Oil firm hints at progress in talks to resolve tax dispute

The president of China National Offshore Oil Corporation (Cnooc) Uganda Ltd, Mr Zhao Shunqiang, has hinted at progress in the ongoing discussions between the Uganda government and three oil companies to resolve the ongoing tax issues.

Without offering much details, Mr Shunqiang said “it is everyone’s best interest to see first oil soon.”
He was made the remarks yesterday while receiving the environmental certificate for the company’s Kingfisher oil development area in Kikuube and Hoima districts.

A row between government and joint venture partners - Tullow Oil (U) Ltd and Total E&P (U) B.V - ensued last year over tax issues, which has since thrown Uganda’s chances of producing oil in doubt.

Both sides have since gone back to the drawing table and while they are expected to come up with a new position to move forward, the final investment decision (FID) is unlikely this year with the upcoming election season.

FID is an agreement on capital investments on a long term project when money for the project is availed and execution commences. To start oil production, the oil companies have to invest a minimum capital of $10b (Shs36 trillion), of which $6.7b (about Shs24 trillion) is for developing the oil fields—Tilenga fields in Nwoya/Buliisa districts and Kingfisher, and $3.55b (Shs13 trillion) is for the oil pipeline.

The environment certificate for Kingfisher development area issued yesterday is among the several ongoing technical processes to prepare the ground for the upcoming phases of development and commercial oil production.

The certificate, which was issued by the National Environment Management Authority (Nema), indicates that the oil company is prepared to deal with positive and negative impacts of their operations on the environment.

The Kingfisher development area includes various infrastructure to pump oil from the oil field such as well pads, a 4.6km feeder pipeline, a central processing facility where crude oil is separated from impurities, a lake water abstraction station, and other supporting facilities such as camps and a materials yard. Nema executive director Tom Okurut said issuance of the certificate followed a thorough study of all the oil company’s planned activities and mitigation measures to ensure minimal impact on the environment.

“I want to assure the general public that the review process (of the environmental impact assessment) has been comprehensive,” Dr Okurut noted.

“There are conditions to be followed, and we shall continue monitoring the companies’ activities throughout,” he added.
During the review process of the Kingfisher, Nema enlisted assistance of the Netherlands Commission for Environmental Assessment, which in its report stated that while “the [ESIA] report is of fairly good quality, more specific/effective mitigation measures need to be developed/agreed upon to really mitigate the impacts rated as ‘high’ and enable well-informed decision making and a controlled and responsible project.”

Cnooc was awarded the production license for Kingfisher in 2013, and the company has since been undertaking several activities such as engineering designs, environmental studies, and compensation of affected persons.

Background
On August 29 last year, 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 condition to concluding the sale and purchase agreements.

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