That Tullow which was more than interested in  purchasing their stake in the block went ahead and offered to pay the capital gains tax that Heritage had refused to give to the government of Uganda is another kick in the back the UK Stock Exchange registered company made. But this was only on condition that the government will issue the said production license because without the license, Tullow would have bought ‘hot air” or bwooya bya nswa as termed in Luganda.

Tullow flew in from London and met government officials led by President Yoweri Museveni and then Energy Minister Hilary Onek in Gulu and signed an MoU that the government will issue the license so long as Uganda gets the $440 capital gains tax from the Heritage sale.

However, the petitioner contends that the MoU between the government and Tullow cannot stand since the Law provides that any agreement other agreement or license that is inconsistent with the act is null and void. “The exploration licenses had clearly expired. The holder knowingly didn’t apply for the production license. The law says these areas revert back to the government. This means that the government can only issue a license for this block under fresh terms,” says Kitara Nyakatura, a self proclaimed expert on oil dealings in Uganda.

Uganda making loses on oil sales so far

But other sources in the ministry of Energy and Mineral Development intimated that there is a growing acceptance that technically, exploration area 3A reverted to the government fully on expiration of the exploration license and therefore Heritage could not have sold what it didn’t own. Ultimate Media has seen a document by another group of petitioners to the government insisting that Tullow should have bought the Heritage interests in Block 3A from the government at $750 million, and paid a $226 capital gains tax to the government over the other Heritage interest in Block1 (which Heritage owned 100%). It means instead of the government now fighting for the $440 million, the country shoukd have earned $976 billion shillings from the $1.5 billion paid to Heritage.

“Tullow is aware of this and that is why they primarily rushed, agreed to pay the capital gains tax and then pushed the government to sign MoU to re-new the license on Block A. Legally, Tullow knew more than a year ago that they had no valid oil blocks in their control. Apart from the legal setbacks, this also lends credence to the allegations against the company paying bribes to some ministers to push their case through,” Kitara who is part of the backers of the Court told Ultimate Media in an exclusive interview.

According to one Tullow Oil Plc insider who spoke to us on condition of anonymity from London, Tullow was aware that in offering to pay the $440 million disputed capital gains tax, Tullow was avoiding the risk of provoking the government of Uganda to award the licenses under a new bidding process.

“The risk for Tullow (but also a bit for Uganda as a place to do business) would be if the government decides to award the license through a new bidding process.  I Cannot really imagine they would do that because they would also lose a lot of time,” the Tullow expert contends.

But he did says there are real concerns for the company given the recent “false” corruption allegations against Tullow and the fact they the ongoing farming out to China’s CNOOC and France’s Total is taking long to be approved by the government of Uganda.

For now the key concern for both CNOOC and Total as well as the targets of the Court petition -the government and Tullow Oil Uganda will be to ensure the court issues an order in their favour.

Serious risk Tullow may lose all oil interests in Uganda

Legal experts say Tullow is in an uncomfortable position given that many of its actions in the purchase of Heritage oil assets have shown panic and pushing of the law.

“They got Heritage assets after pulling that pre-emptive clause where as joint partners they had the right to be given first priority to purchase. Then they go ahead and agree to pay the government of Uganda money on behalf of Heritage which disputed that capital gains payment. Tullow has gone ahead and sued Heritage in a London Court seeking to recover the money they paid to the government. Tullow has bought another oil block in the past never involved payment of capital gains tax. This is a pattern of events the petitioners will use to show the legal gaps in Tullow’s acquisitions and the weakness in the current laws and government capacity to handle the oil sector,” said Arther Agaba, a lawyer.

But as Heritage argues in their defense, Tullow’s action can even be read beyond the legal provisions as actions of someone who wants to cover their lack of over sightedness in a crucial deal (the Heritage assets’ purchase) and especially one who wants to protect their future interests. Heritage in its defense has called Tullow’s payment of capital against tax (on which the re-licensing condition MoU is based) as a political payment to Museveni with Heritage arguing there is no particular law providing for this kind of tax. There are also allegations that Tullow is suing Heritage as cover up as the company has no interest in paying capital gains tax to Uganda when it makes the 2.9 billion sale to CNOOC and Total. “It may be true that Tullow wouldn’t mind losing that case to Heritage because they will save on the money they would pay to the government of Uganda in capital gains for the current sale if the suit was to be in Uganda’s favour. Uganda might retain the $440 from Heritage sale but fail to tap the 30% ($870million) in capital gains tax on the current Tullow sale to CNOOC and Total,” Agaba says.

In fact, Tullow bought its other interest in this block 3A from Hardman Resources in 2005 and the selling company didn’t pay any capital gains tax. Hardman itself had bought the same interest from Energy Africa in 2005 and the selling company never paid any capital gains tax. All these will be used by the petitioners as evidence that the oil sector is not being well managed by the government and the current oil companies and hence need to the injunction.

More concerns for Tullow on new licenses

As the court verdict is awaited, Tullow and all its shareholders will have to pray hard to maintain their prior stronghold in the budding Uganda oil sector. The company had managed to secure 100% of all drilled oil wells (and though required by the government) to sell to other interested partners CNOOC and Total as a way of avoiding a monopoly in the oil sector.

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