The Independent Uganda: You get the Truth we Pay the Price
COMMENT | Joseph Mukasa Ngubwagye | On the 23rd of April 2020, media was awash with the news of the transfer of Tullow’s interests in the Uganda Lake Albert Project to Total E&P Uganda B.V.
Total will acquire all of Tullow’s current 33.3334% stake in each of the project licenses EA1, EA1A, EA2, and EA3A. The deal also includes a complete takeover of Tullow’s stake in the proposed East African Crude Oil Pipeline (EACOP). Under the Joint Venture Partnership arrangement, China National Offshore Oil Company (CNOOC) has a right to exercise pre-emption on 50% of the transaction. This followed an agreement with the government, in principle, on the tax treatment of the transaction.
Following the expiry of the previous Sale and Purchase Agreements (SPAs) in August 2019, and subsequent termination of Tullow’s farm-down process, the oil industry had suffered a sharp setback.
The Final Investment Decision (FID), which was expected later that year, was pushed forward indefinitely. In a bid to cut costs, the Joint Venture Partners (JVPs) consequently suspended operations in the Lake Albert Project as well as on the EACOP.
The victims were the many employees, including those of the third-party companies, who were laid off. Contracts of companies hired to implement the Resettlement Action Plans (RAPs) were suspended. The Project Affected Persons (PAPs) were equally left in suspense over the payment of their compensation money. In a very short time, the seemingly smooth ride to Uganda’s first oil hit a very unpredictable end.
FID will not be reached without clearly understanding the economic shape COVID-19 and its impacts will take. Nonetheless, the completion of the farm-down by Tullow to Total is a very important step in the right direction.
The COVID-19 pandemic made an already bad situation worse. Other than causing unprecedented health challenges, it affected the economies of many countries to a great extent. Equally affected was the oil and gas industry worldwide. The volatility element of the oil and gas market has presented the biggest challenge ever. Consumer demand decline driven by fears of continued spread of the pandemic led to rapid price swings, registering a negative trade for the first time in history!
With Uganda’s oil estimated to make business sense only when it sells at or above USD50, this was nothing but bad news.
Uganda could have taken advantage of continuing with operations in the development phase in anticipation that by production stage the prices of oil will have shot up and probably stabilized. Nonetheless, this is equally not possible.
The global air space is almost entirely closed to passenger planes while many countries have locked their borders in a bid to contain the spread of the virus. Yet much of the technical expertise for many such operations is expected to come from abroad. The development stage is also labor-intensive, requiring a large concentration of the workforce. However, there are strict regulations and guidelines on social distancing due to the COVID-19 pandemic, making work under such circumstances nearly impossible.
As it stands, only such business that can be transacted remotely will be accomplished; no physical infrastructure required for oil production can be set up using this mechanism.
Uganda’s oil industry keeps shrouded in uncertainty. While the reason previously was the expiry of the SPAs, it is now more because of the pandemic.
Therefore the FID will not be reached without clearly understanding the economic shape COVID-19 and its impacts will take. Nonetheless, the completion of the farm-down by Tullow to Total is a very important step in the right direction.
As to whether the 2023 target for first oil will be realized, it is increasingly becoming unclear.
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The writer is a Senior Research Fellow, Advocates Coalition for Development and Environment (ACODE)/CSCO Oil Governance and Environmental Sustainability Project
jngubwagye@acode-u.org
