UGANDA’S President Yoweri Museveni’s plan to get $121 million from Uganda’s Petroleum Fund to finance part of the budget deficit this year may have been dashed when Tullow Oil refused to cough up nearly $163 million in Capital Gains Tax for the kitty with an offer to pay far less.
On August 29, Tullow Oil Plc announced that its proposed farm-down to Total E&P Uganda and China National Offshore Oil Corporation (CNOOC) had been terminated.
A week later, on September 05, Paris-based Total SA, the parent company of Total E&P Uganda said it was suspending all its planned activities on the $3.5bn crude oil export pipeline popularly known as EACOP.
The question now is whether Tullow’s farm-down termination, Total’s EACOP suspension and the pain inflicted on local businesses and workers in the oil and gas sector will convince Museveni to climb down and accept their terms or stick to his demands.
Many local non-business players in Uganda have backed Museveni’s tough stance in the face of Tullow’s ‘arm-twisting’, but the Irish oil exploration firm was possibly hoping on a repeat of past success in a similar dispute.
Tullow won the tussle in a similar dispute that erupted in 2012 when it farmed-down 66 percent of its oilfields to Total E&P and China National Offshore Oil Corporation (CNOOC) for $2.9bn and the Uganda Revenue Authority slapped a $407 million Capital Gains Tax on it. Tullow ended up paying just $250 million.
The dispute is the same this time, but the government reaction – with backing from most Civil Society Organisations in the oil and gas sector- might be different.
The CSOs noted that the oil companies are aware that based on the many oil production deadlines that the government has been setting and failing to achieve and based on the increasing national debt, government is in a desperate rush to commence oil production to earn some money.
The companies, therefore, think that suspending the EACOP activities and laying-off of workers will increase government’s desperation leading to the abandonment of plans to collect the assessed tax to placate the companies to resume operations.
James Muhindo, the national co-ordinator of the Civil Society Coalition on Oil and Gas told Uganda’s The Independent newspaper on September 6 that the oil companies’ recent pronouncements are nothing but bullying tactics.
‘Uganda is a sovereign country and any company, domestic or foreign; operating here must pay all the assessed taxes in accordance with the laws of Uganda,’ said Dickens Kamugisha, the Chief Executive Officer of the Africa Institute for Energy Governance (AFIEGO), ‘The government’s demand for taxes should not be compromised even if it takes 100 years to start talking about oil exploitation.’
‘Uganda’s laws including the Income Tax of 1997 provide that where a company makes money off the sale of its business, then that company must pay CGT,’ he said. ‘Tullow Oil must therefore pay the tax of US$ 167 million and any other tax assessed in accordance with the laws of Uganda.’
Bernard Sabiti, the senior partnerships and engagement manager at Development Initiatives told The Independent on September 6 that these are just games among the oil companies to push the government to the wall so they escape tax liability.
In the short term, Sabiti says, people are going to get hurt, but President Museveni should be commended for ‘putting his foot down.
‘The government should not back down because if they do, it’s going to be open season. Companies will come here and think they are going to have it easy.
‘The government which is usually incompetent must be commended for putting its foot down to get what belongs to the country,’ Sabiti said. ‘Globalist companies are now realizing that it is not going to be easy to come to Uganda and rip the citizens off.’
Onesmus Mugyenyi, the deputy executive director at the Advocates Coalition on Development and Environment (ACODE) also told The Independent that Uganda already set a precedent on the type of tax the government is demanding from Tullow (the case of Uganda and Heritage Oil and Gas).
‘The circumstances surrounding this transaction are the same but just like any multi-national oil company, any scheme that reduces tax obligations is something these firms will always pursue because they want to maximise profit for their shareholders.
‘I think what Tullow has been trying to do is craft its instruments surrounding the farm down in a manner that tries to avoid the taxes but the government has been very clear and at some point there was consensus that the taxes have to be paid.’
Mugyenyi aded that international oil companies are renowned for being tough negotiators all over the world.
‘They have shareholders and they want to maximize profit. I think what Uganda has done well is to invest in understanding the industry, the economics and these transactions and that is why the government continues to put its foot on the ground to get what is owed to them.’
‘Poor countries have no resources to the level of resource rich countries like Norway, so these companies have always taken advantage of the situation to take as much as they can,’ said Sabiti.