The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Ratings update: Total, Uganda

A standoff between the Ugandan government and the Tilenga project’s joint venture partners – Total, Tullow Oil and CNOOC – underscores the ways in which politics continues to hold up the development of Uganda’s oil sector.

Key Developments

  • A consortium comprised of Tullow Oil, Total E&P and China National Offshore Oil Corporation (CNOOC) hold licences to develop 1.5 billion barrels of recoverable resources in Uganda’s Lake Albert Basin. Each company owns a one third operating interest in the blocks and Total is the operator of Block 1. Successful development of the project requires the construction of a technically complex $3.5 billion pipeline to transport oil from landlocked Uganda to the port of Tanga in Tanzania. Total is leading the pipeline project.
  • Total has delayed its Final Investment Decision (FID) multiple times. Most recently, development was suspended after Total unsuccessfully tried to buy additional equity in the project from Tullow. The deal collapsed in August 2019 due to a tax dispute with the Ugandan government. Total subsequently halted technical work on the oilfield and pipeline project with the company’s CFO announcing that it was unclear when FID would be made.
  • In November 2019 Uganda’s Energy Minister Irene Muloni announced that the government offered a solution to Total, Tullow and CNOOC regarding the impasse. Details of the offer have not been disclosed.

Evaluation

  • Disagreements with the government regarding field development strategy and taxes have repeatedly delayed development of the Tilenga project. The stymied equity deal is the latest in a long series of disagreements with the government, which have delayed development. Disagreements between the government and the project’s partners around the construction of a refinery and the route of the East African Crude Oil Pipeline (EACOP) have previously forced the partners, including Total, to delay FID. Failure to reach a decision by the end of the year will likely push the date of first production back to 2023, replacing the previous estimate of 2021.
  • The Ugandan government has high expectations of companies’ economic contributions and environmental performance. President Museveni is counting on a windfall in oil revenues to clear mounting public debt and boost stagnant growth – and he was reportedly reluctant to negotiate the capital gains tax from Tullow’s farm-down transaction. The president also has high expectations regarding companies’ environmental performance, for instance expressing opposition to gas flaring.
  • Concerns over the project’s environmental impacts have attracted significant community and NGO opposition. Potential environmental impacts of the company’s operations on fragile ecosystems and endangered wildlife – including in the Murchison Falls National Park – have been a flashpoint of tension with local NGOs. Although Total has repeatedly emphasised that environmental damage will be kept to a minimum, environmental and social justice groups from Uganda have petitioned banks to deny finance to the EACOP project specifically due to its perceived environmental risks.
  • A proposed resettlement has also proved controversial, sparking litigation against the company. Local communities have protested alleged irregularities in the land acquisition process. In October 2019, six NGOs filed a lawsuit against Total in France claiming that the company’s resettlement plans do not sufficiently mitigate social and economic impacts on affected communities and that the company is therefore not adhering to its human rights obligations. Total denies these allegations.

This article uses Critical Resource’s LicenseSecure™ model to assess the likely level of political and stakeholder risk. Our updates provide a rapid overview of new or updated ratings in our database, with a focus on projects in the news. Please note that these ratings updates are provisional, based in part on open source analysis and are not from client projects. Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.

 

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