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Tullow, Government in a fresh protracted fight over capital gains tax

Tullow Uganda Operations Pty Ltd is embroiled in a fresh protracted row with government of Uganda over the payment of the Capital Gains Tax (CGT) from the farm-down of part of its   assets to Total E&P Uganda and CNOOC Uganda Ltd.  A reliable source who preferred anonymity has told Oil in Uganda that top company officials have held a series of meetings with President Yoweri Museveni and senior government officials, but no agreement has been reached.  Tullow wants to pay less tax from the farm-down on grounds that the money will be re-injected into the East African Crude Oil Export Pipeline project (EACOP). Tullow is demanding to pay the taxes in instalments, but government has rejected these proposals.

In January 2017, Tullow Uganda 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). Completion of the farm-down is subject to certain conditions, including the approval of the government of Uganda. In its December 2017 report, Tullow had expected to complete the farm-down by June 2018. However, protracted negotiations over capital gains tax has delayed the completion of the farm-down to date.  It is not clear when the company will reach a deal with government and proceed with the sale.

Tullow hinted on its frustration with Ugandan government over the issue in the company’s 2019 half year results report released on July 24th 2019. “In Uganda, following meetings in January 2019 between the CEOs of Tullow and Total, and President Yoweri Museveni of Uganda, where principles for the tax treatment of the farm-down to CNOOC and Total were agreed, the Joint Venture Partners have worked to finalise an agreement based on these principles,” the report reads in part. However, the report blames government on going against what had already been agreed upon.

“Tullow and its joint venture partners, have, so far, been unable to finalise this agreement with the government of Uganda. We continue to work constructively with our joint venture partners and the government of Uganda to agree a way forward to complete the farm-down and determine the subsequent timing of Final Investment Decision (FID),” the report notes.

“Nevertheless, although negotiations continue, Tullow is now also considering all options in pursuing the sale of its interests in Uganda,” Paul McDade, the Chief Executive Officer Tullow Oil Plc noted in the report. 

According to the report the joint venture partners continue to work towards reaching the Final Investment Decision (FID) for the development project in the second half of 2019 with the project’s technical aspects now completed,” the report reads in part.  However, it remains unlikely that the joint venture partners will make a FID this year – it could be further delayed to 2020.

Once the farm-down is completed, Tullow will cease to be an operator in Uganda. The company will only retain a presence in-country to manage its non-operated position. However, overall the company performed well in half year results.

The company is upbeat by the approval of Tilenga project Environmental and Social Impact Assessment (ESIA) and the Kingfisher ESIA public hearings which were successfully concluded.

by: Edward Ssekika,
Edited by Muhumuza Didas