Pay the tax money or get out

How angry Museveni letter got Tullow Oil bosses to act

Kampala, Uganda |  The Independent Team |  It was an act of greed that “flabbergasted” even the President himself.  Wildcat oil explorer Heritage got paid US$1.5 billion (Approx. Shs 3.5 trillion or half Uganda’s 2010/11 national budget) for its shares in Uganda’s oil fields by former partner Tullow and then skipped town without paying taxes.

In a letter to Energy Minister Hilary Onek seen by The Independent, President Yoweri Museveni expresses his rage at the audacity of Heritage, which invested a paltry US$150 million in the venture, not paying its tax.  Museveni is angry that Heritage refused to contribute just 30 percent of its earnings to the nation’s underdeveloped economy, despite a 966 percent profit on the sale.

But since the Heritage boss, former mercenary Tony Buckingham, got paid and left the country, it’s Heritage’s former partner, Tullow, which has borne the brunt of Museveni’s anger with the repossession of the company’s Kingfisher field last month.

Observers say that Tullow is in a very precarious situation in Uganda following the government’s repossession of the block, which was part of what it bought from Heritage.

Some industry insiders believe that the Irish company will have to pay the outstanding taxes on behalf of former partner Heritage if it wants to continue operating in Uganda.  “They will have to pay because they are in a very bad situation,” said one Ugandan legal expert.  “There is no question that they got very bad legal advice (regarding the deal) and now they have realized it.”

In a revealing incident, President Museveni met Aiden Heavey the CEO of Tullow in Jinja. At the meeting, which lasted barely 12 minutes according to reliable sources present at the meeting, the President had just only one question for Heavey and his team: ‘Have you brought our taxes?’

When Heavey went into legalistic explanations, the President cut the meeting short and walked out.

Sensing the tough stance of the President on the matter, Tullow retreated and pulled out its ‘top guns’ led by the Chairman of the Board of Directors, Patrick Plunkett. The team met Museveni at State House Entebbe in September. There was no progress at the late night meeting as the President maintained his position and advised the Tullow team to either pay or wait for the final government decision.

Later in September, the Government served Tullow with a 14 day ultimatum which expired on Tuesday Oct. 6. The ultimatum was for Tullow to pay up or get out of Uganda.

Tullow Uganda President, Elly Karuhanga, was not available to comment on the issue but by press time, there were unconfirmed reports that his office was preparing to agree to pay the outstanding amount.

Other analysts believe that the President is angry that the company went ahead with the deal before the tax issue was resolved and does not want to deal with the company any more at all.  “Tullow is stretching Museveni’s patience and soon he will kick them out,” said another source close to the transaction.

Vultures Circling

Already, it seems there are other companies waiting to retrieve Kingfisher if Tullow does not recover it.  The original sale of Heritage’s assets generated intense interest.  President Museveni was courted by companies from around the world; for a while, every week it seemed that executives from China, India, South Africa and elsewhere were touching down in Entebbe.  If the Kingfisher block were to go up for auction again, there would presumably be a similar amount of interest.

With the status of Kingfisher uncertain, reports are circulating of renewed interest by some of the major players.  Italian giant Eni, whose deal to buy Heritage`s assets was all but signed when Tullow preempted it, remains keen to participate in the oil industry in Uganda, according to an industry insider.  “Eni is definitely (still) interested in Uganda,” he said.  From other quarters, there are reports that South African President Jacob Zuma’s nephew’s oil company, Medea Development SA, has offered Ugandan officials billion dollar signature bonuses for the block.

The whispers have apparently been enough to spook Tullow; The Independent has learned that the company has written letters to companies including CNOOC, Total and Eni threatening to sue them if they show any interest in the Ugandan fields.