Over 10 Civil society organisations (CSOs) working to promote good governance in the oil and gas sector in Uganda have urged government not to bow to pressure being exerted by oil companies as far as the development of the oil pipeline is concerned. The pressure is being exerted over the collapse of negotiations by Tullow Oil (U) to sell 21.57 per cent of its Lake Albert oil stake to Total and CNOOC.
The collapse followed a two and a half year disagreement between Tullow Oil and government over the assessment and payment of Capital Gains Tax (CGT) in addition to other taxes due to government from the planned farm down. Because of the failed farm down, Total E&P decided to suspend all activities on the East African Crude Oil Pipeline (EACOP) project.
The CSOs made the call following a meeting organised by Africa Institute for Energy Governance (AFIEGO) on Thursday September 5, 2019 at AFIEGO’s offices in Kampala. The meeting discussed the failed farm down, tax dispute and the consequent suspension of all activities on the EACOP project.
“Uganda’s laws including the Income Tax of 1997 provide that where a company makes money off the sale of its business, then that company must pay CGT. Tullow Oil must therefore pay the tax of $167million and any other tax assessed in accordance with the laws of Uganda.
The oil companies, whose activities have led to displacement of thousands of communities and have caused a lot of suffering, should not gang up against government to pressure it to abandon its demands for the CGT. The country needs taxes to provide for her citizens,” AFIEGO’s Mr Dickens Kamugisha said while communicating the outcomes of the recent meeting .
Companies should stop hurting businesses
The CSOs further noted that it was wrong for oil companies, which excited Ugandans into accepting them by promising jobs, to abuse Ugandans’ goodwill by laying off workers and suspending tenders given to businesses in order to further pressure government.
Reports indicate that some workers have been laid and tenders to businesses have been suspended. “Ugandans should learn their lesson. Oil companies and government have been exciting them by telling them that the oil and gas sector will create 150,000 jobs.
Ugandans believed them despite assessments such as those by Assaye Risk Consults showing that Ugandans lack the necessary skills and are unlikely to be gainfully employed in the oil sector. “ Today, these companies are using Ugandans as pawns and have discarded them without a thought to pressure government.
Businesses that were also excited into borrowing money with promises that they will supply goods to the oil sector have also been discarded. This is unfortunate. Ugandans should know that the much-touted jobs in the oil sector will benefit very few and should therefore be cautious about being excited by talk of jobs by selfish companies,” Mr Yoram Banyenzaki, a youth leader belonging to the Guild Presidents’ Forum on Governance (GPFOG) said.
Gov’t must review production sharing agreements and tax laws
While the CSOs maintain that government must continue demanding that Tullow Oil pays tax, they are also blaming government for signing bad Production Sharing Agreements (PSAs) with oil companies that have continually made it hard for government to get the CGT due to it.
“When Heritage Oil sold its assets to Tullow in 2010, the company disputed the CGT of $434 million that government said it had to pay. Long court battles that were only resolved in London ensued. Later, when Tullow Oil sold two thirds of its assets to Total and CNOOC in 2012 at US $2.9 billion, another tax dispute ensued.
Tullow did not want to pay the US $407 million CGT it was assessed to pay. The company ended up agreeing to only pay US $250 million and out of pressure and corruption, government accepted. This resulted into the country losing $199 million in taxes. It’s Tullow that profited from the lost tax. Today, we see another battle between the same Tullow and government over CGT. Total has joined this battle by suspending its EACOP activities.
Government keeps telling Ugandans that they negotiated and signed the best PSAs in the world on Ugandans’ behalf. How can such good PSAs fail to save Ugandans from tax disputes? Government needs to review the PSAs that were signed.
Government also needs to reform tax laws to address the source of tax disputes. Further, government should address the challenge of corruption in the country” Mr Robert Byaruhanga, an oil and gas consultant, said.
Use oil revenue to benefit citizens
The CSOs noted that since the discovery of oil in 2006 to date, government has collected over $1 billion in oil revenues. However, these oil revenues have been abused.
“Ugandans will recall that when government won the CGT dispute against Heritage Oil, the president ‘rewarded’ 42 government officials with UGX 6 billion for winning the case. This wasteful reward was against provisions of the Public Finance Management Act [PFMA] that provides that oil revenues must be spent on development projects, and not consumption.
Government also continually withdraws oil revenues from the Petroleum Fund prior to parliamentary approval contrary to provisions in the PFMA. 3 The business of government ‘misusing’ oil money must stop. When government abuses oil revenues, it fails to build social capital that it would now be relying on to rally citizens to support it in the ongoing disputes with oil companies,” Mr Gard Benda of World Voices Uganda said.
The CSOs also observed that oil activities are going to negatively impact climate, agricultural productivity, tourism and public health. They noted that government needs to stop abusing oil money and should invest it.
“Oil revenues should therefore be invested in public infrastructure to support citizens who are going to lose their jobs, cultural heritage, access to water, food security and good health. Government should also stop all oil activities in protected areas,” Ms Esther Abigaba of the Oil Refinery Residents Association (ORRA) said.
The CSOs’ final call was to the National Environment Management Authority (NEMA). They noted that NEMA has issued Environmental Impact Assessment (EIA) certificates for projects such as Tilenga in violation of EIA laws.
“If Ugandan government agencies violate laws, they not only put our environment at risk but lose the moral authority to demand that companies respect the laws as well. Government also needs to invest in clean energy so that it is not desperate for oil. Such desperacy is used against it by oil companies,” Kamugisha said.