This archive report was first published on 9 November 2019.
Ugandan President Yoweri Museveni has given oil companies a month to decide on several government proposals, including a contentious issue over capital gains tax.
On October 31, executives from Total E & P, China National Offshore Oil Company, and Tullow met with President Museveni at State House, Entebbe to discuss key issues hindering a final investment decision.
According to sources, the main issues include a failure to agree on an assessment by Uganda Revenue Authority of $167 million as due capital gains tax from Tullow's aborted farmdown of 21.5% of its current 33.3% to Total E & P and CNOOC.
The government is against a proposal by Total to cover the difference of $83.5 million to be reclaimed at a later date from Tullow's recoverable costs once the farmdown has been completed.
Other contentious issues include a demand by the joint venture partners to be allowed to recover their costs before payment of taxes, and where to domicile the crude oil pipeline company for tax purposes.
President Museveni has suggested a formula that puts a cap on recoverable costs each year to allow the government to recover some taxes.
A model has been suggested that would ensure the companies recover all their costs at the end of the project while enabling the government to get some annual tax revenue.
Should the oil firms agree, the government expects them to issue statements about a readiness to progress to the next phase, though this will not lead to an immediate announcement of the FID.
“If we make progress within the one-month deadline, we can expect the FID to be announced around April next year,” said a source.
The FID is expected to unlock $10 billion from the Kingfisher and Tilenga wells and advance the EastAfrican Crude Oil Pipeline.
