On Wednesday, Tullow Oil lost a $196.5 million tax dispute with Ghana, after an arbitration panel rejected the oil producing company’s claim that the tax estimate violated its oil agreements. Which led to a sharp decline in its shares.
Tolo shares, which focuses its operations in West Africa, were on track to record their worst daily performance since December 2019. It fell by 45.1 percent to 10.7 pence by 09:09 GMT, a reaction that Ashley Kelty, an analyst at Panmure Librum, described as exaggerated.
“Losing the tax case is not a big surprise,” Kelty said. “But the problem is that unless the company makes tangible progress in paying off the debt, I don’t see any real chances for its long-term survival.”
The arbitration panel concluded that Ghana's corporate income tax assessment on insurance proceeds received by Tolo between 2016 and 2019 did not violate the agreements, and that the fines - equivalent to 100 percent of the value of the tax assessment - were not covered by the contractual protections stipulated in the agreements.
Tolo, the multinational company, expressed its disappointment with the ruling, indicating that it would consider its next steps after further consultations with the Ghanaian government.
For its part, the Ghanaian Ministry of Finance stated in a statement that it will work closely with Tolo to implement the arbitration decision in line with Ghanaian law, taking into account the necessity of maintaining operations in the Jubilee and TEN oil fields, and supporting the investments necessary to sustain production.
Finance Minister Cassel Ato-Forson said that the government will seek to collect tax dues and ensure revenues owed to the state, while at the same time preserving the ability of Tolo to continue its operations and investments in Ghana.
Wednesday's ruling adds to a series of tax disputes between Tolo and Ghana that have placed a burden on the company. A separate case involving a $190.5 million tax claim - arising from loan interest deductions - is scheduled to be heard before an arbitration panel in 2027.
Tolo has spent the past year restructuring its business to focus more on Ghana, by selling assets in Gabon and Kenya and refinancing its debt; In an effort to reduce the debt burden of $1.4 billion.
“Basically, Tolo needs the war in the Middle East to continue to keep oil prices high,” Kelty said. “This gives it any opportunity to generate positive free cash flows in the second half of the year as well.”
Japanese factory production unexpectedly fell in August for the second month in a row, affected by a decline in the production of cars and machinery, in data that may further complicate the Bank of Japan’s calculations about the timing of the next increase in interest rates.
Data from the Ministry of Economy, Trade and Industry showed on Wednesday that industrial production declined by 1.7 percent in August compared to the previous month, a result that was in complete contrast to the average market expectations in a Reuters poll, which suggested that production would rise by the same percentage of 1.7 percent.
The continued decline for the second month indicates pressures facing the industrial sector, despite companies expecting a recovery during the following two months.
The automotive sector was one of the most prominent reasons for the decline, as vehicle production decreased by 6.8 percent compared to July, after the repercussions of an earthquake and hurricane disrupted production operations. Production of general-use and business-grade machinery also decreased by 6 percent.
Despite the weakness of August data, manufacturers' expectations appear more optimistic about the coming period. A survey conducted by the ministry showed that manufacturers expect seasonally adjusted production to rise by 3.2 percent in September, then another increase of 3.1 percent in October.
The data gains additional importance in light of the growing controversy regarding the next path of Japanese monetary policy, after the Bank of Japan raised interest rates as part of the monetary policy normalization process.
Industrial production indicators are likely to be among the data that the bank will scrutinize before making a decision on raising interest rates again in the near future, as it needs to balance inflationary pressures on the one hand, and the strength of economic activity and the ability of companies to bear rising borrowing costs on the other hand.
The sudden decline in August production makes the picture of the economy more mixed, especially with rising market expectations about further monetary tightening. The extent to which companies' expectations for a production recovery in September and October are met will be an important factor in assessing the strength of the industrial sector and the sustainability of Japanese economic recovery.
