UGANDA will use tax payments by UK oil explorer Tullow Oil to finance construction of the Karuma dam, a ministry of finance official said on Friday, to provide the hydro-power needed for industrial growth.
Last week, Tullow paid Uganda $469m in capital gains tax from the sale of petroleum assets in blocks 1 and 3A in Lake Albert Basin.
Capital gains tax is levied on profit made from an asset sale. The Government has said the power project will cost $2.2b, up from an initial estimate of $900m.
“The current government position is that the Tullow money that has just come in will be used to build Karuma dam,” Keith Muhakanizi, deputy secretary to treasury told reporters over the weekend.
Uganda discovered oil in the west along its border with the Democratic Republic of Congo in 2006, and commercial production is expected to start early next year.
The hydro-power dam, Uganda’s largest ever infrastructure project, is expected to generate 700 megawatts. Construction is expected to start early next year.
Uganda has enjoyed a decade of vigorous economic growth on the back of its service, construction and retail sectors, bolstered by stable economic policies, but insufficient power supplies have stifled industrial growth.
The payment marked the end of a protracted tax dispute created by Tullow and Heritage last year after the two exploration firms sealed a $1.5b deal without approval.But the Uganda Revenue Authority demanded Tullow to pay the capital gains tax liability left behind by Heritage when it disposed off its interests last year.
Heritage disputes the tax assessment, but deposited $121m in Bank of Uganda account and the balance in an escrow account in London, pending the International Court of Arbitration verdict.
This means that Tullow can now sell 66.6% of its interest to France’s Total and China National Offshore Oil Corporation, (CNOOC) for $2.9b. This transaction is also subject to a $472.7m capital gains tax, which Tullow has promised to pay in five weeks after the deal.
when CNOOC and Total deal is complete. Honey Malinga, the assistant commissioner in the petroleum exploration and mineral development, said yesterday his department had issued an extension licence for blocks 1 and 3A to compensate for time lost.
“We have granted them an interim operatorship for six months, considering the much needed capitalisation and investments. This is a huge achievement in the development of the oil and gas sector.”
The International Monetary Fund has welcomed Uganda’s plan to handle petroleum revenues, saying it is ‘sensible’ and promotes transparency and accountability.