Tanzania's President John Magufuli has suggested to that his Ugandan counterpart Yoweri Museveni might consider removing senior figures in the Uganda Revenue Authority (URA) if a dispute over taxation threatens to derail the East African Crude Oil Pipeline (EACOP).

The two presidents met in Dar es Salaam at a business forum, during which they acknowledged that a fiscal wrangle in Uganda delaying the upstream Tilenga and Kingfisher projects may also impact EACOP's timetable as shareholder relationships in the projects are integrated.

A 29 August deadline has passed for Tullow Oil to agree resolution of a capital gains tax dispute in Uganda affecting a proposed equity farm-down to partners Total and the China National Offshore Oil Corporation, and Total last week suspended all activity on the project.

Discord has raged over taxation due, relief application and the clarity of cost recovery terms.

Magufuli reportedly blamed Museveni’s own tax officials for the delay, arguing that Museveni might consider dissolving the URA and take a fiscal hit in the short term “in order to go for long-term gold.”

Magufuli also told Museveni that tax bureaucrats did not understand the troubles of ordinary people and that, since acceding to office three years ago, he had sacked his own chief tax commissioner five times for standing in the way of development.

Some 1445 kilometres long, the EACOP line aims to export Ugandan oil from Hoima on Lake Albert to Tanzania’s port of Tanga.

It would be the world’s longest heated oil pipeline, longer than the originally proposed pipeline via northern Kenya to Lamu, which was rejected on grounds of security and land tenure.

Despite Total suspending work on the project, Peter Muliisa, legal counsel at state-owned Uganda National Oil Company (UNOC), suggested timelines can still be met with some re-alignment.

"There is no derailment as the sale purchase agreement is there — Tullow still wants to sell while Total and the CNOOC still want to buy,” he argued.

For now, Total, Tullow and CNOOC each own 33.33% of the Albertine graben assets while each acts as operator of designated blocks.

Reacting to news of Total’s work suspension, Museveni said overall project - including a Uganda refinery - would “be implemented as planned and the matter was within the control of the government of Uganda."

James Mataragio, managing director of state-owned Tanzania Petroleum Development Corporation (TPDC), claimed the $3.5-billion EACOP was on course despite investor gridlock.

He insisted financial negotiations governing EACOP had mostly been completed between the three companies and host governments and “they will soon strike a deal."

"The TPDC believes such challenges are to be expected when implementing strategic projects of this scale,” he said.

Even so, Total's subsidiary Total East Africa Midstream has continued to tool down and decommission staff, citing “uncertain business conditions”.

The French giant had earlier been instrumental in persuading Museveni to reject Tullow’s original proposal to route the export line through Kenya to Lamu and instead opt for the alternative, longer route through Tanzania.

Total E&P president Arnaud Breuillac said: “Despite our decision to terminate the (sale and purchase) agreement, partners will continue to focus on progressing development of Lake Albert’s oil resources. "The project is technically mature, we will work to reach an investment decision. A stable and suitable legal and fiscal framework remains a critical requirement.”

Total insisted that despite diligent discussions, no agreement on the fiscal treatment of the transaction could be reached.

"Total’s interest will remain at 33.3% on blocks EA1, EA2 and EA3 prior to any 15% back-in for UNOC," Breuillac said.

"Total will remain operator of EA1, which contains the largest part of the reserves, while retaining the right to pre-empt any future transactions in case any party divests part or all of its interest.”

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Heads of state seeking way out of tax tangle