EACOP: Reaching alignment?

As a $3.5 billion project, and with an estimated $20 billion value chain, EACOP will create significant opportunities for Tanzanian and Ugandan businesses, and legislated local content requirements will encourage the use of local capacity wherever possible. Financial capacity was highlighted as a potential constraint for local investors, and there was discussion as to how to best address this, whether through the local banking system or otherwise. The Ugandan Minister for Energy and Mineral Development, Hon Ruth Nankabirwa highlighted the agreed common local content principles in the two countries including: priority for nationals in procurement; areas reserved for nationals; requirements in relation to quality (to meet international standards), and capacity building whether supplier development or training support (including, employee training plans as well as support to training institutions). At the same time she emphasised that whilst national participation is good, availability and competence are paramount if locals are to realise the opportunities.

“Operational Minefields” was the topic for the panel that I sat on together with the Commissioner General of the Uganda Revenue Authority, and the Deputy Commissioner Large Taxpayers of the Tanzania Revenue Authority. Concerns I highlighted included the need to ensure (i) alignment between tax legislation and project commitments in the HGAs, (ii) minimal risk of “tax friction” whether double income taxation, or irrecoverable VAT, (iii) efficiency of processes in clearing project goods for contractors, and (iv) alignment on local content expectations. Although the two countries are marching in step on many issues, there are areas of divergence. For example, whilst Uganda is promulgating detailed enabling legislation (with an EACOP bill currently before their Parliament for a first reading), the approach in Tanzania appears to be different (for example, a much briefer enabling amendment to the tax administration legislation). Uganda has also bitten the bullet in seeking to minimise the risk of double taxation as its EACOP bill specifically address certain double tax risks; in addition, several years ago Uganda ratified the East African Community (EAC) double tax agreement, a document signed by EAC members states in 2010 and subsequently ratified by all with the exception of Tanzania (and Burundi). On a positive note, the two revenue authority representatives highlighted a number of steps being taken to ensure administrative efficiencies - for example, as regards the clearance of imported goods. A constant refrain was that project stakeholders should feel like they are operating in one country. However, local content was noted as an area of particular dissonance in terms of respective approaches in Tanzania (with a focus on local ownership percentage) and Uganda’ (where the focus is more on value addition (including local employment, consumption of local supplies, and other measures to add value locally). Indeed, one of the large travelling Ugandan contingent at TUOGC raised the concern that if not carefully managed the Tanzanian approach could be a recipe for rent seeking rather than genuine local value addition.

EACOP: Reaching alignment?

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