Uganda oil firms ready to resume operations, seek fresh talks over tax row
Sunday October 06 2019
Tullow Oil workers at a rig in Buliisa in Uganda. Ugandan oil companies have caved in to pressure and proposed fresh dialogue to resolve the current standoff with the government. PHOTO | AFP
Ugandan oil companies have caved in to pressure and proposed fresh dialogue to resolve the current standoff with the government, a month after suspending all technical activities in Uganda’s budding oil and gas sector.
The companies, which abandoned oil infrastructure projects following tax payment disagreements with the Uganda Revenue Authority, now say they are keen to resume operations.
DISAGREEMENT
British multinational Tullow and French oil major Total and China National Offshore Oil Company (CNOOC), the joint venture partners in Uganda’s oil development, are expected to present their new position which will form a basis to start fresh negotiations.
“The idea is that we need to have continued communication with the authorities to understand each other. We respect the frustrations of government and we believe they can imagine our situation. We have spent a lot of money already, $3.2 billion jointly with our partners,” Total E & P general manager in Uganda, Pierre Jessua, told The EastAfrican last week in an exclusive interview.
President Yoweri Museveni has openly criticised the oil multinationals, accusing them of coming up with new demands even after the government had invested billions and changed laws to accommodate them.
“We are all working in good faith to find a solution and I am optimistic we will be able to,” added Mr Jessua.
The East African Crude Oil Pipeline project leader, Total E&P, halted all technical activities related to the establishment of an export pipeline and upstream operations at Tilenga in September following the unsuccessful sale of Tullow Oil’s 21.57 shares. Total said it could not continue to spend money on technical teams when there was no clarity on the way forward.
On August 29, Tullow announced it had terminated the sale and purchase agreement when Total, Tullow, CNOOC and the government failed to reach an agreement over payment of capital gains tax. Concluding tax negotiations was a pre-condition to concluding the Sale and purchase agreements. The suspension came at a time when negotiations on the building of the EACOP had reached advanced stages. In addition, the Tilenga project had been pronounced technically ready for oil production.
“It is premature to say we could do this or that. We have the Tullow deal terminated it means we are back into a shareholder configuration where each of us owns 33.3 per cent. The deal is now in the past so, we need to sit together first as joint venture partners and discuss next steps before we speculate because anything can happen,” said Mr Jessua.
INVESTMENTS
The sale of shares was expected to give Tullow cash it needs to invest in other projects outside Uganda and reduce its current debt burden. According to Tullow’s Annual Reports and Accounts 2018, the company is indebted to a tune of $3.1billion.
Total says it remains open to exercising its pre-emptive rights should Tullow find an alternative buyer.
“Total’s interest will therefore remain at 33.3 per cent on blocks EA1, EA2 and EA3 prior to the 15 per cent national company back-in, Total being operator of the block EA1 which contains the largest part of the reserves. Total keeps the right to pre-empt any future transactions, in case any party divests part or all of its interest,” said Totals President Exploration & Production Arnaud Breuillac in a statement issued in September.
Also frustrated are the industry service providers who have been making financial investments in preparation for taking up job opportunities that come with oil production. Like the companies, they are calling for fresh dialogue.
“We were at the end of the game and now Tullow’s money is tied up and other people have invested their monies, where does it leave us? The real position is to engage more strategically. The Best approach is between Tullow and Uganda,” said Shem Byakutaga, oil and gas legal expert at Lantern Consult International who has also invested in preparation of oil production.
Tullow announced that it had signed a sale purchase agreement on January 1, 2017 to transfer 21.57 per cent of its 33.3 per cent stake in the JVP. The shares were valued at $900 million.
The arrangement was that Tullow would take part of the money in cash amounting to $200 million, while the balance would be re-invested in the upstream and midstream projects where Tullow holds the remaining 11.73 percent.
How much was due to URA in tax from the amount Tullow was to receive in cash was contested but a dialogue resolved it. What is now contentious is the tax on $617 million of Tullow’s past cost.