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Pouyanne: Museveni’s oil trouble has a name

‘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.

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14 comments

  1. Pouyanne an oil executive and expert in oil and Africa …

    “He also understands Africa, having worked in Angola and has visited Rwanda to see the gorillas.”

    Maybe this expert on Africa and oil would realise Uganda’s economy is independent of oil and Uganda would lose almost nothing if the oil remained in the ground as compared to Total that has sunk in costs that need quick recovery and the shareholders of total may start getting impatient and kick out an executive that is failing to deliver.

    • Keith Tumwiine G

      The article clearly spells out how some salient investments in Uganda are contingent on oil production. As well, BOU considers Uganda’s debt to be sustainably managed only if the 2023 oil production land mark is achieved. These r clear examples that Uganda’s economy is dependent on oil. Besides, our debt is ever increasing. Soon we shall hit the 50% debt to GDP ratio.

      What these IOCs have invested in Uganda, though huge, is very little given that the major investments pertaining development of the fields haven’t commenced. The move to suspended operations works more for them and not Uganda whose focus is on short term gains.

      I hope the Government of Uganda realises sooner than latter before it makes a worthy decision.

      • Uganda’s population of 40million plus who need shelter, food, clothing, banking, security is a much greater resource than oil will ever be to Uganda’s economy…. So its hubris for Total and other oil companies to imagine Uganda’s economy will grind to halt for not exploiting a few billion barrels of oil

        Lest you have forgetten for the past 100years of Uganda’s existence has depended on its rapidly expanding population and agricultural earnings from coffee, cotton etc building universities,hospitals, etc and this agriculture and a rapidly expanding population are still around and will likely be around in the next 100 years. The oil revenues if they ever come will supplement this economic foundation and the hullabaloo about oil this, oil that is uncalled for excitement.

        So clearly Total needs Uganda more than Uganda needs Total. Maybe Total and these other oil companies should desist from making silly threats unless they are willing to use miltary force to extract this oil and are also willing to miltary guard against sabotage by Ugandan patriots of the oil pipeline from hoima to the coast this plus the cost of heated oilpipeline and you should realize the uganda’s oil becomes uneconomical so Tullow should just pay the tax and move on

    • Samuel Ssebagala

      Oil companies are minded by making profits, yet Uganda government is looking at the best and sufficient means on how its oil resiurces becomes profitable and benefit the entire country in terms of service delivery and financing infrastructure projects. Oil refinery and pipeline are both lucrative business investments which are supposed to be put in place, Uganda can flood oil supply on the african market globe. Know need to hurry up such agreements because might be costly on the uganda side unlikely oil companies.

  2. Biggness Lebowski

    Uganda is perhaps unlucky with geography as the $20Bn investment required here is to get the oil produced and transported to market is simply too big and far too risky.

    So this dispute could not have come at a better time for the oil companies – much better to fall out now before you invest that $20Bn than afterwards.

    They now have a last chance to step back and ask themselves were we actually stark raving mad to think of investing $20Bn in an oil project in Uganda in the first place?

    The answer of course is absolutely yes!!

    They will lose it all to corruption or expropriation, every single cent!

    So as a shareholder I am hoping this will not be resolved as I want them to reverse out of this investment altogether while there is still time as Uganda will destroy these companies.

    The ordinary Ugandan citizen would not have benefited anyway, the big men would have taken it all.

    • Omara Christo Balmoyi

      Oil is a finite resource and it’s discovery is diminishing, almost reaching peak discovery. With that is mind Uganda have an upper hand in dictating rent on its resource knowing that sooner or later IOCs will come back begging for it. Moreover, geological uncertainty has been reduced, the other hurdles (or seemingly) are just a matter of attitude of the IOC which will change. No deal is better than a bad deal.

  3. Kakuta sacrifice less now for more in the future. Think positive

  4. Well Uganda needs Total (E&P) more than Total needs Uganda. Whether we argue from the debt analysis point of view or living standards etcetra. Uganda came to the world picture after the discovery of oil short of that it was only known as General Idi Amin’s country of Origin. This current impasse and show down without repeating contents of comments above only serves rather as a warming to total Investment decision desk to rethink their previous “go invest decsion” what comes to the risk analysis irrespective of sunk cost are three things going forward. Taxation, expropriation either in present regime or any change of government and security of tenure of the concessions granted. Just as governments communicate, corporations communicate too. So Uganda ends up a no investment zone in natural resources for majors and medium companies. So sacrifice now picture the future.

    • Uganda’s population of 40million plus who need shelter, food, clothing, banking, security is a much greater resource than oil will ever be to Uganda’s economy…. So its hubris for Total and other oil companies to imagine Uganda’s economy will grind to halt for not exploiting a few billion barrels of oil

      Lest you have forgetten for the past 100years of Uganda’s existence has depended on its rapidly expanding population and agricultural earnings from coffee, cotton etc building universities,hospitals, etc and this agriculture and a rapidly expanding population are still around and will likely be around in the next 100 years. The oil revenues if they ever come will supplement this economic foundation and the hullabaloo about oil this, oil that is uncalled for excitement.

      So clearly Total needs Uganda more than Uganda needs Total. Maybe Total and these other oil companies should desist from making silly threats unless they are willing to use miltary force to extract this oil and are also willing to miltary guard against sabotage by Ugandan patriots of the oil pipeline from hoima to the coast this plus the cost of heated oilpipeline and you should realize the uganda’s oil becomes uneconomical so Tullow should just pay the tax and move on

  5. Saddened Ugandan

    We know them. Colonizers and robbers of wealth. One day it’s fair trade this, fair trade that… the next it’s this kind of nonsense. They can take their dirty tricks and try them elsewhere.

    • Saddened Ugandan

      In fact this may be another God-given chance for Ugandans to double check and cross check all the things we have been told by these companies about our oil and gas, this time while appreciating their true colours which they have now shown. They cannot be trusted AT ALL. Let any company that wishes to trick Ugandans know that we are not simple people.

  6. Uganda stand firm here… these oil companies would never dare to evade tax in Europe.. but they are here evading tax in Africa.

  7. Museveni won’t give a damn on those exploitation companies , uganda should stand firm .

  8. The reason Africa has remained poor is because of our selfishiness. These companies are bringing in USD 20 billions and we are already frustrating them over USD 0.06 billion! We are already fighting even before half a billion dollars is invested. We should not stamp our feet over 6 billion of oil reserves. Mark you, Saudi Arabia has over 265 billion barrels of Oil reserves. We should not therefore think Uganda’s oil is too much to scare these companies. Comparing our oil reseves to those of Saudi Arabia, Iran, Venezuela makes it like a drop in the ocean.
    With the evolution of electric cars, climate change the world moving away from fossil fuels. In 15 years, the value of oil will have depreciated significantly. The US is now pumping out its oil at record levels of more than 13 million barrels per day. The US plays a significant role in determining the price of oil. When it depletes its reserves, it will influence key decisions in combating climate change. Probably by then, Sanctions on Iran will also be removed and the oil price will come crushing.
    Looking at a bigger picture, Uganda needs to start plans for production now. Look at the coal industry just 20 years ago, it was booming and the talk of the town. Where is it today? That should be an important lesson.

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