The Government of Uganda and Total have reached an agreement on the conditions of entry of the Uganda National Oil Company (UNOC) in the project as well as on the Host Government Agreement (HGA) which will govern the export pipeline project in Uganda.
The Minister of Energy and Mineral Development, Mary-Gorett Kitutu, signed on behalf of the Uganda while Nicolas Terraz, the Total Exploration and Production President for Africa, signed on behalf of his employer.
The Signing of the HGA signifies that the oil companies (represented by Total) and Government have reached agreement on the commercial framework for the Lake Albert Development Project.
“We have today reached major milestones which pave the way to the Final Investment Decision in the coming months,” expressed Pierre Jessua, Managing Director of Total E&P Uganda.
“We now look forward to concluding a similar HGA with the Government of Tanzania and to completing the tendering process for all major engineering, procurement and construction contracts,” he added.
The deal was inked during a meeting between President Museveni and Patrick Pouyanné, Chairman and CEO of Total at State House Entebbe on Friday.
Pierre said the conditions are set for the ramp-up of project activities and in particular, “we will resume the land acquisition activities in Uganda while respecting the highest human rights standards.”
President Museveni said “this agreement which moves us closer to production of crude oil in Uganda.”
Uganda has since 2016 been lagging behind on the US$3.5billion project, owing to a number of disagreements.
In 2019, the project suffered a major setback after Total SA terminated activities related on the pipeline following the collapse of a deal to buy a stake in Tullow Oil Plc’s interests in the Lake Albert Development Project.
However, Chinese state oil giannt CNOOC recently waived its right to pre-empt the sale of a major oil field farm-out deal in Uganda to France’s Total.
Total agreed last month to buy out the Ugandan assets of troubled Tullow Oil in a $575-million deal that cleared up a tax dispute with the government hanging over the country’s maiden oil project.
Under the terms of the deal, Total will acquire all of Tullow’s existing 33.33% stake in each of the Lake Albert project licenses and the proposed export-pipeline system.
CNOOC had pre-emption rights to acquire 50% of the assets on the same terms and conditions as Total.
With no further changes to the ownership stakes under the farm-out deal, Tullow said it expects the transaction to complete in the second half of 2020.
The companies had been waiting on the farm-down deal to kick-start the $20-billion oil development which includes a $3.55-billion, crude-export pipeline and the drilling of over 500 wells to produce 230,000 b/d.
Total is currently the operator of Block 1 and Block 1A and CNOOC is the operator of Block 3A, while Tullow operates Block 2.
In February, Total said it expected the FID to take place in “2020 or after” despite official hopes by the Ugandan government that the partners would approve the project in early 2020.
Museveni speaks out
Speaking shortly after the signing ceremony, President Museveni said Uganda is a very peaceful and attractive investment destination.
He said proceeds from oil will be used to further develop the country’s other important sectors like infrastructure, education and health.
“Our oil will be used to develop our infrastructure, and ICT to enhance durable capacity of our country,” President Museveni said.
“I am glad that Total and other companies licenced in the country are taking bold steps to quickly commence the production of petroleum,” President Museveni said.
Museveni reassured Total of the Government’s support during their work.
“It has taken long, but it was a deliberate move, I can assure you Ugandans,” said the President, adding that Uganda is a rich country with oil as a small fraction of this natural wealth.
He pointed out that other potential lies in Agriculture, Tourism, Services, and Human Resource among others.
The President promised to get in touch with his Tanzanian counterpart, John Pombe Magufuli, to resolve other pending issues, especially concluding the Host Government Agreement in Tanzania.
“I congratulate Total and our Ugandan team on this milestone. We have been slow but steady and sure,” the President said.
Minister Kitutu said once the final investment decision is made by the oil companies, the opportunities for investment in the country will grow exponentially and give a boost to the economy.
She later said local companies should take advantage of this agreement to tap into opportunities in the oil sector.
Total CEO Pouyanne said this is a great achievement between the Total and the Government of Uganda.
“It was a bumpy road but I am glad we have overcome the challenges. I thank the teams from both sides that have worked tirelessly,” he said.
He commended President Museveni for his leadership and promised that the project would be executed successfully.
The ceremony followed a series of high-level discussions between President Museveni and Mr. Pouyanne which were aimed at addressing the commercial bottlenecks in the achievement of a Final Investment Decision (FID) for Uganda’s upstream and EACOP projects.
The development is a huge relief for many local companies which invested billions of dollars with hopes of tapping into the oil production boom.
Many were declared bankrupt due to the delays in tax disputes between government and oil firms.
Tanzania’s President John Magufuli has been piling pressure on Uganda to expedite the oil pipeline deal.
“If President Museveni and I agreed to build a pipeline from Hoima up to Tanga; the world’s longest heated pipeline, there are a lot of things we had to sacrifice,” he said.
“It took us going to parliament to cut a portion of taxes payable to our government. Today, I was here asking (Mzee Museveni); why are you delaying this pipeline? Is it because of this small tax that you cannot agree upon? The tax itself is just Shs 600million, and yet you are looking at returns of up to $70billion that you expect. Just sacrifice this small tax; create the jobs, you will get money for a long time,” said Magufuli in 2018.
Total E&P Uganda reiterated its willingness to pursue a constructive dialog with the communities and NGOs regarding all project activities.
The function was attended by among others the Attorney General, Mr. William Byaruhanga.