26 February 2017

Uganda: Govt Officials Divided Over Tullow's Farm-Down

Photo: Daily Monitor
Uganda’s oil: Commercial discoveries of oil reserves have been made in a number of areas including, but not limited to, Butiaba, Ngassa, Kaiso-Tonya, Kingfisher, among others. Despite Tullow Oil’s numerous contribution towards these discoveries, the oil firm has started to ease out of Uganda through sale of its stake.

Ministry of Energy argues that the farm-down creates monopoly in the Albertine Graben

Officials in the Ministry of Energy and Mineral Development (MEMD) and Uganda National Oil Company (UNOC) are in contention on whether Tullow Oil Plc's farm-down to Total E&P Uganda should be approved, Oil in Uganda can reveal.

In January this year, Tullow Oil Plc announced that it had agreed to a substantial farm-down of 21.57 percent of its 33.33 percent in Exploration Areas 1, 1A, 2 and 3 to Total E&P Uganda B.V. for a total of $ 900million. The farm down is currently pending government approval and once the transaction is completed, Tullow will cease to be an operator in Uganda but will however retain its presence in the country to manage its non-operated position.

Speaking at the recently organized Extractives workshop organized by the Office of Auditor General (OAG) at Audit House Kampala, Honey Malinga, the Commissioner Petroleum Exploration and Production Department (PEPD) revealed that Tullow's farm-down to Total is likely to create a monopoly which will not be good for the country.

"We are yet to sit down and discuss whether Tullow's farm-down to Total will not create a monopoly. Goverment's policy has always been against creating monopoly in the oil sector," he argued.

"This is one of the issues that we shall be considering before giving Tullow the go-ahead."

If approved, the farm down will consolidate the position of Total E&P Uganda B.V. with a majority and controlling stake of 54.9 percent.

According to the Tax Appeals Tribunal ruling in the case of Tullow Uganda Ltd Vs Uganda Revenue Authority (URA), 2014, Ernest Rubondo, the then Commissioner PEPD told the tribunal that government 'forced' Tullow to sell 16.7 percent of the interests in the Albertine Graben to Total and CNOOC in order to break the monopoly.

"Mr. Rubondo testified that the Government of Uganda did not indicate to Tullow who to sell its interests to but wanted to avoid a monopoly in the Albertine Graben," the ruling reads in part.

During the tribunal hearings, Richard Inch, the Head of Tax at Tullow, also informed the Tribunal that Tullow had intended to sell only 50 percent of the interests in Exploration Area (EA) 1, 2, and 3A.

"... . before government of Uganda would grant the necessary consent, it required Tullow to sell a further 16.67% of its interest to break Tullow's monopoly," he stated, adding that, in a meeting held on February 02, 2010 with Mr. Lawrence Kiiza the Director of Economic Affairs, government's position was not to allow a sale of only 50% of Tullow interests and wanted a single distinct operator for each PSA, with each taking 33.33% interests.

According to Malinga, if government said no to monopoly in the oil sector during that time, then the recent farm-down by Tullow should not create the same situation it has been against as it will give Total 54.9 percent control hence indirectly creating the monopoly.

However, Chief Operating Officer at the Uganda National Oil Company (UNOC), Nabbanja Proscovia supports Tullow's sale to Total arguing it will fast-track Government's target of having first oil by 2020.

"UNOC welcomes the farm-down because the sale of Tullow's interests to Total is meant to meet the obligations of Final Investment Decision (FID) by the end of this year and finally 'first oil' by 2020," she stated.

According to Chris Byaruhanga Musiime, the Head of Programs at African Center for Energy and Mineral Policy (ACEMP), Tullow's farm-down was expected and it is no surprise that Tullow has downsized its interests in Uganda.

"There were indications of this earlier since Tullow seemed over stretched especially by its Ghana operations and I think it never really anticipated to be a major producer in Uganda," he told Oil in Uganda.

Uganda

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