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Bad oil deal

President Museveni with Total E&P officials at his country home last year

CNOOC flew in Xu Keqiang after a major fall out over the pipeline. Apparently, apart from disagreements over the implementation and financing of the pipeline, CNOOC was incensed that while in Tanzania to launch the pipeline works, Total officials made sure that they denied the Chinese access to the president.

This appeared to worsen already existing tensions. CNOOC now wanted one of the blocks—block2—which was initially being operated by Tullow and which stood to go to Total following the farm down.

Because Total E&P had already done work on the project, President Museveni intervened on their behalf and offered the Chinese a new block for exploration. It is this block that CNOOC recently entered a Memorandum of Understanding (MoU) to explore with the Uganda National Oil Company (UNOC).

As a result, tensions between the oil companies sort of reduced and Tullow’s farm out deal was only awaiting tax treatment and finally approval.

But the tax dispute now stands a major huddle for the deal.

Heading to international courts?

Up until now all appeared on course after Museveni decided that Uganda’s oil should go through Tanzania putting an end to a fight in which Tullow and CNOOC pushed to have the oil go through Kenya. With this decision, Total E&P, which had been pushing for the Tanzanian route, had a green light to now negotiate the nitty-gritties of the deal.

Indeed, early last year, Museveni and the Tanzanian counterpart signed the Heads of State agreement concretising the Hoima-Tanga route. And a week later Energy minister Irene Muloni and Tanzania’s minister for Constitutional and Legal Affairs, John Palamagamba Kabudi, signed the Intergovernmental Agreement (IGA) binding the two countries on the EACOP.

With the IGA out of the way, the players were now negotiating the Host Government Agreements, which would pave way for the Shareholders’ Agreements, which would define the terms for EACOP Company known as Pipe Co. These terms would then pave way for negotiations on financing terms that would be agreed under the Financing Agreement.

However, the disagreements struck as the officials were in the process of negotiating the Host Government Agreements.

It is not clear whether the latest disagreement will also end up in international arbitration. If that happens, the uncompleted transaction could further delay oil production.

In order to skip such a huddle, in the past government has forced oil companies to first pay the whole or part of the tax in order to approve deals and allow for critical processes to continue as arbitration goes on.

Indeed, government forced Tullow to pay part of the tax demanded from Heritage Oil. Tullow had acquired Heritage assets in a $ 1.45 billion deal. When Heritage declined to pay CGT off it, government forced Tullow Oil to first pay the tax and collect it from Heritage. As a result, Tullow sued Heritage in an international tribunal.

Heritage also took Uganda for international arbitration. Both Uganda and Tullow defeated Heritage. As a result, Uganda got its full share of CGT on the $1.45 billion deal and Tullow also recovered the money it had paid to government on Heritage’s behalf.

It is not yet clear how both government and the company plan to resolve the latest impasse. It is in the interest of both parties to resolve the dispute amicably and clear way for oil production.

Once this transaction is completed, Tullow said it would cease to be an operator in Uganda but would retain a presence in the country.

Tullow’s Chief Executive, Aidan Heavey, on Jan.9 2016 said that the deal would increase the likelihood of FID this year and ‘First Oil’ by the end of 2020. Government had asked the companies to focus on the 2020 deadline. But these disputes can only mean further delays.

By press time, Tullow Oil, URA and the oil sector regulator, Petroleum Authority Uganda (PAU) had not responded to our requests for comments on these issues.

Still without delving in details, Total E&P’s FRIGA-NOY, told The Independent in an email response that the finalization of the Tullow farm-out deal is subject to government approval adding that discussions are ongoing to achieve this goal.

“We continue to work towards achieving the Final Investment Decision as soon as possible,” the Total E&P Corporate Affairs Manager added.

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3 comments

  1. Dr. Eng. Kant Ateenyi

    Countrymen and pan Africanists elsewhere:
    This is the tragedy of our failure to develop our engineering skills and continental integration.
    I have said this a thousand and one times – and will never tire of it: For our continent to free itself from these exploitative practices of being a mere source of ‘low value’ commodities and labour but a consumer of ‘extra-high value’ products and services, we must prioritise both engineering education/training and political integration. I can tell you with authority that this is what has made the difference in China and India. In both, huge initially poor and illiterate populations were deliberately tuned to nurture mathematical and psycho-motor development minds that combined to develop hand – and (for China), other limbs skills. Then, craftsmanship, understanding of and making good use of the physical sciences followed just as – water flows down hill (unless forced otherwise). The two countries are now harvesting that investment to the ‘bewilderment’ of others.
    For Uganda on oil, it would be best to hold our ground and work tirelessly now to develop our refining skills. This nonsense of shipping the little oil reserves all the way to outsiders has to be checked. I know we have over committed ourselves on infrastructural financing in expectation of the pseudo ‘oil boom’. But now, we need to understand that the same infrastructure can still be used on other economic activities in the meantime (as we develop our internal oil refining skills – not rocket science – which in itself, is not necessarily out of reach anyway). We can for example, patriotically work on our Agriculture and food processing and marketing to feed the hungry of the world; we can work on our relatively superior education (compared to many surrounding countries) to attract other African learners, the brightest and ablest of whom, we should deliberately integrate in our own as highly skilled labour force. I can go on and on —-. The opportunities minus crude oil donations to outsiders are limitless. It is just our collective will that limits us.

    • Brother you’re right…so right
      But don’t forget there’s none more impatient than a fast aging men.
      HE is bound to throw in the towel for the sake of setting foot in “Cannan” during his lifetime.
      Unless he opts for new partners

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