By Haggai Matsiko
- Allegations expose Tullow and British Foreign Office
- Reveal danger of Museveni directly managing the sector
- Reinforce need for transparency
- Re-awaken debate about Shs 2 trillion oil earnings
The on-going tax dispute in London between Tullow Oil and Heritage has lifted a lid off the dark side of oil companies, how their governments back them and why governments like Uganda need to make their oil industries as transparent as can be to avoid the oil curse.
Tullow Oil top officials considered bribing President Yoweri Museveni with $ 50 million (Approx. Shs 130 billion), financing his 2011 re-election and also proposed that he slurs Heritage as part of a deal to settle a $ 404 million tax dispute that had stalled their business, details from the trial show.
The tax dispute arose when Tullow Oil bought Heritage Oil’s 50 percent stake at $ 1.4 billion and the latter refused to pay the $ 404 million in capital gains tax. Government decided that Tullow, which had bought the assets knowing that Heritage had not paid tax, would be culpable.
For it to also sell 66 percent of its assets to French oil company, Total E&P and Chinese Oil Ofshore Oil Company (CNOOC) in a $2.9 billion deal, President Museveni who personally runs the oil sector directed that Tullow had to first pay that tax.
Tullow deposited part of the money $121.5 million, that is, a third of the original tax as is required in case of a dispute and put the balance of $283.5 million into an escrow account. This left only a $1.045 billion payment to Heritage in exchange for the assets.
The $ 404 million is no pocket change. To an ordinary Ugandan, who has to deal with potholes, Tullow sought to blow away a whole budget of Ministry of Works and Transport with the Shs 130 billion bribe to President Museveni. Heritage on the other hand relieved Ugandans of that.
This is not the first time oil and bribery allegations involving Museveni and officials in his government are surfacing. In October 2011 heated exchanges erupted in parliamentary when MPs tabled documents alleging oil companies, including Tullow, had bribed three ministers; Prime Minister Amama Mbabazi, Foreign Affairs Minister Sam Kutesa, and former Energy minister Hilary Onek in order to win oil deals.
Parliament resolved that the three ministers step down but President Museveni defended them. The documents were later declared `forged’ but the parliamentary committee investigating the saga has never published its report.
A leaked US diplomatic cable, issued in September 2011, noted that Andy Demetriou, then Tullow’s Head of External Relations told a US mission economic officer that Tullow believed ENI made personal payments to President Museveni and Ministry of Energy officials in return for Tullow’s offshore exploration rights.
At the time Museveni told a press briefing that allegation against him was “absolute rubbish” and that “Mr Demetriou is an “idiot”. He added that if ENI paid him, then it must have made a very bad investment because they did not get anything for it.
Museveni told reporters: “For Gen. Yoweri Museveni Kaguta, Ssabalwanyi [the great fighter] to get money from a Mzungu [white] or anybody for my personal use, was contempt of the highest order.”
The revelation in the ongoing case that Tullow contemplated bribing him to avoid the tax shows how easily such claims can be made.
For the two oil companies, the money at stake is enough to boost Heritage, that is reportedly making losses and finance Tullow’s several months of exploration drilling. For instance, to run its appraisal and exploration campaign of 9 wells, the French oil company Total E&P last year announced it would use $650 million. $404 million would therefore finance exploration of six oil wells.
When Tullow met those tax conditionalities, it ended up with total bill of $1.7 billion for a deal that was supposed to cost $1.4 billion. In 2011, Tullow paid another $313.5 million to URA. The reason it sued Heritage for breach of contract for not paying back the difference.
Heritage, which is in another court with the government of Uganda, challenging the capital gains tax levied on it, on the other hand insists that Tullow made a political payment to clear way for its farm-down and also filed another case demanding that the $283.5 million Tullow paid into an escrow account be released to it.
Financing Museveni campaign
Heritage’s lawyer, Khawar Qureshi, during the hearing exposed how Tullow Oil considered bribing President Museveni.
Khawar, told court that the Tullow Exploration director, McCoss Angus in an e-mail proposed that “it is worth thinking about meeting M7’s short-term needs and demands, and he has already indicated the things he is addressing is his election campaign”.
“This can only mean one thing: The provision of assistance and funds to Mr Museveni in his election demands,” the Herirtage lawyer was quoted as saying.
But Tullow Company Secretary Alan Graham Martin, in defence, said McCoss “was using M7 as shorthand for the whole country (Uganda) and that there was no suggestion on his [McCoss] part that we were somehow going to pay funds to Mr Museveni’s election campaign. I would say that is an outrageous suggestion”.
However, the revelations expose Tullow officials, especially Graham Martin, who while appearing before the Parliamentary Ad hoc Committee on Oil on April 11 to defend themselves against bribery allegations, noted that the allegations had put their “25 year history of zero tolerance on corruption in jeopardy”.
Apart from considering bribing Museveni, Tullow’s Tim O’Hanlon allegedly planned to advise Museveni to tell the leaders of Mali, Kenya and Tanzania that Heritage are gangsters.
Tullow executives had also lobbied the British Foreign & Commonwealth Office (FCO) that unleashed its diplomatic resources to defend them.
Foreign Secretary William Hague personally called President Museveni begging him to relieve Tullow of the tax.
Hague’s Minister for Africa, Henry Bellingham on July 23 also paid President Museveni a visit and made clear the UK’s strong support for Tullow in the country. He stressed how Britain had “world class companies with expertise in the oil and gas sector [Tullow being a good example], including supporting engineering and professional service.
Officials at Tullow and the foreign office kept exchanging updates to keep at par with the situation.
One email, demanded to know whether anything had changed since Bellingham’s visit. Apparently, Bellingham wanted to know and then report to Hague about the progress ever since his meeting with President Museveni meeting.
On August 10, 2010, Bellingham wrote to Foreign Secretary Hague: “My meeting with President Museveni allowed me to raise a specific trade issue, again regarding Tullow Oil. Though better than in DRC, the situation is stuck due to the question of taxes…”
Two weeks later, the British High Commissioner to Uganda, Martin Shearman, wrote that the Tullow problems could threaten its investments in Uganda and recommended that the Foreign office intervene urgently at ministerial level with President Museveni.
The letter from Minister for Africa Henry Bellingham to Museveni was revealed to Tullow officials.
Martin Shearman, whose wife Miriam, it emerges worked for Tullow, sent a copy of the letter to Tullow directors without clearance, according to evidence submitted to the High Court.
International reports indicated that Aidan Heavey, CEO and founder of Tullow Oil who had given £10,000 to the Tory party before the 2010 general election, viewed British Foreign office documents without security clearance although the files were restricted.
Sherman who left the Uganda British Embassy had become restless, receiving instant updates from Tullow and dispatching them to the Foreign office and organising meetings with Ugandan officials including President Museveni.
On Aug.24, he sent an e-mail, revealing that he had just seen Heavey who had been in a meeting the previous night with President Museveni to settle the next stage of Tullow’s investment in Uganda.
“There is a major UK commercial interest at stake here,” Sherman wrote, “which is not limited to Tullow. Their success has also been bringing other major UK firms…”
On Sept.3, officials also dispatched another set of updates and advised the Foreign Office on what to tell the press.
“We have made clear to the Government of Uganda HMG’s support for Tullow’s investment and hope that an equitable agreement will be reached quickly,” reads one of the press lines in a document titled Press Lines: Dispute between Government of Uganda and Tullow Oil.
For the support, Tullow wrote a letter of appreciation that on Sept.17, Sherman forwarded to the FCO.
“Some thanks from Tullow for the Foreign Secretary and Mr Bellingham,” Martin wrote.
In September, when Bellingham met with Foreign Affairs minister Sam Kutesa at the United Nations General Assembly, he also ‘engaged’ as the officials called it in their e-mail exchanges.
With all that lobbying, President Museveni allowed a compromise with Tullow.
“… following representations from the Foreign Secretary and Henry Bellingham, President Museveni has agreed to discuss a proposal from Tullow,” reads one of the October 2010 correspondences.
Indeed, without fully paying the taxes, the government cleared Tullow to farm down its assets to Total and CNOOC despite a parliamentary moratorium halting all oil transactions following an October tense parliamentary debate.
This led to a repeat of the Heritage saga, as Tullow is involved in another court case with the government over tax at the International Centre for Arbitration of Investment Disputes (ICSID) in Washington D.C. The two cases are financed by Ugandan taxpayers’ meager resources.
For the Heritage case alone, Uganda’s legal team had blown $1.5 million by May last year and the Attorney General, Peter Nyombi, was requesting another Shs5 billion to proceed with the case.
Fortress of secrecy
Tullow and the British FCO’s machinations give a window into the dubious deals of oil companies. Whether or not Tullow paid any bribes to any government official is not the issue. That such a company considered a bribe in corruption riddled Uganda is telling enough about why while dealing with such oil companies, governments need to put in place all transparency measures.
Uganda’s oil sector is a fortress of secrecy. Apart from the Tullow and FCO intrigue, although Uganda has earned trillions of shillings in licence fees, loyalties, signature bonuses and taxes, it is only the tightly knit network of government officials that know how much the country has earned so far.
Theodere Ssekikubo, the chairman Parliamentary Forum on Oil and Gas (PFOG) told The Independent that Uganda is going through all this because of President Museveni’s philanthropic way of handling matters of public importance.
“This is why we felt that the president should rely on institutions,” Ssekikubo said at the sidelines of a conference on March.15, “there is no way in matters of international trade the president should use philanthropic notions like he does in the caucus.
“Despite him being philanthropic, the businessmen on the other side have not been kind to him, they have subjected him to ridicule in that there is litigation going on in the UK. Even when he overstepped a parliamentary resolution, the same matters have ended up in court,” Ssekikubo told The Independent.
The conference was to discuss the implementation of the Extractives Industries Transparency Initiative (EITI), an international initiative in which subscribing companies reveal what they pay to governments and governments, what they receive. Uganda has been averse to signing into it.
With such an initiative in place, Tullow would possibly not have considered bribing President Museveni.
At the conference, Eddie Rich, the Deputy Head EITI International Secretariat, noted that in Nigeria, through the EITI process, they were able to identify $8 billion that was owed by National Oil Corporation and have recovered $ 2 billion. Tanzania was also able, under EITI, to see that workers in the extractive industry were paying more in taxes than the oil corporations.
The NGO, Global Rights Alert (GRA) organised conference and over 50 MPs and representatives of several nongovernmental organisations attended.
Ssekikubo said that because government is not transparent, Ugandans cannot tell where the Shs. 2 trillion earned from oil transactions is.
“…the talk about money so far obtained like 2 trillion, the question is where is the 2 trillion?” he asked, “where have they committed it if at all that money has been committed? The answer is hazy.”
He added: “Oil transactions in form of signature bonuses, profit tax, capital gains tax, ought to have been itemised and indicated all the way from Energy Africa, Hardman, to Tullow, Heritage, Total, CNOOC. All those do not seem to be clearly put down. We cannot strongly verify where this money is and that is the crux of the matter. Have there been under valuations, have there been collusions?”
President Museveni in 2011, reportedly directed central bank Governor Tumusiime Mutebile, to withdraw from these monies in the reserves for him to pay for US$ 750 million was spent on the 6 Su-30MK combat aircraft and associated weapons from Russia.
Ssekikubo says that even when “we wrote as the Parliamentary Forum on Oil and Gas to the commissioner general of URA to tell us the breakdown of these monies, how much money has been collected by the authority, where it is, till now there has not been a clear response”.
Peter Lokeris, the State Minister for Minerals, told The Independent, that URA has showed government how that money was received. “They have that data,” he said on the sidelines of the conference, “Those things [the information on the oil earnings] are there, they are available, they are not private, and they are not even confidential because all taxes are just declared.”
Winnie Ngabirwe, the Executive Director, GRA and chairperson Publish What You Pay said that it is important for Ugandans who own these minerals to know the value for the resources.
“How much we are selling our resources, are we making sure that the companies are paying the right amounts or are they cheating us?” she asked, “once we know this is the amount we are earning, then we would decide on what to spend it on.”
She said that without the EITI, there is no way Uganda is going to have a meaningful engagement and being able to plan effectively.
The oil region in Uganda