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Uganda cashes in on oil before production starts

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Kampala, Uganda is already reaping revenues from a transactions accruing from the sale of oil blocks to other investors even before the first drop of  oil leaves the oil rigs.
Last week, Uganda signed a Memorandum of Understanding (MoU) with Tullow Oil plc, an independent oil and gas exploration and production group, which resolved a long-standing tax row ending months of uncertainty.
The   agreement satisfies Uganda's taxation concerns and enables Tullow, China National Offshore Oil Company (CNOOC) and Total Group, to proceed with the development of oil and gas resources in the licensed areas of the Albertine Graben, in western Uganda, with the government support and commitment.

Uganda's Energy Minister Hillary Onek, said  the MoU resolves the impasse created by the Heritage and Tullow tax situations and payments of the order of US$ 469m to be disbursed in the course of the month in addition to $121m already deposited at the Bank of Uganda.
“To avoid monopoly where one company controls the sector and decides, we insisted as Government that Tullow sells out two thirds of the oil fields to different oil companies,” Onek said.
The MoU is, however, conditional upon the signing of Sale and Purchase Agreements (SPAs) between Tullow, CNOOC and Total within 10 working days of signature of the MoU.
Tullow expects that the MoU will be signed within a specified period.
“Once Tullow receives all the oil fields that were previously belonging to Heritage together with all they have, they will now bring in CNOOC and Total into the deal” onek said.
The tax dispute arose after Heritage Oil sold its Ugandan exploration blocks 1 and 3A- to Tullow in 2010. The two co-owned the assets on a 50% basis.
Efforts to finalise the deal had stalled after Uganda declined to approve it demanding for payment of $404 million in capital gains tax on the $1.45 billion earned from the sale. After a protracted battle, Heritage posted $121 million in July 2010 and deposited the remaining $283 million in an escrow account in London to be paid to the government after arbitration.
The deal is expected to bring in about Ush900 billion in government coffers, the biggest amount that oil is bringing in for the first time before the actual production begins. Uganda's oil reserves are estimated at 2.5 billion barrels.
“Tullow considers the signing of the MoU to be a huge achievement and looks forward to working closely with the Government of Uganda over the coming years, in conjunction with CNOOC and Total, in developing the Ugandan oil and gas sector” said Tullow oil General Counsel, Mr Martin Graham.The MoU will provide a grant of extension in respect of exploration area 1 and Parts 3A, in recognition of the fact that time has been lost.
It will also provide the development of the Kingfisher field and Government consent being granted to Tullow's purchase of Heritage Interests in the Lake Albert basin and subsequent sale to CNOOC and Total. After general elections, the country is looking to the oil industry for development. 
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