September 26, 2011 / 3:50 PM / 8 years ago

Uganda asks Tullow, others to drop protective clause

KAMPALA (Reuters) - Uganda wants British oil explorer Tullow Oil, France’s Total and Chinese group CNOOC to drop a clause shielding them from sudden changes in policy before approving a $10 billion oil project, sources said on Monday.

An oil rig prepares to drill in western Uganda, near the shores of Lake Albert, June 15, 2007. REUTERS/Tim Cocks

Tullow has been waiting since last year to finalise an agreement to bring in new partners Total and CNOOC to start the oil development project in western Uganda and had expected completion this month.

“The government of Uganda has written to the three companies and wants them to strike out the so-called stabilisation clause,” Angelo Izama, director of Fanaka Kwawote (FK), a Kampala-based energy think-tank, told Reuters on Monday.

“Then Uganda will sign the (Production Sharing Agreement) and endorse the joint venture,” he said.

A source at one of the companies confirmed the Ugandan government’s demand.

All existing Production Sharing Agreements (PSAs) in Uganda have a stabilisation clause that insures exploration companies against adverse changes in taxation policy and outbreaks of political turmoil, Izama said.

“It’s going to be difficult for companies to accept this. Deleting the stabilisation clause would mean companies would find it hard to raise capital because of elevated risk,” he said.

Under the proposed deal, completion would see Tullow’s new partners pay it $2.9 billion to become involved in the development of massive oil fields around Lake Albert.

The east African nation had provisionally given the green light to the deal, which has been held up by an ongoing wrangle over capital gains tax now being played out in a London court.

Uganda struck commercial hydrocarbon deposits in the Albertine rift basin along its border with the Democratic Republic of Congo in 2006 and production was expected to commence next year.

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