Gov’t maintains that all the assessed taxes should be paid.
The proposed farm- down of part of the assets of Tullow Uganda Operations Pty Ltd to Total E&P Uganda and CNOOC Uganda has been terminated following the expiry and non- extension of the Sale and Purchase Agreement (SPA), Tullow Oil Plc has announced. Tullow Uganda Operations Pty Ltd is a subsidiary of Tullow Oil Plc – a British oil giant.
In the statement, Tullow noted that the company was unable to secure the extension of the Sale and Purchase Agreement (SPA) with its Joint Venture Partners – Total E&P Uganda and CNOOC Uganda Ltd despite previous extensions having been agreed upon by all the parties. In a brief statement, Tullow said it has been informed that its farm-down to Total E&P Uganda BV and CNOOC Uganda Ltd will terminate on August 29, 2019 following the expiry of the Sale and Purchase Agreement.
“Tullow has worked tirelessly over the last two and a half years to complete the farm-down which was structured to re-invest the proceeds in Uganda,” Paul McDade, the Chief Executive Officer (CEO) of Tullow Oil Plc said in a statement. McDade noted that Tullow committed to reducing its operated equity stake in Uganda.
He added, “It is disappointing to report this news at a time when we are making so much progress elsewhere towards the growth of the Group with our recent oil discovery in Guyana and first export of oil from Kenya.”
The termination of the transaction, McDade further said is a result of being unable to agree on all aspects of the tax treatment of the transaction with the government of Uganda which was a condition for completing the Sale and Purchase Agreement.
“While Tullow’s Capital Gains Tax [CGT] position had been agreed as per the group’s disclosure in its 2018 Full Year Results, the Ugandan Revenue Authority and the Joint Venture Partners could not agree on the availability of the tax relief for the consideration to be paid by Total and CNOOC as buyers,” the statement reads in part.
ENTER THE TAX DISPUTE
In January 2017, Tullow announced that it had agreed to farm-down 21.57% of its 33.33% interests in Exploration Areas 1, 1A, 2 and 3A in Uganda to Total E&P Uganda and CNOOC Uganda Ltd for a total consideration of $900 million (Approximately Uganda Shs 3.2 trillion). The farm-down has to be approved by government upon satisfaction that the relevant taxes – in this case, Capital Gains Tax has been paid.
After the announcement, Uganda Revenue Authority slapped a $ 167 million (approximately Shs 617bn) tax bill on Tullow for its proposed farm-down. Tullow objected on grounds that given the costs it had incurred, $167m tax bill was not correct and that it intended to re-invest the money in the country– sparking a stalemate.
As a result, Tullow sought for a political settlement to a tax dispute with President Museveni who in meetings with the company bosses insisted that the tax dispute should be settled with URA and not him.
However, in the statement Tullow said the company will initiative a new sale process to reduce its 33.33 percent operated stake in the Albertine project. The termination of the transaction is likely to further delay the Final Investment Decision (FID). Joint Venture Partners had initially agreed to make a FID by the end of 2019.
Weighing in, Robert Kasande the Permanent Secretary, Ministry of Energy and Mineral Development defended government’s position. He insisted that Tullow has to pay Capital Gains Tax from the farm down. “The government’s position is that the assessed tax should be paid in line with the laws of Uganda,” Kasande indicated in a statement.
In another statement, Total said it was still committed to Uganda. “Despite the termination of this agreement [Sale and Purchase Agreement], Total together with its partners (CNOOC and Tullow) will continue to focus all its efforts in progressing the development of the lake Albert oil resources,” Arnaud Breuillac, Total’s President in-charge of Exploration and Production said.
By: Edward SsekikaEdited by Muhumuza Didas
Government concluded two public hearings of the Environmental and Social Impact Assessment (ESIA) report for the Kingfisher development project. The hearings were conducted at Rwemisanga Primary school in Kikuube district and at Kabaale Primary school in Hoima district. The hearings which were organised by the Petroleum Authority of Uganda brought together project affected persons, diplomats, CNOOC Uganda, the operator for the Kingfisher oil field and other stakeholders who expressed their opinions and suggestions on the project inorder to influence NEMA’s decision making during the review of ESIA report. CNOOC Uganda Ltd intends to establish petroleum production facilities and support infrastructure in Buhuka parish where crude oil from wells drilled under Lake Albert will be processed and transported via a 46-kilometre feeder pipeline to a delivery point in Kabaale parish in Hoima district. While presenting the ESIA report, the CNOOC Uganda Vice President Mr Cu Yujun said the Kingfisher oil project will yield substantial social and economic benefits for Uganda through increased government revenues, employment opportunities, increased household incomes and expenditure. He said the project will increase the demand for goods and services within the project affected areas. He added that the project will cause human capital development through short and medium term employment opportunities for the people and cause a transfer of knowledge and skills from expatriates to Ugandans. The Kingfisher ESIA report indicates that during the construction, operation and decommissioning of the project, air quality, soils, surface and ground water may be affected. The project is expected to attract immigrants, affect the health, social services and livelihoods of affected persons. It is feared that the project could destroy archeological and cultural sites in the area. According to Mr Cu Yujun, all impacts have been identified and measures have been developed to ensure that negative impacts are mitigated and positive impacts enhanced for communities. CNOOC indicated that there are management plans for air quality, noise and vibration, biodiversity, traffic, waste, influx, cultural heritage and community health. Christopher Busobozi, a resident of Kyangwali subcounty asked CNOOC to increase of education and trainings for Ugandans to enable Ugandans attain the necessary skills to work in the oil industry. Omuhereza Tumwesigye from Kabwooya subcounty expressed worry that oil developments may displace some people and affect their livelihoods. He demanded a plan to improve on livelihoods of project affected persons. Simon Kyahurwa, a resident of Buseruka subcounty told a pre-public hearing dialogue that was organized by Action Aid Uganda that some oil producing states like Nigeria have had challenges where oil pipelines are attacked and cut by militants. He asked Government and oil companies for a plan of how oil pipelines will be protected from attacks and spills. Ms Betty Bagadira, a resident of Tonya parish in Buseruka subcounty expressed concerns over women and the elderly being displaced by the project and being marginalized. However, the CNOOC Uganda’s Senior Public relations supervisor Ms Aminah Bukenya said the project will address the concerns which people raised at the public hearings in line with CNOOC’s strategy of win-win for the company and people affected by the oil developments. The Buhaguzi County Member of parliament whose constituency hosts the Kingfisher oil field said locals are worried of increased cases of land grabbing in the area since commercially viable oil deposits were discovered in the constituency. He asked Government to undertake systematic land demarcation and titling to enhance land tenure security of his people. He asked CNOOC to support the planting of indigenous tree species, improve community livelihoods, promote conservation of forests and wetlands and asked Government to take leaders in oil rich areas to oil producing states so that they obtain knowledge and skills about how the petroleum industry operates. The PAU Director of Technical Support Services Ms Peninah Aheebwa who represented the PAU Executive Director said the hearings gave an opportunity to Government and CNOOC to hear public concerns so that negative impacts are mitigated and the benefits of the project are optimized. She said proposals raised by the public will be put into consideration by the relevant Government organs before the project is given a green light to proceed. She said adequate measures will be put in place to address the environmental and social threats of the project. The Public hearings were presided over by Prof Grace Bantebya, a Makerere University lecturer. She said the oil can bring joy and tears to a country. “This gigantic sector can change us either way” she said. She asked stakeholders to lay strategies of making the oil industry a blessing so that the sector helps Uganda in attaining some of the sustainable development goals. Kingfisher is one of the oil projects in Uganda which Government is developing in line with Uganda’s journey to kick start commercial oil production in 2022. Story by Francis Mugerwa Edited by Flavia Nalubega Edited by Didas Muhumuza
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