Kampala, Uganda — The President of Tanzania, John Pombe Magufuli has told President Yoweri Kaguta Museveni to forego short term gains in terms of taxing oil companies and focus on longer term benefit.
Magufuli, who was hosting Museveni at the Tanzania-Uganda business forum in Dar-es-salaam on Friday, said tax issues were delaying the oil pipeline project.
"We are late. We are still sleepy," said Magufuli. He made it cleat that Uganda should sacrifice some of the short term gains for the long term and the Uganda Revenue Authority officials should not delay. "Actually we wanted the pipeline to be named Kaguta pipeline when it opens," Magufuli said, drawing laughter.
Uganda chose Tanzania port of Tanga over Kenya for its pipeline route in 2015. Since then, government have been in negotiations with oil companies, asked partner countries to buy stake in the project but also finalise agreements with Tanzania as a host government for pipeline.
Uganda is taking long to agree with oil companies. The collapse of the deal last week, where Total E&P, CNOOC were to buy Tullow's interest meant the start of the key projects - the pipeline and the refinery - moved further away.
Total E&P has after the collapse of the deal; they will focus on final investment decision negotiations to ensure that projects kick off.
Government failed to agree with the companies on taxes to pay on the deal but also on the tax relief the companies had asked for. They could also not agree on the amount they would be allowed to recover from the costs they will sink.
Magufuli told Museveni that if he needed to move forward, he has to "sacrifice short term gain and go for long term gold."
"Let us do the pipeline and create jobs," said Magufuli. He added that in order to reach a FID, it is crucial that key project documentation, such as the Host Government Agreements and Shareholders Agreement for the EACOP project, are finalised and put in place.
The pipeline between Uganda and Tanzania will be the longest heated oil pipeline in the world at 1, 445km.
Uganda chose Tanzania because it wanted to speed up the process to get the project done. It was envisaged that Tanzania didn't have land compensation issues that Kenya which delay the project.
But now, it seems Uganda is delaying own project as it tries to extract more taxes from the oil companies.
Uganda was supposed to start oil production in 2020. That target date has been moved to 2023.
The country has up to between 1.4 to 1.7 billion barrels of recoverable oil from the 6.5billion barrels confirmed in the country.