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Government yet to grant Tullow sale of Ugandan assets

Uganda is yet to approve the multi-trillion shilling deal involving Total E&P and Tullow Oil since the two firms announced their planned transaction, three months ago.

Kampala, Uganda | RONALD MUSOKE | In a statement delivered via a webinar during the national content supplier workshop on Aug.5, Total E&P Uganda noted that it is still awaiting official government approval of the transaction.

The virtual workshop organized by Total E&P (Uganda), Tullow Oil and the Uganda Chamber of Mines and Petroleum aimed at  updating local suppliers on the progress of the Lake Albert Development Project and the East African Crude oil Export Pipeline.

“The Uganda project is of significant importance for the Total Group and the company remains confident in the progress of the Lake Albert project as witnessed by the purchase of the additional interest in the project from Tullow Oil in line with the Group’s strategy,” the statement reads in part.

On April 23, this year, Tullow announced that it had finally reached an agreement to sell its Ugandan assets to Total. According to the agreement, Total intends to pay Tullow US $575 million (Approx. Shs 2 trillion), with an initial payment of US $500 million (Approx. Shs 1.875 trillion) at closing (of the deal) while US $75 million (Approx. Shs 281bn) will be paid when the partners finally take the final investment decision for the Lake Albert Development Project.

Under the terms of the deal, Total will take over Tullow’s entire existing 33.3334% stake in each of the Lake Albert project licenses EA1, EA1A, EA2 and EA3A and the proposed East African Crude Oil Pipeline (EACOP).

The transaction was, however, subject to a number of conditions, including approval by Tullow’s shareholders, customary government approval, the execution of a binding tax agreement with the Ugandan government and the Uganda Revenue Authority.

The transaction was also subject to the Chinese oil firm, CNOOC, exercising its pre-emption right to take 50% of the transaction. However, CNOOC chose not to exercise its right, meaning the transaction went on as planned.

On July 29 Tullow Oil plc said in a statement published on its website that the company’s shareholders had agreed to the sale of its Ugandan assets.

Earlier on in May, the Ugandan government “welcomed the agreement” reached between Total and Tullow. Robert Kasande, the Permanent Secretary of the Ministry of Energy and Mineral Development said the government and the oil companies had in principle agreed on the tax treatment of the transaction.

Transaction delay

The Independent understands the delay to approve the transaction has been caused by what Robert Kasande, the permanent secretary in the Ministry of Energy and Mineral Development referred to as a “multi-institutional” review of the deal.

Kasande told The Independent on Aug.6 that he is positive that the government will approve the transaction within a “maximum of two weeks.”

“The Ministry of Energy is concluding the terms for the operatorship of the blocks (that Tullow is relinquishing) while the Uganda Revenue Authority is also in the final stages of reviewing the taxes,” Kasande said.

Among the reviews include a just concluded exercise by several government agencies that have been tasked with inspecting and assessing two dozen sites where Tullow Oil has been operating over the last 10 years.

The inspections have been conducted by the National Environment Management Authority (NEMA), the Petroleum Authority of Uganda (PAU), the Uganda Wildlife Authority, Tullow and Total.

Among the sites being inspected in Hoima and Buliisa districts include land which belongs to local people while others are sections of conservation areas. Some sites are laden with oil while others hit dry wells during exploration.

Officials familiar with the exercise say the sites located in the community where oil was not found will be returned to the people after confirming that landowners were compensated and requisite rent paid.

Similarly, for the sites where Tullow operated, and did not find oil but are located in protected areas will be handed to Uganda Wild Life Authority (UWA).

During the exploration phase, Tullow Oil operated several exploration spots mainly in mid-western Uganda including; Mputa, Nzizi, Karuka, Ngege, Kasemene, Awaka, and Taitai. It also ran camps at Mputa and Kyehoro. It was also responsible for the waste consolidation areas at Waraga, Kisinja and Ngara. Tullow also had operations inside the conservation areas of Murchison National Park, Kabwoya and Bugungu game reserves.

“It is important that we appraise Tullow’s compliance with environmental and legal obligations and also agree upon which social and environmental obligations and liabilities are being transferred to the new company,” a senior NEMA official told the government owned New Vision newspaper recently.

Going forward, Total E&P said it is working sequentially with its partners and the governments of Uganda and Tanzania towards the conclusion of the Host Government Agreements, Shareholders and Transport Tariff agreements which are all necessary for the operationalization of the East African Crude Oil Pipeline.

Total E&P said it is working to restart project activities in Uganda. The French oil firm has, for instance, relaunched some call for tender processes including those for engineering, procurement, supply and construction, drilling and wells—activities which are intended to enable development of enabling infrastructure for the Tilenga project.

Total further noted that although the COVID-19 pandemic had constrained its operations, it is working with the Ministry of Health and other relevant government agencies to explore ways in which it can safely restart stakeholder engagements and land acquisition activities.

“Total E&P remains committed to the development of the Lake Albert project and the achievement of FID as soon as possible.” The final investment decision is expected to usher Uganda’s oil industry into the development phase—a period which will attract investments in the region of US$ 15bn and US$20bn.

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