Tax dispute delays $1.5b ENI oil deal
Jun 12, 2010
UGANDA has hardened its stance to levy taxes on the proposed $1.5b oil deal, underscoring ability to raise revenues from the nascent oil sector.
By Ibrahim Kasita
UGANDA has hardened its stance to levy taxes on the proposed $1.5b oil deal, underscoring ability to raise revenues from the nascent oil sector.
Heritage Oil intends to sale its interest in blocks 1 and 3A to either Italian giant ENI spa or Tullow Oil.
The deal entails that a prospective buyer immediately pays $1.35b and a further $150m or surrender a stake in a producing oil field of a similar value within two years.
However, Uganda’s negotiators, comprising the energy and finance ministries, the Uganda Revenue Authority (URA) and the Attorney General, have demanded $404m as capital gain tax deducted from the transaction.
“I can assure you we shall not allow the transaction to proceed without being taxed. This will be exploitation,†said a source privy to the negotiations.
“They (Heritage) have brought their powerful (negotiation) team, but they should also know that we are well-equipped to the task of ensuring that Uganda gets the windfall.â€
URA has computed the capital gains on the basis of reducing signature bonuses earlier paid for the exploration licences, which amount to $250,000 from the consideration of $1.35b.
The balance will then be subjected to a 30% corporate tax, which brings the expected revenue collection to $404,925,000.
However, Heritage is against paying the $404.9m taxes fearing that the shortfall would invite wrath from its shareholders.
Ernest Rubondo, the petroleum and exploration department chief, said there were two issues to iron out before the transaction takes place.
“The first issue is the tax capital gain which must be concluded before even we think of the sale of the assets,†he said.
“The finance ministry is in the lead of tax negotiations.â€
This will not be the first time tax in the oil sector has been avoided. No taxes were levied when Tullow bought Australian firm Hardman Resources assets at about 860 million pounds.
In a related development, the energy ministry has refused to consent the proposed partnership of Tullow, CNOOC and Total after it emerged that there was no binding agreement.
Tullow reasoned that the proposed partners would only sign an agreement after the Government has approved the $1.5b deal. But the Government believes that Tullow has no required capital to develop the basin.
“We think that they (Tullow) want total control of the fields before going away,†said an expert who declined to be named.
Uganda’s oil and gas operations are moving into the development and production stages, which require risk capital, access to project finance and long-term investments.
UGANDA has hardened its stance to levy taxes on the proposed $1.5b oil deal, underscoring ability to raise revenues from the nascent oil sector.
Heritage Oil intends to sale its interest in blocks 1 and 3A to either Italian giant ENI spa or Tullow Oil.
The deal entails that a prospective buyer immediately pays $1.35b and a further $150m or surrender a stake in a producing oil field of a similar value within two years.
However, Uganda’s negotiators, comprising the energy and finance ministries, the Uganda Revenue Authority (URA) and the Attorney General, have demanded $404m as capital gain tax deducted from the transaction.
“I can assure you we shall not allow the transaction to proceed without being taxed. This will be exploitation,†said a source privy to the negotiations.
“They (Heritage) have brought their powerful (negotiation) team, but they should also know that we are well-equipped to the task of ensuring that Uganda gets the windfall.â€
URA has computed the capital gains on the basis of reducing signature bonuses earlier paid for the exploration licences, which amount to $250,000 from the consideration of $1.35b.
The balance will then be subjected to a 30% corporate tax, which brings the expected revenue collection to $404,925,000.
However, Heritage is against paying the $404.9m taxes fearing that the shortfall would invite wrath from its shareholders.
Ernest Rubondo, the petroleum and exploration department chief, said there were two issues to iron out before the transaction takes place.
“The first issue is the tax capital gain which must be concluded before even we think of the sale of the assets,†he said.
“The finance ministry is in the lead of tax negotiations.â€
This will not be the first time tax in the oil sector has been avoided. No taxes were levied when Tullow bought Australian firm Hardman Resources assets at about 860 million pounds.
In a related development, the energy ministry has refused to consent the proposed partnership of Tullow, CNOOC and Total after it emerged that there was no binding agreement.
Tullow reasoned that the proposed partners would only sign an agreement after the Government has approved the $1.5b deal. But the Government believes that Tullow has no required capital to develop the basin.
“We think that they (Tullow) want total control of the fields before going away,†said an expert who declined to be named.
Uganda’s oil and gas operations are moving into the development and production stages, which require risk capital, access to project finance and long-term investments.