IT’S DÉJÀ VU ALL OVER AGAIN IN THE OIL SECTOR

Most people have forgotten but if the hype was to have been believed, we would have seen first oil in 2009, ten years ago.

The commercial viability of oil reserves were determined in 2006, when it was estimated that we had about 2.5b barrels of oil under western Uganda’s Albertine graben. Now we are talking about reserves of about 6.5 billion barrels of which about a third are recoverable.

"Seeing what we have been through since, it’s inconceivable that we would have had first oil in three years as the promoters of the hype suggested...

We since managed to put in place key legislation to govern the sector, we are building the oil roads – 12 roads that will cost us $600m to lay 700km and scores of local suppliers and craftsmen are being readied to supply and work in the industry.

We are only just beginning to get set for oil, imagine what things would have looked like if we had been stampeded into kicking off oil exploitation a decade ago? A disaster. Things can still go badly wrong even now – we will not know how ready we are until the action starts, but there is some consolation that we are better off now than a decade ago.

Also in that period we have gone to court to settle a tax dispute with oil explorer Heritage Oil, a tax dispute too, which had put the development of the sector on hold while it was being resolved.

The broad outlines of the tax dispute were that Government was claiming $404m in capital gains tax that Heritage Oil should have been liable for, were it not that they had sold their interest in Uganda and fled the country, leaving Tullow holding the bag.

How Heritage managed to get Tullow to pay and leave without fulfilling their tax obligations has been the stuff of barroom banter ever since.

Almost a decade later we arrive at another impasse, triggered by a difference of opinion about capital gains tax as Tullow seeks to pair back its interest in the oil fields and raise funds to finance its share of the investment required to develop them.

"I would imagine government technocrats are suffering an acute case of once bitten twice shy...

Following the grief they got for having let Heritage “go” and the no holds barred, bare knuckled fight that it took to wangle the tax from them, government bureaucrats are understandably reluctant to put a foot “wrong” this time around.

The current impasse has been created by a difference of opinion – again, as to what Tullow’s liability in terms of capital gains tax, would be. Last year it was agreed that the buyers – Total and CNOOC, would shoulder some of the liability but there is disagreement there too as to whether this will be treated as an allowable expense for tax purposes down the road or not.

There was a finite time frame for resolution of this issue, which expired last week but one.

The oil companies argue that the tax being quibbled over is small change compared to the benefits that will accrue from the industry over the period of exploitation and that government should let the matter go – insistence on the capital gains tax be paid before the Financial Investment Decision (FID) can be signed off.

Their supporters – many of whom have invested millions even billions in readiness, are critical of government bureaucrats who they complain have no clue of what is needed to not only bring investments to our shores but to also make it work.

"Whatever the case first oil has been pushed further back. The rule of thumb is that first oil will come three years after the signing of FID, which now with the latest setbacks looks unlikely this year. The optimistic outlook therefore is for first oil in 2023, assuming FID is signed next year...

Beyond our own experience with the oil industry, down history the sector’s players have not covered themselves in glory from Nigeria to Russia to Brazil to Iraq. The industry continues to struggle with the perception that they parachute into a country gut the resources, regardless of the damage to communities, the environment and move on to the next find. They repeat until fabulously rich.

As a country, we are at a cross road, one of many we have already crossed or will cross well into the future.

Powerful interests – national and international, are watching keenly and actively trying to get involved. The stakes are high. How it t urns out will very well determine whether Uganda leverages its oil for the improved living standards of its people or like a long parade of other countries, concentrate the returns among a few chosen ones willing to play ball.