But according to insiders, the oil companies say this is too small and does not make financial sense given at they are investing $3.35 billion in the pipeline. As a result, the oil companies are pushing for more oil to be pumped through the pipeline.
They are arguing higher volumes to exploit economies of scale; as higher volumes will reduce the cost of moving the oil through the pipeline and potentially lower the tariff. Initially, the oil companies had proposed a tariff of about $ 12.2 per barrel.
This figure was arrived at before the companies carried out the Front End Engineering Designs (FEED) whose results came out last December. Now the tariff is estimated to hit even $18.
Already some Ugandan officials say the oil companies used the $12.2 figure as a technique to lock the government into the deal well knowing that they would later renegotiate the figure. It is, therefore, unclear what they will be asking when production starts; possibly seven years from now.
Total’s hardline position has infuriated government officials and is attracting some equally extreme responses.
One of the extreme positions by government is that the pipeline should be abandoned all together. This position is informed by a sense that the oil companies want to kill the refinery—Museveni’s pet project.
The more moderate position is that the oil companies should consider building a smaller pipeline and as a result carry less oil and also use the available new technologies to keep the cost of the pipeline low.
But, having carried out studies for a bigger pipeline, the oil companies are not keen on reducing its size. Also, the oil companies favour a bigger pipeline because it means shipping out as much oil as possible in a short period of time and as such makes it easy for them to recover their investment fast enough.
From the oil companies’ perspective, this is a less risky alternative compared to supplying a refinery. They say many oil refineries around the world are loss making and Uganda, which continues to be a risky business environment, is unlikely to be an exception.
Because of all this, there is currently a stalemate over the project—with officials working around the clock to reach a compromise.
The only positive around the pipeline-refinery issue, according to insiders is that the government is now exploring some new technologies that can be exploited to keep the cost of exporting the oil low.
Uganda’s challenge is that the oil is heavy, waxy and quick to solidify at room temperature.
To export it, the pipeline has to be heated and kept at above 50 degrees Celsius for the crude to flow from Hoima in mid-western Uganda to Tanga port in Dar es Salaam.
This explains why the 1143 km long pipeline—the world’s longest electrically heated pipeline—was planned to have 48 independent power generation stations, 23 trace heating stations, and six pumping stations. That could now change if some of the chemical interventions are used, according to informed sources.
The view is that some chemicals can be mixed in the crude to make it lighter and thus easy to transport without heating the pipeline to the levels earlier projected.
Total E&P neither denied nor confirmed these issues. In response to our questions on the disagreement over the pipeline, Ahlem FRIGA-NOY, the company’s Corporate Affairs Manager only said that both the companies and government “are committed to ensuring that the commercialization of the Ugandan oil resources is conducted in the most viable manner”. On government’s push to get the companies to reduce the cost of the pipeline, she noted that the pipeline design studies have been completed in accordance to the technical requirements of the project.
The tax dispute
The case of the Capital Gains tax is less clear. And it is partly coloured by previous CGT disputes between the government and Tullow.
The current tax dispute is being impacted by what happened when URA in 2012 levied a $473 million CGT bill on Tullow Oil’s initial sale of concession to CNOOC and Total for $ 2.9 billion.