Uganda: Total Suspends Pipeline Deal, To Lay Off Workers

(file photo).
6 September 2019

President Museveni and his Tanzanian counterpart John Magufuli are expected to meet today on the 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).

The meeting, sources familiar with the matter told Daily Monitor, comes on the heels of the decision taken last Friday by French oil giant Total E&P, the lead developer on EACOP, to “decommission” both activities and staff on the project. The firm cited “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), technically referred to as a farm-down.

Total E&P, which rooted for the Tanzanian route as choice for the pipeline, established Total East Africa Midstream B.V as the interim developer for the crude oil export pipeline from Hoima in mid-western Uganda to Tanga Port at the Indian Ocean in Tanzania.

Tanzania has since 2017 blamed Uganda for the delays that have beset the $3.6b (Shs13t) project. At today’s meeting, Mr Museveni is expected to furnish his counterpart with the details of the latest developments on the Uganda side in regard to the proposed oil pipeline.

Uganda’s Energy ministry Permanent Secretary Robert Kasande neither denied nor confirmed the meeting. He said: “There is a meeting taking place this week between Uganda and Tanzania and all projects we are working on together [are] on the agenda.”

Mr Museveni left the country yesterday to attend the World Economic Forum on Africa in Cape Town, South Africa, from where he is expected to connect to Dar-es Salaam. 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.

Chief among the objections is the tax bill of $185m (Shs684b) which the President, riding on advice tendered by technocrats in Uganda Revenue Authority and Petroleum Authority of Uganda, has insisted the oil companies must pay.

This is besides the Capital Gains Tax of $167m (Shs609b) assessed on an earlier Tullow sales transaction.
The back-to-back developments, including collapse of the farm-down deal and suspension of activities on the pipeline, is a major setback to Uganda’s revised 2023 oil production time line.

The news is also a heart break to service providers, who over the years mobilised financing, logistical capacity and trained staffers as they prepared to cash in on chain business in the nascent sector.

In January 2017, Tullow announced plans to shake off 21.57 per cent of its stake in each of the three exploration areas to Total E&P and Cnooc, respectively, for $900m (Shs3.4 trillion) and remain with 11 per cent.

The conclusion of the sales transaction was supposed to pave way for signing of a new agreement — called the Joint Operatoring Agreement (JOA) that details rights and responsibilities of Total E&P and Cnooc as majority equal shareholders in both upstream (development of oil fields) and midstream (the pipeline).

Current projections show that capital expenditure for developing the oil fields or Tilenga project in Buliisa/Nwoya districts by Total E&P and Kingfisher in Kikuube District by Cnooc stand at $6.7b (Shs24 trillion). The oil pipeline is estimated to cost Shs13 trillion.

The JOA was also the key Final Investment Decision; the oil companies announcing their investment plans and reaffirming who is investing where and how much.
Total E&P officials were not readily available for comment, while Cnooc referred to the former, as the lead project developer, for comment. Both Total E&P, and CNOOC started laying workers last week, a process which is expected continue through the coming weeks. Already, activities such as resettlement action plan and tendering have been frozen.

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