Uganda has vowed to stand firm in a standoff with foreign oil majors that have stalled the construction of the Uganda–Tanzania crude oil pipeline.
President Yoweri Museveni has said that, although plans are under way for negotiations that will unlock the impasse, the East African nation does not intend to grant more concessions, including tax waivers, to the companies.
“We are in touch with the oil companies and the residual issues will be resolved,” he said in Kampala, the Ugandan capital, recently.
He added that Uganda was determined to negotiate favourbale agreements with the oil companies and was committed to avoiding the mistakes made by other countries that had discovered oil and gas.
“Coming late to production is also good because you find where other people have made mistakes and you benefit . . . by not repeating the same mistakes,” he noted.
Construction of the pipeline has stalled over disputes caused by British firm Tullow Oil’s decision to sell part of its stake in the Lake Albert crude oil development project.
The firm, which owns a 33.33% stake, intended to effect a farm-down to Total E&P and China National Offshore Oil Company (CNOOC) in a deal valued at $900-million.
The deal would have seen Total acquire 21.57% of Tullow’s 33.33% interest, while CNOOC would have exercised its right to pre-empt 50% of the transaction.
As a result, Total and CNOOC would each have increased their interest to 44.1%, while Tullow would have kept 11.8%.
The deal, however, collapsed over a disagreement with the Ugandan government over the amount of capital gains tax related to the transaction that Tullow would have been required to pay.
While Tullow Oil wanted to pay $85-million on the basis that most of the proceeds from the $900-million farm-down would go towards investment in the oil pipeline, the Uganda government demanded $300-million.
“While Tullow’s capital gains tax position had been agreed as per the group’s disclosure, the Ugandan Revenue Authority and the joint venture partners could not agree on the availability of tax relief for the consideration to be paid by Total and CNOOC as buyers,” said Tullow in a statement.
Uganda and Tanzania are jointly developing the 1 443 km evacuation pipeline from the fields in Hoima, western Uganda, to the port city of Tanga.
Uganda boasts 6.5-billion barrels of recoverable crude, with 1.4-billion to 1.7-billion barrels commercially viable.