulation of all the money that has gone to all Ugandan enterprises, starting with the small ones, which earn maybe tens of thousands of dollars, to the big ones that earn hundreds of millions of dollars! We’ve seen some Ugandan companies that have contracts that go into over one hundred million dollars (US$100,000,000)! There are others, which are ten thousand dollars (US$10,000) or one hundred thousand dollars (US$100,000) and so on. The companies we have followed (and there are many new companies which have come in since the sector is growing) we have seen companies grow from small projects to big projects and that represents significant growth for these Ugandan companies. This value is coming before the production of oil. The sentiments of most people is that value comes when you start producing oil, but the country’s oil and gas sector has been organised in such a manner that the country benefits from the oil and gas activities even before production starts.

The facilities that have been set up, to provide goods and services in the country, also represent value addition. I’ll give you an example of the waste management facilities. Currently, there are four waste management facilities of international repute that have been developed in the country, as a result of the oil and gas sector. These are two facilities by the Uganda People’s Defence Force (UPDF) company, National Enterprise Corporation (NEC), there is one in Nakasongola and one is in Kikuube District; there’s EnviroServ in Hoima District and another one by White Nile also in Hoima District. Now, these four facilities have come as a result of the oil and gas sector. In the past, the country didn’t have facilities like this. Two of these facilities, by NEC and EnviroServ, have very high-quality technology called Thermal Desorption Units (TDUs). These TDUs represent the highest quality of waste management components in a waste management facility, this is international standard. These waste management facilities also provide waste management for other sectors of the economy. Some of them have even started handling waste from outside Uganda.

B: Can you elaborate on the environment and the safety measures that the Authority is regulating, in order to mitigate the impact of the oil and gas activities?

R: First of all, a lot of the oil and gas activities in Uganda are being undertaken in areas of pristine environment. Therefore, all the players have to operate in a manner that does not lead to the degeneration of the environment, but actually contributes to its improvement. Fortunately, that is what is happening. Mainly because when the oil and gas sector started in Uganda, the regulatory framework for the environment was in place. So all the activities in the oil and gas sector, starting with the barrel pits, from where they collect murrum, are undertaken in accordance with the Environmental and Social Impact Assessment (ESIA) that have been done and approved by NEMA, to ensure no activity undermines the environment. PAU, in its monitoring and regulation, is also required to follow-up in liaison with NEMA. All the activities that are being undertaken are ESIA-approved. While the work is being done, the companies are being audited on a regular basis, to ensure they are following the ESIA commitments they made, especially the mitigation measures that were approved in the ESIA. The work is not to just to ensure the environment is not destroyed, but also to improve the environment. For instance, in areas where there is wildlife, the oil industry is working with the Uganda Wildlife Authority (UWA) to ensure they improve their understanding of the wildlife in the different game parks, by tracking the animals, following their paths and checking whether or not the oil activities are affecting the animals. This is bringing on board a lot of information that was initially not in place. A lot of studies are being done, to understand the environment and biodiversity better. Most importantly, PAU regulates to ensure that we keep the environment, investments and people safe.

B: As a key participant in the negotiation of the Production Sharing Agreements (PSAs), what factors were considered when structuring these agreements for the oil companies, to maximise value for Uganda?

R: The role of negotiating agreements is in the hands of the Ministry of Energy and Mineral Development (MEMD). I previously worked in MEMD, where I participated in licensing and negotiating agreements. The agreements that Uganda has with the oil companies that are licenced are PSAs. These PSAs provide where the investor invests the money, to confirm the volumes of oil, to prepare how the oil is going to be produced and eventually produce the oil. Once the oil is produced, the country gets a royalty because it is the resource owner; the company recovers costs, after taking off cost recovery. Cost recovery is not on everything remaining, it’s on a percentage, which gives the opportunity to have a remaining amount, which is shared between the government and the companies, so then you have that as a production sharing component. Since the share of the company is a profit to the company, it’s a profit share, the company is required to pay a tax on that share. So the avenues to Uganda include royalty, profit-sharing and taxation. In the future, they will also include the cost, the dividend, because the country now has UNOC that is participating, so when UNOC earns an income, or a dividend, that will also be part of Uganda’s earning. I was part of the negotiations. I will leave it to other people to advise how well the negotiations were done, how good the contracts are. The comments we have received, from other people, is that it was “a good effort.” The agreements for Uganda are good, especially if you bear in mind that they were negotiated at a time when it was not known whether there was commercial oil or not and infrastructure was not in place.

The Extractive Industries Transparency Initiative (EITI) is an organisation that the government decided to join long ago, at the policy level. If you look at the National Oil and Gas Policy for Uganda, 2008, the government committed to be part of EITI. At that time, the country had not yet put its legislation in place. So, Uganda put petroleum laws in place, amended the Public Finance Management Acts, regulations and improved the environment management. Once those laws were put in place, Government of Uganda joined EITI. One of the requirements of EITI is to make the agreements public and the government is working towards that direction. However, it’s important to note that not all agreements of all countries are in the public domain. Since Uganda is a new entrant in this industry, definitely it has had to benchmark and see how other countries are managing oil and gas. Government will make a decision whether or not to publicize the PSAs. It’s important to note that as much as these PSAs are not in libraries now, Parliament of Uganda has these agreements and Members of Parliament, who represent the people, can access the PSAs and make reference to them. The international trend is to have it done and I trust that subsequently Uganda will not be different from those countries.

B: How does PAU monitor the licenced oil companies?

R: When the minister concludes an agreement with a company, usually the agreement has an objective. For example, you are going to do oil exploration, or you are going to develop the oil that has been discovered at this rate and so on and so forth. On an annual basis, PAU sits down with the licensed company, in an Advisory Committee Meeting, and agrees on the scope of work that will be carried out in that year and also how much it will cost. The company proposes the scope of work it will do for one year and how much money it will spend; while PAU engages the company to see if the scope of work can be improved or adjusted. In the end, we agree on the work program for the year. We also agree on how much money each of the activities, in the work programme, are going to cost for the year. Then the company starts implementing the work. While the company is implementing work in the field, PAU staff follow-up the work, on a 24-hour basis, that was agreed to be done in the year. The company sends a report on a daily basis to the Authority, and PAU staff also send field reports so we can confirm, monitor and document the implementation of environment, safety and international best practices. At the end of the year, PAU evaluates the work program. PAU does not check how much money has been spent, because that is the role of the Auditor General. The company will report, “This is the amount of money that we spent.” Then the Auditor General audits to confirm how much money is recoverable and how much money does not qualify for recoverability.

B: What are the prospects of Uganda discovering more oil and gas in the Albertine Graben?

R: The current, ongoing exploration by licensed companies is in the Albertine Graben. The work being done in other areas, outside the Albertine Graben, is promotional work by MEMD, in its licensing role. When you are licensing, it doesn’t mean you sit back and wait for people to come to you and you licence them. Sometimes, you have to undertake activities that publicise information and you attract people. In the Albertine Graben close to 200 wells have been drilled now, fortunately over 85% of these wells are encountering oil, which means that the Albertine Graben is a very prolific area. Prolific means an area that has high potential to find oil. Currently, about 40% of the area has been surveyed, but only between 10%-15% of the area is currently licensed. The area that is not licensed has very good potential to have oil in it. MEMD is holding licensing rounds to attract new players in the Albertine Graben. As a geologist, I am very optimistic that this country can find a lot more oil in the Albertine Graben!

B: Looking ahead, what do you think the future of Uganda’s oil and gas sector will look like and what is its contribution to the development of Uganda?

R: Ugandans are lucky because oil and gas are one of the natural resources that the country has at hand. Oil and gas is not going to be the only resource, oil and gas is one of the things that the country is benefitting from. With the calculations that we have now, we expect that the oil and gas will bring about two billion dollars (US$2bn) annually into the economy. I understand that the amount of money coffee brings into the country now is very high, about the same range. Tourism is also about the same range. So it will be very nice if oil and gas also becomes another pillar in the country’s economy and it is already becoming a pillar even through these activities I have talked about. For example, the amount of oil and gas investment that is happening in the country now is much, much higher than in any other sector. You don’t have to wait for oil production in order to make reference to the prosperity of Uganda. The investment in the oil and gas sector also contributes to prosperity. Government policy is that when the oil and gas revenue comes, it will be used to build durable capacity in infrastructure (roads and dams) and human capacity (education and health). In the areas where oil and gas activities are being undertaken, there is significant improvement in prosperity. Government has built very high-quality roads in the Albertine Graben, people in the area are being employed and are providing goods and services. The arrival of oil and gas revenue will be a continuation of the prosperity that is being contributed to by oil and gas in the country.

B: Finally, when can we expect First Oil?

R: First Oil is expected at the end of 2025. A lot of activities are happening and everybody is working towards achieving that timeline (deadline). The bottom line is that all of us are working very hard to try and achieve it. Personally, I think oil and gas being produced in the country is not a matter of if, but when. The industry is investing a lot of money, so if anyone is doubtful that oil will be produced, they can ask the people who are investing a lot of money. Certainly, you only put your money where your mouth is! Oil will definitely be produced in Uganda. It’s important that it’s produced properly, without destroying other sectors of the economy, because there are countries where the rushed arrival of oil and gas has led to the destruction of other sectors. PAU undertakes linkages—studies that link the oil and gas sector to other sectors in the economy—so the oil and gas sector blends into the country and the economy harmoniously. The harmonious entry of the oil and gas sector into the economy is extremely important. There have been cases where the urge to have early entry of the oil and gas sector contributing to the economy has led to disharmony with the rest of the economy and the results are not good.