Watch out, Ugandans, Tullow stake sale to Total is stinking

Following announcement by Total to acquire Tullow’s 33.33 per cent stake in the Lake Albert oil project at $575m, of this, $500m is expected to be paid immediately after the sale is acquiesced to by government, Tullow’s shareholders and other parties.

The $75m balance will be paid after the Final Investment Decision (FDI) has been made. When companies sell their oil and gas assets before production has even begun, they may turn a profit long before the host country can collect the tax revenues typically associated with production.

The prospect of an immediate upside for industry with uncertain or delayed benefit for countries has sparked a debate over capital gain taxes.

“Tullow is also expected to earn “conditional payments linked to production and oil price, which will be triggered when crude oil prices are above $62/bbl,” reads a statement released by Total.

Uganda is expected to earn $14.6m in tax from the sale. This is $152.4m less than the capital gains tax of $167m that Uganda Revenue Authority (URA) had assessed on the sale of 21.57 per cent of Tullow’s stake to Total and CNOOC in 2019.

While Tullow may profit on future conditions if more payments are made, it will be extremely difficult for government to collect taxes on the unknown. I think, the companies are conniving against the government.

If we recall, when Tullow disagreed with government on the issue of $167m taxes, Total suspended operations without even warning government. At the time, Tullow was willing to pay $80m but government rejected it.

Now, the same government has accepted $14m. Originally, government rejected that arrangement of the buyer paying on behalf of the seller. Why would Total pay a capital gains tax (CGT)? What has it gained? It’s Tullow that sold and it’s the one to pay a CGT.

The deal is bad for government and good for Total and Tullow. The transaction is tricky. When Tullow was selling 21 per cent, Total and CNOOC were ready to pay $900m and URA assessed a tax of around $167m.

Now, Tullow has sold 33 per cent, more than 21 per cent that was originally on sale. So Total has paid Tullow $576m on condition that more payments will be made when FDI is reached and crude prices hit $62, and government has accepted these funny deals?

It’s clear; Total is taking advantage of government’s desperation to commence exploitation. It’s difficult to understand why government is approving such bad deals at a time crude oil prices are at almost zero yet no poor country can benefit from any oil deals during this chaotic time. It also shows that Total is now in control and are willing to create a monopoly on Uganda’s oil, proceed with FDI and start pipeline, at a time when there are no mitigation plans, affected communities are not compensated, among others.

In the end, Ugandans are the biggest losers. I think the government and oil companies opted to complete their deals during this Covid-19 chaos to avoid close public scrutiny. The government must reject the unfair sale of Tullow’s assets in the Lake Albert oil project to Total.

It should also ensure that all further planned oil sector transactions are open for public scrutiny. Further, Parliament should use its oversight powers to compel the Ministry of Energy and all the relevant officials who are party to the Tullow-Total sale to stop the sale and all other energy transactions that aren’t urgent until the Covid-19 is defeated and citizens can demand for accountability, and existing court cases against government and Total regarding oil projects, are concluded.

Mr Kabaale is the Extractives Programmes Officer at the Africa Institute for Energy Governance