Museveni fight with oil firms threatens major project
Kampala, Uganda | HAGGAI MATSIKO | President Yoweri Museveni’s dream of Uganda getting first oil by 2020 has been hit by a double blow from two international oil companies; Total E&P Uganda and Tullow Oil Uganda.
Museveni is battling the two companies on two fronts; with Total over the fate of the US$3.35 billion oil pipeline and with Tullow over Capital Gains Tax (CGT) which Tullow does not allegedly – once again- want to pay.
The two disputes mean that the date of first oil production is once again pushed farther; this time from 2020 to 2025, according to insider estimates.
By that time Museveni will be 81 years old, with an election looming in 2026, and no clear guarantee that he will preside over the first production of Uganda’s oil.
Is that what the oil companies, and their shareholders and backers in western capitals want?
Museveni has gained few friends among the oil companies because of his insistence that Uganda builds an oil refinery in order to benefit from the by-products of the oil production. He has also insisted on a tough Capital Gains Tax regime. Equally significantly, corruption and lethargic decision-making by his government have slowed progress on oil projects.
On the other side, the oil companies want a faster clear cut produce-and-export crude approach, and might opt to wait out Museveni – and deal with his successor.
“Tullow is out and Total is hard-lining because it has the financial muscle to wait out Museveni,” one source familiar with the disputes told The Independent.
According to some observers, this could explain the endless disputes and deadline delays.
In the latest case, deals worth $ 20 billion are at stake. The issues are so critical that Museveni and his teams of oil sector technocrats have been holding frantic meetings with executives from oil companies to try and find a way out over the past few weeks.
The most pressing deal is the $ 3.35 billion East African Crude Pipeline Project (EACOP). This has an impact on the fate of the $ 4billion refinery.
But the other big issue is the $ 900 million Tullow Oil farmout to CNOOC and Total. Oil field projects or upstream projects worth over $ 10 billion are also facing some challenges.
The dispute over the pipeline is clear. The oil companies want more oil for the pipeline. They say this is the only way it can make financial sense. But Museveni wants to retain some oil for his pet project; the oil refinery. This project is so important to him that, according to sources, Museveni is prepared to kill the pipeline to save the refinery.
The dispute revolves around the volume of oil Uganda has, which is not that much. Uganda currently has slightly over a billion barrels of recoverable oil. Of this, it is estimated to produce between 230,000 and 250,000 barrels per day of oil. Government wants to put 60,000 barrels of this to go into a planned refinery. This leaves 170,000 barrels for the pipeline for export by oil companies.