Tullow and Uganda settle capital gain tax dispute

Africa-focused UK firm Tullow Oil and Uganda have settled a long standing dispute over capital gains tax owed by Tullow Oil following farm down on some blocks in the Albertine basin in 2012.

After a significant discovery in 2006, Tullow farmed down its participatory interest in three Ugandan blocks in the Albertine basin in 2012, bringing in Total and China’s CNOOC as partners. Tullow paid a disputed $142 million at the time of the transaction – a figure which was disputed by the Ugandan government who wanted $473million.

With the resolution, the total capital gain tax payable by Tullow was put at $250million less the $142 million paid in 2012, leaving Tullow with an outstanding $108mln to be paid. The parties agreed that the payment will be made in three instalments with Tullow paying $36 million immediately and the other two instalments due in 2016 and 2017.

‘While the long tussle between the government and Tullow has set a negative precedent for Uganda-oil producer’s relationship, we believe the eventual settlement is fair to both parties,’ an analyst with Ecobank commented. He added, however, that ‘such development in conjunction with the long drawn disagreement between the government and the three oil companies over the amount of crude output to be refined locally could deter future investment. This is possibly reflected in the non-involvement of the IOCs in Uganda’s bid round for six blocks.’

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