President of the Republic of Tanzania 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.
During the just concluded Tanzania-Uganda Business forum in Dar-es-salaam on Friday, Magufuli said tax issues were becoming a barrier towards achieving 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.
However Plans to sign the long awaited Final Investment Decision (FID) needed to unlock nearly $10 billion for the development of Uganda’s Tilenga and Kingfisher oil projects, and the East African Crude Oil Pipeline recently came to an abrupt halt after Tullow Oil 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 .
At the forefront of the dispute was the definition of the amount of money that Tullow Oil was to get from the transaction. Tullow Oil declared that out of the $900 million it would get from the sale of 21.5 per cent of its stake, over $700 million would be ploughed back into the development stage of Uganda’s oil industry as part of its share of the contribution.
The mafia in Government, on the other hand, looked at the $700 million as an earning and, therefore, imposed a capital gains tax on it which led a stall on the negotiations for a while.
Magufuli surprisingly drew a burst of laughter when he revealed intentions of naming the pipeline as the Kaguta pipeline once it is opened.
In 2015, Uganda chose the port of Tanga in Tanzania for its pipeline route over Kenya and ever since negotiations have been on and off with oil companies asking partner countries to buy a stake in the project but also finalize agreements with Tanzania as a host government for the 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 which compelled Magufuli to tell Museveni that if he needed to move forward, he has to “sacrifice short term gains and go for long term gains.”
Adding that the Pipeline project will create jobs for citizens adding that it is crucial that there is 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 is expected to 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 would delay the project.
A few months into the project, Uganda is now delaying her own project trying to extract more taxes from the oil companies. Uganda was supposed to start oil production in 2020 but now the target date has been moved to 2023.