The tendering for Uganda’s 60,000 barrels-per-day refinery project has been pushed to January 15, two months after the expiry of the deadline for submission of bids.

The winning bidder was expected to be announced in October, but the Energy Ministry only issued the Request for Final Offer (RFFO), to the SK Group-led consortium of South Korea and the RT Global Resources-led consortium of Russia in mid-December.

The RFFO requires the companies to submit refined technical, financial and commercial and legal offers. These entail documenting technical concept design of the refinery, project implementation plans and national content policy and identifying project management teams.

It also details the firm’s financial and long-term business plans and reviews the terms of the different project agreements proposed by the government. The companies have till January 15 to submit these documents, but they too have made demands.

“During the negotiations, the bidders requested an incentive package and this required additional time for consultations with other line ministries and government agencies,” said Energy Permanent Secretary Kabagambe-Kaliisa.

READ: Uganda delays refinery bid winner announcement till February

Tax incentives

Robert Kassande, the refinery commissioner, said the investors are asking for tax incentives because, according to them, the current tax regime is not favourable for such long-term and capital-intensive projects. Mr Kassande said the extension of the tendering time frame is unlikely to affect the 2018 deadline for the completion of the project, whose launch is expected to coincide with the start of oil production.

The government has so far issued one production licence for the King Fisher field that is operated by China Offshore Oil Company, but jointly owned with Total E&P and Tullow Oil in equal shares of 33.3 per cent. More than 10 field development plans are still being studied by the government.

This is not the first time investors in the mineral sector are asking for tax exemptions. The Uganda Chamber of Mines and Petroleum (UCMP), an umbrella body of the mining investors, held meetings with government officials to seek tax exemptions, arguing that exploration is capital-intensive and no profits are made at that stage.

“The industry is happy to pay taxes when they are in production, but not when they are still investigating whether we have the resources,” said UCMP chairman Elly Karuhanga.

The oil companies want exemption until oil production begins, but the government says the production sharing agreement (PSAs) that the two parties signed provides for payment of taxes. “The principle of PSA is that the investors invest and when the production begins, the government takes royalty and the profit oil margin is shared between the government and the investors.

The share of capital, royalties and income tax globally raises the taxation rate, which is far above the general taxation regime,” said Total’s general manager Francois Rafin.

The oil companies are uncomfortable with the value added tax, arguing that it amounts to taxing investments before they start earning profits.

The Finance Ministry has maintained it is not taxing mining operations, but services that are procured by the companies. The argument is that the service providers earn income, which is subject to taxation.

“We are looking to exempt you from VAT on the inputs for the production process and, by implication, we do not allow you to write it off the system, because it remains a hidden cost in the activities you are undertaking. So, to minimise the impact, we allow you to pay and claim the VAT within 45 days,” Lawrence Kiiza, director for economic affairs in the ministry told the oil firms.