TEN Project partners frustrate tax officers over insistence to deduct costs from Jubilee revenue
Partners of the Tweneboa-Enyera-Ntomme (TEN) Project, led by Tullow Oil Ghana, have started recouping part of their US$4.9 billion investment in the project from revenue accrued from the Jubilee Field operations although the former is yet to start commercial production.
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The deductions started right after development works commenced on the TEN Project in late 2013, contrary to requests from the government and the Ghana Revenue Authority (GRA) that the partners should postpone it until the field starts oil production, hopefully in August, this year.
The situation has resulted in series of negotiations between the two parties aimed at finding a compromise. The negotiations, have, however, hit a snag because all the parties are not willing to compromise.
"We were saying that deducting now is not right, and so, they should wait till TEN starts producing before they deduct. " a government official, who is familiar with the process, said in an interview.
Tullow Ghana, which speaks for the companies on matters pertaining to TEN and Jubilee, is yet to reply to email questions from the paper, almost two months after they were sent.
Matching them boot for boot
The source explained that the decision to slap costs from TEN on Jubilee revenue was based on the insistence of the five partners that the two projects, although separate in nature, fall under one petroleum agreement – the Deepwater Tano (DWT) license.
The companies are relying on the Petroleum Income Tax Law, 1987, (PNDCL 188), which they say allows recoverable costs to be treated holistically for two or more projects that are governed by one petroleum license.
This has led to a deadlock in the series of negotiations held by the two sides aimed at finding a compromise to the situation.
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"It is in a stalemate; we are all sticking to our positions and it has been back and forth since the issue first came up," the source added.
"I think it has been complicated by the law, the PNDCL 188, which does not even have a regulation to clarify things further," it added.
To help reconcile the costs for tax purposes, the source said GRA had sent some "revenue figures to them (the companies) to validate, which they have still not validated."
Impact on petroleum revenues
The GRAPHIC BUSINESS has found that the insistence by the partners to slap costs from TEN on Jubilee revenue had placed them in a non-tax paying position, resulting in reduced revenue inflows from petroleum to the country.
Throughout last year for instance, none of the five companies paid corporate income tax on their operations within that fiscal year due to their inability to declare profit.
The US$20.41 million, which was captured in the 2015 reconciled Petroleum Receipts report as corporate tax, was a 2013 payment that was discovered after an audit by tax officials last year.
Currently, corporate tax, which is mandatory for all corporate institutions except those exempted, is 35 per cent of a company's profit within a fiscal year.
The inability of the companies to pay corporate tax for the fiscal year combined with the slump in crude oil prices to take a toll on government revenue from the sector, resulting in a more than 40 per cent decline.
The situation is likely to be replicated this year, with the deductions and the price fall still continuing.
"The TEN costs are huge and if it continues again, we will not get corporate tax in 2016," the source said.
In the 2016 budget, government estimated to receive US$502.1 million from oil and gas, of which US$27.87 million is expected to come from corporate tax.
Future earnings
Although the deductions of TEN project's production costs from Jubilee Field revenue has a toll on GRA and government's revenue targets in the short term, it could prove a good omen in the long run.
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This is because once the deductions are concluded, they would not be carried out again, even if revenue inflows from TEN Project begins.
This would mean that the government could earn higher revenue in corporate taxes from the two projects in the future.
"The thing here is about timing because they cannot deduct twice. Any cost incurred is allowed, but the question, is allowed for what? What we are saying is, TEN is work in progress and until they start production, the costs should not be recovered," the source said.