‘The man ready to teach Uganda a lesson’
Kampala, Uganda |THE INDEPENDENT | Details emerging following the recent failure of major oil companies to pressure the Uganda government to grant tax concessions before a crucial purchase and sale deal are casting the country as a “nightmare” for oil firms.
And the result is that the French oil major Total E&P is determined to change that – by “teaching Uganda a lesson”.
Signing of the Purchase and Sale Agreements (PSAs) between Tullow Oil Plc, Total Exploration & Production (E&P) and the China National Offshore Oil Corporation (CNOOC) would have paved way for a Final Investment Decision (FID). But Tullow insisted on getting a 51% waiver of the due Capital Gains Tax (CGT) because, it said, the money from the US$900 million was to be reinvested in the sector.
In a bid to get the deal done, Total initially arranged a transaction in which it would carry 50% of Tullow’s CGT. But Total gave the government a condition that the money it was paying had to be tax deductible when Total starts recovering the money it has invested as soon as Uganda starts earning oil money.
The government countered that Tullow’s farm down was liable to a non-negotiable CGT and any arrangements Tullow entered with Total could not change the tax liability.
Following that impasse Tullow, Total, and CNOOC allowed the PSAs they had agreed in 2017 to expire on Aug.29. Then Total raised the ante when on Sept.05 it announced that it was suspending activity of the East Africa Crude Oil Pipeline and, together with its Joint Venture Partners – Tullow and CNOOC, started laying off staff.
Based on these developments, several news media in the North Sea region that comprises the UK, Norway, Germany, Netherlands and Denmark, have carried reports that Uganda is a “nightmare” for oil. Total has been the second biggest player in North Sea oil since 2017 and Total CEO Patrick Pouyanne has been a major news maker since he paid US$7.5 billion there to acquire Maersk Oil.
Now the leading digital news platform for the oil and gas from Europe’s energy capital Aberdeen in Scotland called Energy Voice has been
making the point that Total is determined to teach Uganda a lesson. The news platform which boasts of being read in over 100 countries around the globe because of this influential in-depth research and market analysis has been citing challenges Tullow has faced. It says from the moment Tullow purchased Heritage’s concession and got entangled in tax disputes with the Uganda government, “it was a sign that things would not be straightforward”.
“This is not the first time that Uganda has proved challenging for Tullow. When the company bought out Heritage Oil, it faced a drawn out battle with the government over tax,” Energy Voice said in one of its reports.
It quotes one Stephane Foucaud from a firm called GMP First Energy, who says Total E&P, is determined to change that by freezing all activity In Uganda.
“Total is sending a clear message to the Ugandan government that unless things are changed, the company will not do anything. Nobody can replace them. The alternative option would be for Tullow to sell to a new buyer a much lower level. In the near term everything will be stuck,” Foucaud reportedly told Energy Voice.
Total’s move could also be seen as a warning to other countries in the early stages of development planning, according to the report.
“This could be seen as a salvo fired at Kenya, a warning Foucaud reportedly said. “For Total and Tullow just focusing on Kenya would be easier – and there’s an incentive to make sure things work.”
The Tullow, Total gamble
The gamble is that Uganda needs the oil deal more than Total does.
The assumption has been that President Museveni, who has been pegging most government spending (including purchase on loan of planes for the new national airline) on “oil money”, would want the money in a hurry to finance major infrastructure project, bolster Uganda’s capacity to manage its growing public debt, and finance his 2021 re-election.
A June report on the state of the economy by the country’s central bank said Uganda needs to export oil by 2023 if the debt is to be sustainably managed.
The report said Uganda’s public debt stock will grow from current US$10.74 billion (Shs39 trillion) to US$13.4 billion (Approx. Shs49 trillion) in the 2019/20 financial year. This is a rise from 42.2% of GDP to 45.7. The government has set a debt-to-GDP threshold of 50%.
The Energy Voice report says “while Lake Albert and the pipeline plan do represent a major step for Uganda, it is less important for Total”.
It adds: Total are also distracted by other areas, where it has big ticket projects in the works, such as Mozambique and Papua New Guinea (PNG), with major LNG plans. The French company feels it has invested enough and is holding out for change to come from Uganda.