Tanzanian President John Pombe Magufuli has told Ugandan President Yoweri Kaguta Museveni to forego short-term gains in terms of taxing oil companies and focus on the longer-term benefits.
Magufuli, who was hosting Museveni at the just concluded 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 clear that Uganda should sacrifice some of the short-term gains for the long-term and the Uganda Revenue Authority officials should not delay the project for the benefit of a large population.
Plans to sign the much-awaited Final Investment Decision (FID), which is needed to unlock nearly $10 billion for the development of Uganda's Tilenga and Kingfisher oil projects, and the East African Crude Oil Pipeline came to an abrupt halt after Tullow Oil's failed to sell 21.5 per cent of its stake for $900 million to its partners - France’s Total E&P and China’s Cnooc – collapsed late last week.
At the heart of the dispute was the definition of the amount of money that Tullow Oil was to get from the transaction. Tullow Oil announced that out of the $900 million it would get from the sale of 21.5 per cent of its stake, $700 million would be reinvested in the development stage of Uganda’s oil industry as part of its share of the contribution.
Government, on the other hand, looked at the $700 million as an earning and, therefore, imposed a capital gains tax on it. This difference in opinion would stall the negotiations for a while.
"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 a stake in the project but also finalise agreements with Tanzania as a host government for pipeline.
Following the collapse of the oil deal, Total E&P and Cnooc suspended all activities and tenders on the East Africa Crude Oil Pipeline until further notice. 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 had which delay the project.
But now, it seems Uganda is delaying her 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 an estimated 1.4 to 1.7 billion barrels of recoverable oil from the 6.5 billion barrels confirmed in the country.