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.
