Get the perspective. Since the termination of Tullow’s farm down transaction to Total E&P and CNOOC in August, there has been uncertainty over where Uganda’s oil industry is headed. This of course comes amid the aching reality that the earliest commercial oil can start to flow is 2025 or thereabout. Also of specific concern, has been the seemingly uneasy relationship between government and the oil companies, which climaxed with particularly Total E&P suspending activities related to the oil pipeline and freezing tenders for upstream. Frederic Musisi had a chat with Pierre Jessua, the Total E&P general manager to get his take on the current impasse.
What is next for Total after the collapse of the farm down?
It is important to remember that this was Tullow’s transaction, which started two years and nine months ago. We worked hard as government and joint partners to make it work.
We had extended deadlines six times before, clearly demonstrating our willingness and commitment to come to an agreement. However, on August 29 after realising that not much progress had been made, CNOOC and Total could not extend the deadline any further.
What happens next, we don’t know, the deal belongs to Tullow, but being three shareholders, each with 33.33 per cent, we must come together to discuss the next step.
As a private company, we have to be mindful of the money we spend. We cannot spend more money every year without having visibility of when the Final Investment Decision is going to be taken. So, on the pipeline we could not continue to spend this money more so without a shareholders’ framework. We are in a situation where we cannot progress both in upstream and midstream.
Does it mean we are stopping the project? No. We must sit, first with our partners to discuss amongst ourselves, and then discuss with authorities to define the dates.
However, let us not speculate about the different options that we have not yet discussed within the joint venture partners. But it is important that we discuss first as partners to agree on certain plans before we can say we have one option, or more options.
When are you going to resume talking because the delay is hurting many players?
We have mentioned so many dates in the last seven years, so am extremely prudent not to spell out new dates. Let us work together with the partners and government over the coming months and see what comes out.
You just said that at the moment you can’t continue spending anymore?
We cannot continue to spend more money on the pipeline project without clarity and on the shareholding and funding. For the pipeline, we need to register a shareholding company. Total has spent $325m (about Shs1.1trillion) - and overall the three joint venture partners have jointly spent more than $3.2b (Shs11 trillion), which is a lot of money.
For the pipeline, we need to have a Shareholding Company and for Tilenga we need visibility on moving forward. We have to be careful about these expenditures, and when we start, we need a plan on how to recover all these expenditures as and when production starts.
Government says you are trying to arm-twist them.
We are not arm-twisting government and we are not driven by politics. You must understand that we are driven by business; that we cannot afford to keep spending money without visibility. The Tullow deal - the farm down - was something we all agreed to because such happens a lot in our industry.
I don’t want to blame anyone; when we asked for tax deductibility, we had our rationale and so did Uganda Revenue Authority. However, we should have found a way of dealing with the tax issue, as in any other country.
Are there losers and winners?
There are no winners and losers under such circumstances. We cannot be winners when we are spending a lot of money and yet losing a lot of time.
We have no interest in dragging the project; to the contrary we want to speed up things because we need to recover our investments.
Bottom-line is we need to find solutions together, much as everyone has their own focus and interest. The good thing here is that no one has the luxury to sit and wait.
Suspended: In August, Total E&P suspended all activities on the East African Oil Pipeline after a deal in which Tullow had sought to sell a part of its stake to Total E&P and CNOOC was terminated.
Delayed commercial oil: The suspension has stalled progress on the expected commercial oil production with analysts saying it could lead to a delay in the production of first oil which had been earmarked for 2023.
Renegotiate: Government and joint venture partners have since the suspension of activities on the oil pipeline shown willingness to renegotiate on the way forward.
Where does the problem of tax deductibility arise from; is it that the provisions of the Production Sharing Agreement (PSAs) are in collusion with the Income Tax Act which was amended much later to have a petroleum component?
There are various ways of interpreting this issue. The difficulty without going into the technical discussions arose when URA in the nature of the transaction did not consider the farm-down as an oil transaction.
So they put it outside the PSAs. I don’t want to go into details. The deal collapsed so we will have to go back and have more discussions.
So, in that way what would be the middle ground?
Well, again; I don’t want to discuss what should have been done. This deal is over. However, we must all learn from this experience. As International Oil Companies, we come from a background that also wishes to understand where government is coming from.
There is belief in government that you (Total) are the problem?
Why should we be the problem? We have not invented new conditions to what was set earlier. Everything was voiced and explained with regards to inheriting rights and responsibilities. It is important that we all move together. Together with our partners and with government, we are part of the solution not the problem.