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INQUEST: Why Total suspended construction of oil pipeline project

Total E&P has reportedly suspended oil exploration activities in Uganda. (PHOTO/File)

KAMPALA – Uganda’s revised 2023 oil production time line has suffered a setback after French oil giant Total E&P suspended the construction of the proposed East African Crude Oil Pipeline (EACOP).

Total E&P, who are the lead developer in the pipeline project have since halted activities on the project and is set to lay off staff on the project, citing uncertain business environment in Uganda following a collapse last week of a deal for Tullow oil company to sell its stakes to Total and China National Offshore Oil Company (CNOOC).

Total E&P was set to develop the crude oil export pipeline from Hoima in mid-western Uganda to Tanga Port at the Indian Ocean in Tanzania.

The decommissioning of activities and staff on the oil pipeline project is as a result of the ongoing standoff between the Ugandan government and the joint venture partners/oil companies; Total E&P, Tullow Oil, and Cnooc, over a list of demands and objections by both sides.

The stalemate climaxed last Thursday with the collapse of Tullow Oil firm’s deal to sell 21.5 per cent of its stake in Uganda to Total E&P and Cnooc, after the Sale and Purchase Agreements of the transaction expired on the same day.

Tullow said it failed to secure a further extension from Uganda of the sale and purchase agreements with its joint partners, Total and Cnooc. The transaction, worth $900m, lapsed on Thursday after government and the three oil companies failed to agree on taxes amounting to $187m.

President Museveni, riding on advice tendered by technocrats in Uganda Revenue Authority and Petroleum Authority of Uganda, has insisted the oil companies must pay the sum.

This is besides the Capital Gains Tax of $167m (Shs609b) assessed on an earlier Tullow sales transaction. The oil companies initially contested the liability, but later capitulated.

On Monday, Total E&P’s pipeline project team sent out an email to contractors saying “activities on the project have been suspended until further notice”. The company was involved in initial land acquisition in both countries, the official said.

The development is a major sets back to Uganda’s revised 2023 oil production time line. The news is also a heart break service providers, who over the years mobilized financing, logistical capacity and trained staffers as they prepared to cash in on chain business in the nascent sector. The investments in the oil development phase over the next five years is expected to gross $20b (Shs74t).

President Museveni and his Tanzanian counterpart John Magufuli are expected to meet today (Thursday) on sidelines of the Uganda-Tanzania Business Forum in Dar-es Salaam to chart a way forward on progress of the proposed East African Crude Oil Pipeline (EACOP).

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