Kampala – A year ago, several logistics companies were at risk of closing shop as commercial banks sought to recover their money.
“It has been tough,” is a common phrase you will hear from most of them. Estimates revealed that in 2016 the oil and gas sector players alone had reached Shs70 billion.
It was a disaster for the companies that had lined up to tap further into oil opportunities. Some indeed burnt their fingers. About 1,000 workers were laid-off by the various players in the oil sector, including logistics companies. For the logistics companies, the losses were rather high because they were almost put out of business.
Oil companies had been spending about Shs2 trillion prior to 2013. However, by 2015, these amounts had fallen to about Shs1.2 trillion. About 30 per cent was spent on local content. Of this about 70 per cent was for payment of logistics services. This money dried up as oil companies also cut back on expenditure in 2014 due to a combination of factors.
The first; delayed oil production licences. The second was the low oil price environment at the time that shrunk investment in the oil sector. Since then, logistics companies that had been involved in the oil sector have not recovered. Some of the equipment they had bought was exclusively for the oil sector, making it hard for them to diversify income sources. Now they are braced for yet another phase.

Oil company needs
In August 2016, the Uganda government granted eight production licences to UK-listed Tullow Oil [Uganda] and France’s Total E&P (Uganda) B.V, bringing the long wait and hushed grumbling from industry players to an end. This brought the number of production licences to nine, including CNOOC’s for Kingfisher that was granted in 2013. The projections indicate that between 2018 and the time oil production finally starts, the oil companies will have invested about Shs27 trillion ($8b) on drilling of about 500 wells, construction of associated infrastructure, central processing facilities and several pipelines. This cost excludes the $4b pipeline of which about 40 per cent will be spent in Uganda.
According to Mr Moses Kirimura from Total E&P, the estimates from the various studies they have carried out show they will need about 350 trucks to move materials from either Mombasa or Dar-es-Salaam or Tanga to Albertine region.
“We envisage approximately 350 trucks with specific truckloads per day. For Buliisa, at peak, we expect to have at least 5,000 people working in the field, 1,000 for the Kingfisher and 4,000 for the pipeline,” Mr Kirumira added.
Speaking at the Joint Oil and Gas Convention and Regional Logistics Expo held last week at the Kampala Serena Hotel, Mr Kirumira said the operations will require logistics companies to adhere to specific standards.
“We will have a vehicle vetting process where we will look at the condition, age, purpose, and mileage of the truck. Also, we will look out for the tracking, in order to keep monitoring the movement of the goods. For the light vehicles that transport people – workers – it will be a more stringent process. For the drivers, they will need to have certification in defensive driving,” Mr Kirumira told delegates.
The estimates by the joint venture partners – Total, CNOOC, and Tullow – indicate that about 11.5 million tonnes worth of material will be imported through for at least three years in order to ensure completion of key infrastructure projects for the oil to come out of the ground.
This ambitious plan will require a road network since 90 per cent of all the materials will be moved by road, according to Mr Kirumira. There will be the possibility of delivering material by train too, but this is on a much smaller scale.
The aviation sector will mostly cater for workers on the various projects. Notably, there about 1,500 kilometres between Mombasa and Kampala with some stretches of that road narrow. Transport is a key component in determining costs of operation.

Transport blues
“The key element in a logistics chain is a transportation system, which connects separated activities. Evidence indicates that transportation occupies one-third of the amount in the logistics costs and transportation systems influence the performance of logistics system tremendously,” reads, in part, the speech of Ms Monica Ntege Azuba, the Works and Transport minister at the conference; adding: “The current logistics system still has significant shortcomings regarding its efficiency, safety, and sustainability. These are constraining the country’s economic development and prospects of becoming a logistics hub.”
The broader ambitions of Uganda becoming a logistics hub form part of the need to supply the oil and gas sector.
However, compounded with high licensing fees for their trucks, the logistics companies are braced for the same old exposure of high transport costs. For instance, according to Mr Hussein Kiddedde, the chief executive officer of Graben 4PL, Ugandan logistics companies would rather register their trailers in Kenya than in Uganda because of the cost.
“For every semi-trailer trip from Mombasa to Kampala, a Kenyan registered truck has a $300 (Shs1,080,000) advantage over the Ugandan registered one. The Kenyans have a $150 (Shs540,000) cross-border toll fee advantage and $150 in fuel pricing,” Mr Kiddedde says.
With oil companies expected to make a final investment decision in 2018, the government has less than a year to expand roads. Some of the key roads that require expansion are the Kampala – Hoima Highway, Lira – Kamudini Road and Hoima – Masindi Road, among others. The expected completion of these works, according to the oil companies, should be by the second quarter of 2018.
The oil companies have proposed three routes for the transportation of materials and equipment. For the Mombasa route, it will avoid the high traffic area of Nairobi and Kampala. The Malaba – Jinja – Kampala Highway will be avoided for supplying the oil finds in the Pakwach area and Buliisa. That route will only be used to supply the Kingfisher discoveries in Hoima.

Challenges
Given the government target of having oil out by 2020, this delivery will, in part, be delayed by several logistical challenges.
Mr Mark Pearson, a consultant with TradeMark Africa, told delegates that the logistics companies have no option but to operate in the current environment if the oil is to be delivered on time.
The government flagship project, the Standard Gauge Railway, is yet to be commenced since financing has not yet been secured. The ambition of the government is for the railway to provide a cheaper transport option than the road.
Even of more concern for the logistics companies is that a year from the oil companies commencing construction works, there are no specifications yet on what the companies need.
“The logistics sector doesn’t know the equipment needed for the oil and gas sector. Until they know they can’t start making decisions on what they should invest. Uganda is also suffering on the skills in terms of operations. No matter what your national content law is, if you don’t know what the demand is, you will not be able to supply,” Mr Pearson said.

For locals
The logistics segment is one of the specific areas where the government believes should be left to local companies.
The Petroleum Authority Uganda (PAU) has come up with the National Supplier Database (NSB), which will include local companies seeking to provide logistics services for oil companies.
However, according to Mr Ernest Rubondo, the executive director, PAU, the NSB currently has a lot of foreign companies.
“To date 405 applications have been received. Two hundred and nineteen of which are Ugandan companies and 186 are foreign companies. Verification of the information submitted is going on and the Authority will commence putting out a register of the qualified companies during May 2017,” Mr Rubondo points out.