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Blocked! Tullow plotting to avoid UGX.600bn in taxes as govt stops sale of its oil stake to Total

At the height of the tax disagreement, President Museveni is said to have refused to meet Tullow executives led by General Manager Jimmy Mugerwa. Mr Mugerwa has since been transferred.(PHOTO/File).

KAMPALA — Energy Ministry has raised a red flag, ordering Tullow oil company to pay the accumulated taxes before it can be allowed to sell part of its stake to Total and CNOOC Uganda.

Mr. Robert Kasande the Permanent Secretary ministry of energy has said that: [the] government’s position is that the assessed tax should be paid in line with the laws of Uganda and tax reliefs be treated in accordance with laws of Uganda.”

This implies that Tullow Oil is forced to cancel a $900m deal to sell a significant stake in an oil project after the parties failed to resolve a tax dispute with the government.

Mr. Kasande says Tullow plotted to transfer its interest without payment of Capital Gains Tax arising from the sale to CNOOC and Total — with the ministry and Uganda Revenue Authority (URA) insisting that the oil firm must pay up to it $167m (UGX600b) capital gains tax.

While Tullow had come to an agreement with URA, about its own capital gains tax liabilities, it said there were still unresolved issues around “the availability of tax relief for the consideration to be paid by Total and Cnooc as buyers”.

Government has blocked the sale of Tullow oil stake the firm plotted to cheat the country in tax fraud. (PHOTO/File)

Paul McDade, chief executive of Tullow Oil, said the lapse of the deal was “disappointing,” but Ugandan officials have insisted the firm must first get a clean bill before it cleared to proceed.

“Tullow has worked tirelessly over the last two and a half years to complete this farm down which was structured to reinvest the proceeds in Uganda. Whilst this is a very attractive low-cost development project, we remain committed to reducing our operating equity stake,” Mr McDade added.

He said Tullow has been unable to secure a further extension of the Sales Purchase Agreements with its Joint Venture Partners, despite previous extensions to the Sales Purchase Agreements having been agreed by all parties.

McDade explained that the termination of this transaction as a result of being unable to agree with all aspects of the tax treatment of the transaction with the Government of Uganda which was a condition to completing the sales purchase agreements(SPAs)

McDade said the Joint Venture Partners had been targeting a Final Investment Decision for the Uganda development by the end of 2019, but the termination of this transaction is likely to lead to further delay.

Kasande in response said the several engagements between the government and three oil companies about the aborted $900 million farm-down deal had not yielded the desired outcome.

The other issue of the standoff was that the government has insisted that the farm-down would only proceed only after certain tax deductions not ordinarily transferable to buyers be transferable to the buyers.

Mr. Kasande said the government since the issuance licenses in 2012 and 2016, remained committed to enabling the licences to take the Final Investment Decision (FID).

In a statement issued mid-morning in London, Tullow said it would now have to start a new sales process to reduce its holding in Lake Albert after it had been unable to secure an extension from its joint venture partners despite previous delays having been approved. Tullow is the operator of the project, meaning it has overall responsibility.

The partners had been hoping to make a final investment decision on the project in the second half of this year but Tullow warned in its statement that the lapse of the deal would likely lead to further delays in developing it.

Under the terms of the 2017 agreement, Tullow would have received $100m upon completion, $50m when the final investment decision was made and $50m when the first oil was produced. The remainder would have funded its own costs towards developing the project.

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