Latest update January 20th, 2025 4:00 AM
Oil company in Guyana’s backyard moves to arbitration to avoid paying Ghana US$387M in taxes
~~A SIGN OF THE TIMES ~~
Kaieteur News – The Government of Ghana has found itself in a dispute with British oil producer, Tullow Oil over US$387M of taxes the company is trying to avoid paying. How this matter plays out between Tullow and the West African Republic is of critical import for policymakers in Guyana.
Tullow Oil has interests in oil blocks offshore Guyana. It is the operator of the Orinduik Block with a 60% interest. It also has a 37.5% interest in the Kanuku block, which is operated by Repsol. Ghana’s experience could teach a salient lesson about the extent to which wealthy oil elites will go to deprive the developing jurisdictions in which they operate, of the hundreds of millions in revenues that could lift communities out of poverty.
Tullow said recently that its Ghana subsidiary, Tullow Ghana Limited (TGL) has filed requests for arbitration with the International Chamber of Commerce in London with respect to two disputed tax assessments it received from the Ghana Revenue Authority (GRA). Arbitration is a mechanism for resolution of disputes, administered by a private organisation. It is a more efficient mechanism that occurs outside of the judiciary.
Tullow said the tax assessments relate to the disallowance of loan interest deductions for the fiscal years 2010 – 2020 and proceeds received by Tullow under its corporate Business Interruption Insurance policy. It said the requests for arbitration have been filed in accordance with the dispute resolution process set out in the Petroleum Agreements which govern TGL’s activities in Ghana.
The first assessment: Tullow said TGL has received a revised corporate income tax assessment for US$190.5M from the GRA relating to the disallowance of loan interest for the fiscal years 2010 – 2020. The British producer said it previously disclosed assessments by the GRA relating to the same issue; but this latest revised assessment received in December 2022 supersedes all previous claims.
The second assessment: TGL also received a new corporate income tax assessment and demand notice for US$196.5M from the GRA relating to proceeds received by Tullow during the fiscal years 2016 – 2019 under Tullow’s corporate Business Interruption Insurance policy.
“Tullow considers that the two disputed tax assessments, which total $387 million plus penalties, breach TGL’s rights under its Petroleum Agreements,” the company said in a February 14 statement.
It said it believes that international arbitration will bring certainty in the best interest of all stakeholders. Notwithstanding this formal step, Tullow said it intends to continue to engage with the Government of Ghana, including the GRA, with the aim of resolving these disputes on a mutually acceptable basis.
Tullow positioned itself in Guyana more than a decade ago. In the Orinduik Block that it operates, two heavy discoveries were made at the Jethro and Joe wells, but the company has not decided to produce due to the quality of the oil. Reports indicate that Tullow will drill the Amatuk well this year. The terms of the deal set cost recovery at 75% and the profit split gives Guyana between 40% and 60% depending on production levels. The royalty is set at 1%.
The Government of Guyana has said it will renegotiate all deals except those associated with the Stabroek Block. However, Tullow’s petroleum agreement includes similarly restrictive stability provisions as in the Stabroek block contract. Tullow’s contract also includes provisions for resort to arbitration as a dispute resolution mechanism.
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