On October 31, President Museveni met the top Uganda managers of Total E&P, Cnooc, and Tullow Oil at State House Entebbe. The Uganda Govt made some new interesting offers to the oil companies. Here are the details of that offer. WARNING: THIS IS A VERY LONG THREAD!!!!
A brief intro: The oil companies plan to build a $3.5bn crude oil pipeline to Tanzania. But before they can commit money to this project, Total E&P and Cnooc have to buy 21.5% shares of Tullow Oil's Uganda stake. Without this deal, the pipeline project cannot move ahead.
1/ The October 31 meeting at State House was mainly called to ensure that Tullow Oil's $900 million deal to sell its Uganda stake to Total E&P and Cnooc is finalised. To make this deal happen, Govt put on table the following offers. These are:
On the Tullow Oil deal, the Uganda Revenue Authority assessed a Capital Gains Tax of $167 million. Before the State House meeting, Tullow Oil had agreed to pay $85m of this money, with Total and Cnooc topping up with $82m. Govt has now instead agreed to pay the $82 million.
3/ However, if the oil firms agree to Govt paying the $82m to URA, then Total and Cnooc will not inherit the $617 million that Tullow Oil spent on exploration costs, which they would have exploited for tax deduction purposes when Uganda starts producing oil some time after 2023.
But if Tullow Oil agrees to pay the entire $167 million tax bill, then Total E&P and Cnooc will inherit the $617 million exploration costs. However, these two offers are only available if Tullow Oil agrees to revive the exact terms of the farm-down deal that expired on August 29.
Before the State House meeting, the oil firms asked Govt to lift the cap on allowable deductions for Corporate Income Tax purposes. In a layman's language, the oil firms asked Govt to remove a limit as to how much costs they can recover before paying Corporate Income Tax. So?
7/ The Govt has refused this request. The implications of this refusal will require me to write an entire new thread, and one just as long. So, let's move on please...
8/ Govt has agreed to the oil pipeline company being incorporated in the United Kingdom, plus to international arbitration in case of a strong dispute. However, the laws of Uganda will govern the Host Government Agreement for the pipeline.
9/ Govt has agreed to waive Withholding Tax on the dividends that the oil companies might wish to repatriate back to their home countries.
10/ The oil firms had requested that some special contracts for the pipeline and recruitment of some staff should not be advertised in the media. The Govt is not too clear on this request, but says some sort of advertisement needs to be agreed to for the benefit of more Ugandans.
11/ With these offers and suggestions, Govt expects the oil companies to sign a $3.5bn Final Investment Decision for the crude pipeline before the end of January 2020. The oil companies have a few weeks left to get back to Govt over these offers. END!!!
