Uganda has received $214 million from Tullow Oil to date in settlement of disputed capital gains tax dues arising from the company’s sale of interests in oil blocks in the country.
Bank of Uganda said in its report for the year ended June 30 that a final instalment of $36 million was expected in the current financial year, ending June 30, 2017.
A compromise of $250 million was reached after the government slapped a hotly contested charge of $407 million, following the farming down of exploration interests in three blocks to Total of France and China Offshore Oil Corporation (CNOOC) in 2012. The deal was for $2.9 billion.
The matter went as far as the World Bank dispute resolution tribunal — International Centre for Settlement of Investment Disputes — before being settled out of court in 2013.
“On July 1, $36 million was received as part payment of $250 million CGT liabilities from Tullow in addition to $36 million received in June 2015 and $142 million in 2012,” BoU governor Prof Emmanuel Tumusiime-Mutebile noted in the report.
Crude oil prices have declined since mid 2014. Prof Tumusiime said Uganda, being a petroleum importer, benefits from low crude oil prices through the reduction in the oil imports bill and improvements in the balance of payments.
“The persistently low oil prices could also depress oil-related foreign direct investment inflows in Uganda, which have already dwindled,” he said.
This is bound to adversely affect Uganda’s already weak current account position and possibly cause volatility in the foreign exchange market. According to the report, the balance of payments as at June 30 improved to a surplus of $80.2 million on account of a decline in private sector import bill, reflecting low global crude oil prices and subdued domestic demand.
Total private sector imports declined by 17.7 per cent. Export growth remained subdued due to weak global demand, low commodity prices and conflicts in South Sudan, one of Uganda’s major trading partners.
The stock of foreign reserves was $2.948 billion, equivalent to 4.3 months of import cover.
An analysis by Bloomberg Intelligence, however, shows that Uganda is struggling to keep pace with Kenya and Tanzania in terms of growth because of conflict in South Sudan and lags in infrastructure development. It sees the next growth momentum coming when oil output starts in 2020.
Growth in real domestic product picked from a negligible decline of 0.1 per cent in the first quarter of this year to 1.4 per cent at the end of June and its volatile nature, said Bloomberg Intelligence.
“The slowdown in Uganda’s economic growth partly reflects a reduction in aid and investment, which has reduced the government’s budget for financing operations. Direct budget support was cut in 2012 following a corruption scandal. This has led the government to increase revenue from taxation, an area where Uganda has lagged peers, and by expanding domestic borrowing. The country is now more self-sufficient,” said Mark Bohlund, Bloomberg Intelligence Africa and Middle East Economist.
Uganda companies have been shifting attention Democratic Republic of Congo and Rwanda after South Sudan, their main market for export of fresh produce and transit goods from ports along the Indian Ocean, was disrupted by war in 2013.
The Bank of Uganda has been trying to stimulate growth by pushing down the key interest rate from 17 per cent to 13 per cent in six months. This has had some measured success with private sector credit expanding in the past three months. BoU, however, has revised the growth rate for this year to flat 4.8 per cent against 5.5 per cent in August.