East African Business Week

Kampala, Uganda-Tullow Oil plc last week sold two-thirds of its oil assets in blocks 1, 2 and 3A at US$2.9b to France’s Total and China’s CNOOC but the oil explorer has disputed the $472.7M tax that Uganda Revenue Authority has assessed on the deal.
The terms of the Special Purchase Agreement (SPA) transactions include a total cash consideration payable to Tullow of US$2.9b.
Tullow is in dispute with the Government over its assessment of the $472.7m the Government deems is due in capital gains tax from the farm-down.
In a bid to resolve the latter, Tullow, as per the Memorandum of Understanding (MoU), will pay 30% of the alleged capital gains liability of $141.8m and seek arbitration over the amount to be paid through the legal process in Uganda.
The General Manager Tullow Oil Operations in Uganda, Mr Brian Glover, said on March 30 that Tullow has the opportunity to challenge that tax.
"We are within our rights to dispute the tax being imposed on us," Glover said.
Tullow says a clear plan for the resolution of tax disputes on the various asset sales has been agreed by the government of Uganda, the Uganda Revenue Authority and Tullow.
With the signing of these SPAs, a key condition of the Memorandum of Understanding (MoU) agreed between Tullow, the Government of Uganda (GoU) and the Uganda Revenue Authority (URA) on March 15, 2011, has been satisfied.
Under the MoU, Tullow and its new Partners, CNOOC and Total, have been granted new licences over EA-1 and an onshore area of EA-3A and the partnership's rights to develop the Kingfisher discovery have been confirmed.
Uganda's total reserves are estimated at 2.5b barrels, and the new refinery, once fully operational, could churn out more than 200,000 barrels of oil per day (bopd).
"Tullow is delighted to announce that it signed Sale and Purchase Agreements with CNOOC and Total in respect of the sale of a one third interest to each party of the interests Tullow holds in Exploration Areas 1, 2 and 3A in Uganda. It will retain a one third interest," a statement from Tullow said.
Tullow and its Partners will now reactivate the significant programme of exploration and appraisal drilling and progress their development plans for the basin which they will jointly present to the Government of Uganda for approval.  Commenting on the transaction, Aidan Heavey, Tullow's Production and operations manager , said:
"These agreements have secured the future of oil production in Uganda. We are looking forward to working with CNOOC and Total, and continuing our strong relationship with the Government to bring the benefits of the oil to the people of Uganda."
Tullow, its partners and the Government of Uganda will now agree a development plan for the Lake Albert Rift Basin with a target of delivering production of at least 200,000 barrels of oil per day (bopd). and potentially much more as they continue to explore and appraise the basin.
Uganda's total reserves are estimated at 2.5b barrels, and the new refinery, once fully operational could churn out more than 200,000 bopd.
In the first quarter of 2010, Heritage Oil and gas disputed a tax bill of $404m over the sale of its assets to Tullow.
Heritage's transaction was US$1.45b including a US$100m contractual settlement, of which US$1.05b was paid to Heritage.
The balance of US$404m represents capital gains tax assessed by the Ugandan URA but disputed by Heritage.
In line with Ugandan dispute resolution procedures under the Uganda Income Tax Act, US$121 million was paid to the URA and Tullow and Heritage agreed to deposit US$283m into an escrow account in London pending resolution of the dispute through a tax tribunal in Kampala.