President Museveni has told off petroleum multinationals pushing for tax waivers as a pre-condition for further development of the country’s oil fields, deepening a standoff that has put on ice the building of a critical export pipeline.
President Museveni is understood, according to highly placed diplomatic sources, to have lashed out at the petroleum companies accusing them of failing to appreciate the many concessions and infrastructural investments that the government has already made to facilitate development of the Hoima oil fields estimated to have 1.7 billion barrels of crude.
He reportedly listed about 17 promises that the government has delivered on, stressing on four major ones including a road network known as the Oil Roads, an international airport still under construction, numerous concessions on taxes and tariffs and a number of legislations to facilitate the exploitation of the oil.
“You asked me for an airport, I went to London and borrowed $350 million. Now you are saying you don’t want to invest even after I delivered the list of things you asked of me,” President Museveni is said to have told the oil multinationals on the side lines of the recent Uganda-Tanzania Business Forum in Dar es Salaam.
British exploration firm Tullow and French multinational Total have threatened to delay the announcement of a Final Investment Decision (FID) after disagreeing with the Uganda Revenue Authority (URA) on the tax payable in a pending sale of stake by Tullow.
Total and the China National Offshore Oil Company (CNOOC) want to buy a stake of the oilfields from Tullow—known as a farm down.
President Museveni’s position marked a sharp contrast to the one taken by Tanzanian President John Pombe Magufuli, who in public comments made while addressing the summit suggested that Ugandan technocrats were misleading President Museveni and urged for a speedy resolution of the dispute.
Uganda and Tanzania are jointly developing the 1,443-kilometre evacuation pipeline known as the East Africa Crude Oil Pipeline (EACOP) from the fields in Hoima, western Uganda, to the port city of Tanga along the Indian Ocean.
Uganda is pushing the oil companies to make a final investment decision without pegging it on tax concessions related to the farm down of Tullow’s 21.6 per cent stake in the Albertine region’s oil fields.
Tullow Oil terminated its sale and purchase agreement, which would have seen Total and CNOOC snap up 21.6 per cent of the UK firm’s stake in the ready-for-production fields.
In a show of solidarity between the oil companies, Tullow Oil’s termination of its farm down was followed by the suspension of activities by Total and CNOOC laying off of some of its employees. This was seen as pressuring the government to relax on its tax demands.
Uganda discovered oil in 2006, but commercialisation has been slow and experts predict a 2023 production date.
The delays, according to analysts and President Magufuli’s public utterances at the summit, could cost Uganda billions of shillings in lost revenue.
However, President Museveni is said to have rubbished the argument that Uganda should sacrifice a share of the capital gains and income tax to make quick money from commercialisation of the oil deposits.
He contrasted Uganda’s situation to several African oil producing countries such as Nigeria, Equatorial Guinea and Angola, which he said are not getting a fair share from their oil resources adding he was ready to fight it out so that Uganda gets more revenues from the black gold.
A committee headed by Permanent Secretary in the Ministry of Energy Robert Kasande has been formed to review the final investment decision, whose signing will be critical in determining whether Uganda can start producing oil by 2023.
For two years now, Tullow Oil has been pushing for a concession to pay 51 per cent of the $167 million capital gains tax that URA wants from the transaction.
Tullow Oil wants to pay $85 million and argues that most of the proceeds of the $900 million farm down will go towards investments in the oil pipeline.
Total agreed to pay 49 per cent of the British firm’s capital gains tax on condition that Uganda waives $185 million in income tax obligations, which are to be paid over 25 years by the oil companies, once Uganda becomes an oil producing nation.
But President Museveni told the oil companies that he will not grant any tax concessions on account of Tullow’s farm down of its 21.6 per cent stake.
He is said to have questioned the reason why the oil companies were pegging the final investment decision on Tullow Oil’s farm down.
He views the tax discussion as a different matter as the oil companies already gave Uganda a list of conditions that would lead to the conclusion of the FID.
“You told me you had money to invest if I fulfilled a list of conditions. I have met those conditions, so why are you not investing?” the president reportedly asked the companies.
He termed the tax waiver demands as new preconditions to signing of the FID.
Mr Kasande said the list of things that need to be done to facilitate the oil companies in the extraction and transportation of oil include building roads in the Albertine region for which Uganda has to raise $1 billion, the airport and a big tax package that includes the waiving of value added tax. He said the issue of tax has already been concluded.
President Museveni also dismissed Tullow Oil’s protests about the capital gains tax. He pointed out that the British firm can afford to spend all the proceeds of the latest farm down, since it has had previous opportunities to repatriate money made out of selling oil fields in Uganda.
Other issues raised at the Dar es Salam meeting included the request by the oil companies to increase the transportation tariff from $12.2 per barrel to at least $15. Mr Kasande said there are on-going discussions that should lead to an agreeable solution for both Uganda and the oil firms.