The Observer — Uganda expects $3.5bn oil investment deal by January1 Dec 2019 05:29
Uganda expects to the three main oil companies to sign the much-awaited final investment decision by January 2020, after it relaxed some of its positions that partly contributed to the impasse the country’s oil industry finds itself in, writes JEFF MBANGA.
According to impeccable sources, during a State House meeting on October 31 chaired by President Yoweri Museveni, government tabled to the oil companies a raft of offers, most of which were to facilitate the conclusion of the sale of Tullow Oil’s stake in Uganda to France’s Total E&P and China’s Cnooc.
At the centre of the impasse are a couple of issues. One is the Capital Gains Tax on the Tullow Oil farm down, the treatment of $617 million exploration costs that Tullow Oil incurred, and the stipulation within the Income Tax Act that places a cap on llowable deductions for Corporate Income Tax purposes.
Uganda plans to build a $3.5bn crude oil pipeline to Southern Tanzania. This will be the longest heated underground pipeline in the world, stretching over 1,445km. But before the oil firms commit money to that project, Total E&P and Cnooc have to buy 21.5 per cent shares of Tullow Oil’s Uganda stake.
That is because Tullow Oil agreed to sell some of its stake for $900 million as part of its contribution to the capital costs during the oil development project. Tullow Oil intends to stay with only 10 per cent. Without this deal, the pipeline project cannot move ahead.
The Uganda Revenue Authority assessed a Capital Gains Tax of $167 million on the Tullow Oil farm down. Before the State House meeting, Tullow Oil had agreed to pay $85 million of this money, with Total E&P and Cnooc topping it up with $82 million. Government has instead agreed to pay the $82 million to URA.
However, if the oil firms agree to the idea of Govt paying the $82 million then Total E&P and Cnooc will not inherit the $617 million exploration costs, which they would have exploited for tax deduction purposes when Uganda starts producing oil sometime after the year 2023.
But if Tullow Oil agrees to pay the entire $167 million, then Total E&P and Cnooc will inherit the $617 million. However, these two offers are only available if Tullow Oil revives the exact terms of its farm-down deal that expired on August 29.
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