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.”
On Wednesday, five leaders of African countries chaired the foundation stone laying ceremony for an oil refinery project in East Africa at a cost of $16 billion, in response to calls for the continent to enhance its self-sufficiency in converting raw materials into finished products.
Kenyan President William Ruto hosted his counterparts from Uganda, Ethiopia, Togo and Benin, as well as former Nigerian President Olusegun Obasanjo, where they bulldozed soil at the site as a symbolic gesture to begin construction of the refinery.
The refinery is expected to process 700,000 barrels of oil per day when work is completed within 40 months.
Nigerian billionaire Aliko Dangote will implement the project in the coastal city of Lamu. Dangote had stressed the need for Africa to “industrialize,” stressing on Wednesday that the continent could not continue to “export what it has and import what it needs.”
The refinery will depend on oil coming from neighboring countries such as Uganda, which plans to export its oil via Tanzania, and South Sudan, which exports its oil via Sudan.
Dangote pointed out that East African countries provide a sufficient market for the oil that will be refined locally, explaining that the consumption of countries in the region far exceeds the volume of 700,000 barrels per day that the refinery will produce.
The refinery was initially scheduled to be established in the coastal city of Tanga, Tanzania, but Dangote explained that it was later decided to choose Lamu. Due to its deeper waters, solid land capable of bearing heavy equipment, and access to the depths of the sea.
Other East African countries - Rwanda, Burundi, South Sudan and Tanzania - also sent heads of delegations to represent their leaders at the ceremony.
