Ms Sarah Birungi Banage, (R) the assistant commissioner – public and corporate affairs of URA.

In a press statement released on Thursday, Sarah Birungi Banage, the Assistant Commissioner Public and Corporate Affairs with URA dismissed as false recent media reports suggesting that the beneficiary officials had earlier ‘hatched a plan’ to share the oil bonanza saying the transaction was both legal and had duly been approved through the Attorney General’s office.

The entire team came from URA, Ministry of Justice and Constitutional Affairs, Ministry of Finance, Planning and Economic Development and the Ministry of Energy and Mineral Development.

“It is standard international best practice for employees to receive bonus payments/or honoraria for exemplary performance in both the public and the private sector. Equally under the Ugandan Constitution; the President has a prerogative as a fountain of honor to reward exemplary performance and this has been exhibited in the fields of health, academia, sports among others,” Banage’s  statement reads in part.

The payments which have popularly been referred to as a “presidential handshake” have caused a lot of debate among Ugandans with some members of the civil society and a section of members of parliament calling for an investigation to the transaction saying it didn’t follow the due process of the law.

According to the Observer newspaper, a section of MPs have demanded that the Speaker of Parliament, Rebecca Kadaga, urgently institute a probe into the payments since the involved officers are public servants who draw a monthly salary for their work with government.

Paul Amoru the Dokolo North MP

Dokolo North MP, Paul Amoru, is quoted to have described the payments as “irregular, uncalled for and disturbing” and called for an immediate investigation into the matter.

“For us, as concerned MPs, from the information we have, URA should answer to the Parliamentary committee whose work directly deals with that to help us answer certain questions.It is unprecedented and dangerous,” Amoru said.

He was among MPs who called for a press conference on Wednesday in which a sizeable number of them said they want to clearly understand the source of this money and the person who authorised its payment.

Reports indicate that at least 42 officials benefitted from the bonus for their role in the capital gains tax dispute, in which the Ugandan government was awarded a combined total of USD700m.

However, Banage says there has been a lot of misconstrued information published in some dailies and online publications to the fact that payments were illegal, no approvals were obtained and that government officials ‘hatched a plan’ to share the oil bonanza.

“There is a lot of inaccuracy in the amount of money and the names of beneficiaries some of whom a former and current employees of URA. For example the following people both current and former staff of URA are erroneously included in the circulating lists namely;- Kyomuhendo Irene, Nabwire Agnes W, Nyakwera Jennipher, Nanziri Justine Stella, Wabokha Robert, Sebyala Samuel, Semombwe Charles, Patrick Mukiibi, Kateshumbwa Dicksons, Saka M Henry, and Otonga Michael Ochan,” Banage wrote.

Banage explained that contrary to the public view about the payments, all the legal processes were done before approvals were made as required by the Financial Management Act and that a Commissioner General was appointed to disburse the respective payments.

She added that the payment was a fraction of less than 1% of the total money won in the case.

Media reports have named the civil servants, who benefited, including, Ms Doris Akol, Head of URA (the initiator of the suit), her predecessor Allen Kagina who now runs the Uganda National Roads Authority (UNRA), the former Attorney General, the former Secretary to the Treasury, and the head of Kampala Capital City Authority, Jennifer Musisi, who headed the tax body’s legal department at the time.

In 2010, Heritage Oil sold its interest in Uganda to Tullow Oil at over $1.5bn, and the Ugandan government decided to impose a capital gains tax on the sale. But the oil firms refused to pay and the drawn-out dispute went on to the UK court of arbitration, where it was concluded in 2015.

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In 2006, Uganda discovered an oil field that is now locally known as the Kingfisher Oil Field. Plans for extracting oil were delayed due to several reasons, but one of  the biggest obstacles that the government faced was access to the site. The oil field can only be approached by helicopter or on water, making it difficult for workers to construct facilities near the oil field. As such, Uganda’s Prime Minister Dr. Ruhakana Rugunda commissioned a 10-kilometer
Ikamiro-Kingfisher road that provides the only access by road to the new oil field.

The road, which spans across a steep and rocky cliff was constructed by the China Communications Construction Company.

The Kingfisher Oil Field is being operated by CNOOC Uganda Ltd. under a Joint Venture Partnership with Total E&P Uganda Ltd. and Tullow Oil. Its production license was issued first to Tullow Oil in 2012 until a partnership deal was offered to CNOOC Uganda Ltd. in the same year. The Kingfisher Oil Field is one of the 21 oil fields that have been discovered throughout Uganda.

While commissioning the new road, Prime Minister Rugunda expressed confidence that the new oil field would be able to produce its first supply of oil by 2019.

“The Government and people of Uganda are very expectant of the fast-tracked development of this field by CNOOC Uganda Limited so that commercial production can be realized as soon as possible,” the Prime Minister said. Government expects CNOOC to complete Front End Engineering and Design (FEED) for this field before the end of this year, and prepare the field for production in the Financial Year 2018 or 2019.”

If everything goes according to plan, Uganda will become a major player in exporting oil. With the commissioning of the Ikamiro-Kingfisher road, companies that deal with the transportation of oil would be able to start operations. International engineering firms that have ties with prestigious IBBC-member companies would also be able to operate in the region using high-performance pumps for the extraction and transportation of oil.

Apart from the Kingfisher Access Road, the Ugandan government is in the process of commissioning other roads to aid the production and commercialization of the other discovered oil fields.

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Map showing Albertine Graben oil fields in Uganda

The Prime Minister Dr Ruhakana Rugunda has called upon investors and other stakeholders in the oil and gas sector to continue working together closely to expedite the development of the oil and gas sector in the country. The Premier made the remarks at the joint meeting of the policy coordination committee and the oil and gas technical working group to review progress on the implementation of the Presidential Investors’ round table phase four at the office of the President.

The Prime Minister Dr Rugunda called the meeting to discuss key issues that emerged from the review meeting held at State House Entebbe in March this year. Some of these issues include issuance of petroleum production licences to licenced oil companies as well as the legal and policy framework on local content for the oil and gas sector.

The oil companies argue that they are entitled to full blocks not less than five minutes by five minutes grids wherever they have made a petroleum discovery. They also want areas crossing exploration boundaries into unlicensed areas to be licenced as one unit by adding them to the discovery made. A total of 8 applications for issuance of production licences by Total and Tullow have been submitted to government.

According to the Minister for Energy and Mineral Development, Eng. Irene Muloni, the Attorney General has guided that part of a block will be issued to cover extent of discovery as defined by appraisal.

Also discoveries crossing exploration boundaries where there is pressure communication between discoveries made by two licenced companies on either side will be licenced to the two parties through unitization. Four sets of regulations under general, health safety and environment, metering of petroleum and national content have been developed under the Petroleum Exploration, Development and Production Act 2013.

The Chairman of the oil and gas technical working group, Herman Kasekende thanked Government for resolving the issue of value added tax on investments and also applauded Government for addressing the issue of infrastructure in the Albertine graben.

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Tullow had challenged a capital gains tax assessment of $472,748,128 by the Uganda Revenue Authority  with the oil firm citing provisions in the production sharing agreement signed secretly with the government that allowed tax exemptions to Tullow Uganda.

Tullow Oil drilling in Bulisa

But three judges of the Tax Appeals Tribunal Asa Mugenyi (its Chairman), George Wilson Mugerwa and Pius Bahemuka  who have been hearing the case ruled that Tullow should pay the capital gains tax and then minister of Energy and Mineral Development Syda Bbumba did not have powers to grant tax reliefs to the oil company (Heritage then) when signing the PSA agreement.

Tullow today issued a statement saying they will appeal the ruling in the International Arbitration Tribunal so they can avoid paying any more capital gains tax. Following the assessment by URA, Tullow in February 2012 paid $142M as Capital Gains Tax pending this case challenging the $472M assessment.

The URA capital gains assessment followed the completion of the farm down of Tullow Uganda assets in Uganda after the the Irish firm sold 33$% of its stake to each of CNOOC and Total in 2012 for $9.2b.

“Tullow is very concerned by this ruling which ignores a contractual term signed by a Government Minister in Uganda. Tullow is Uganda’s largest foreign investor and a major taxpayer. Over the last 10 years, Tullow has spent $2.8 billion in Uganda and discovered 1.7 billion barrels of oil. This money was spent by Tullow on the understanding that our contracts with the Government, which contained important incentives to invest that were vital at a time when no oil had been discovered in Uganda, would be honoured. We will now carefully consider all our options to robustly challenge this rulin,” Tullow CEO Aidan Heavey said in a statement on Wednesday

Tullow was represented by Mr. Stephen Brandon QC, Mr. Oscar Kambona, Ms. Amanda Hardy, Ms. Reshma Shah, Mr. David Mpanga and Mr. Bruce Musinguzi; while URA was represented by Mr. Ali Ssekatawa, Mr. Peter Mulisa, Mr. Matthew Mugabi, Mr. Martin Muhanji, Ms. Syson Ainebabazi and Mr. Geoffrey Mucurezi.

But with Tullow’s predecessor Heritage Oil having lost a similar $434m case (when it sold to Tullow oil) in the Tax Appeals Tribunal and the International Arbitration Tribunal, it remains to be seen whether the lengthy court battles can save the company from paying the capital gains tax that many Ugandans feel is well deserved.

Related stories

Capital Gains Tax, new resource Nationalism – expert views from www.oilcouncil.com

Understanding the tax dispute between oil companies and the government – Acode Uganda

You can download the full ruling here

The post Tullow oil Uganda to appeal against court order to pay Capital gains tax first appeared on Uganda Multimedia News & Information.

Tullow had challenged a capital gains tax assessment of $472,748,128 by the Uganda Revenue Authority  with the oil firm citing provisions in the production sharing agreement signed secretly with the government that allowed tax exemptions to Tullow Uganda.

The URA capital gains assessment followed the completion of the farm of Tullow Uganda assets in Uganda after the the Irish firm sold 33$% of its stake to each of CNOOC and Total in 2012 for $9.2b.

below you can DOWNLOAD the full ruling of the Tax Appeals Tribunal detailing the submissions of the lawyers for the two sides and why the judges decided Tullow should pay the tax to Uganda.

The post Capital Gains Tax Case full ruling document by Tax Appeals Tribunal on Uganda Revenue Authority against Tullow Oil first appeared on Uganda Multimedia News & Information.

THE REPUBLIC OF UGANDA IN THE MATTER OF THE TAX APPEALS TRIBUNAL TAT APPLICATION NO. 4 OF 2011  

1. TULLOW UGANDA LIMITED
2. TULOW OPERATIONAL PTY LTD    ………………………………… APPLICANTS

VERSUS UGANDA REVENUE AUTHORITY ………………………….……..……  RESPONDENT   RULING   This ruling is in respect of an application brought by the applicants challenging initial assessments of income tax of US$ 472,748,128 by the respondent in respect of a transfer of their interests in Exploration Areas EA1, EA2 and EA3 to CNOOC and Total for the consideration of US$ 2,933,330,400. The said assessments were eventually revised by the respondent to US$ 467,271,971 being capital gains tax. The applicants being aggrieved by the said assessments appealed to the Tribunal.   This ruling is brought after the Tribunal has complied with S. 13 of the Tax Appeals Tribunal (TAT) Act. Mr. Martin Feeta, one of the members of the panel listening to the dispute passed away on the 20^th May 2014. At the time of his passing away, all the parties had presented their evidence, closed their cases and made their submissions. Delivery of the ruling was pending. At the time of his passing away the then Tribunal had reached a decision. On the 16^th June 2014, when the matter came up for ruling, the parties were informed that the Tribunal did not have the legally required Coram to deliver a ruling. Counsel for the parties agreed that a new member should be assigned to the panel to replace Mr. Martin Fetaa. It was also agreed that matter be reheard by the record of evidence being availed to a new member under S. 13(5) of the Tax Appeals Tribunal Act without the need of recalling witnesses. Mr. Pius Bahemuka was appointed to replace the deceased. The record of the evidence and the submissions of the parties have been handed to him. Though the Tribunal cannot say that this is a ruling of four members as the Coram is three, it can say that this is a unanimous decision.

1. SUMMARY OF CASE

The facts agreed upon by both parties are:

1. The first applicant, Tullow Uganda Limited (hereinafter called “TUL”), is registered under the laws of the Isle of Man and was formerly Energy Africa Uganda Limited (“Energy Africa”). The second applicant, Tullow Uganda Operations Pty Limited (hereinafter called “TUOP”) is registered under the Corporations Act 2001 in Western Australia and was formerly Hardman Africa Pty Ltd (“Hardman”). The applicants are residents for tax purposes in Uganda.
2. On the 8^th October 2001, both the applicants and the Government of Uganda (“GOU”) executed a Production Sharing Agreement (PSA) under which they were granted exploration, development and production rights in Exploration Area EA2 (the “EA2 PSA”). It was signed by Hon. Syda N. M. Bbumba, Minister of Mineral and Energy Development for and on behalf of the Government, by Mr. Edward John Ellyard (Managing Director) on behalf of Hardman and by Mr. W.A Nel (Chief Operating Officer) on behalf of Energy Africa.
3. Another PSA, in relation to EA1, was entered into on the 1^st July 2004 (the “EA1 PSA”) between Energy Africa, Heritage Oil and Gas Limited (“Heritage”) and the GOU. The EA1 PSA was signed for and on behalf of the GOU by Hon. Daudi Migereko, Minister of State for Energy, also holding the portfolio of the Minster of Mineral and Energy Development, by Mr. Brian Smith on behalf of Heritage and by Mr. Rhimwaan Gasaut on behalf of Energy Africa.
4. Another PSA, in relation to EA3A, was entered into on the 8^th September 2004, between Energy Africa, Heritage and the GOU (“the EA3A PSA”). The EA3A PSA was signed for an behalf of the GOU by Hon. Syda N. M. Bbumba, Minster of Mineral and Energy Development, by Mr. Brian Smith on behalf of Heritage and by Mr. Andrew Wyndham on behalf of Energy Africa.
5. Heritage and Energy Africa agreed to continue with the Joint Operating Agreement (“JOA”) between Heritage and Energy Africa entered into on the 29^th August 2002 for EA3, under which the first applicant’s participating interest was 50%.
6. Prior to 2009, Tullow Oil Plc, the parent company of both applicants, acquired the Energy Africa Group, which had a subsidiary, which later became TUL. Tullow Oil Plc later acquired the Hardman Group, including Hardman Africa Pty Limited, which later became TUOP. Tullow Oil Plc acquired the relevant subsidiaries’ rights and interests in the PSAs in Uganda.
7.  At this stage the interests in the PSAs were as follows:

a. TUL held 50% of EA1, EA2 and EA3A; b. TUOP held 50% of EA2; and c. 50% of each of EA1 and EA3A was held by Heritage and the interests then held by TUL in EA1 and EA3A are hereinafter referred to as “the Other Original Interests”.

8. The applicants through their exploration activities discovered hydrocarbons in the respective exploration areas.
9. On or about the 17^th January 2010,  TUL invoked its pre-emptive rights under the JOA for the purchase of 50% participating interests of Heritage in Exploration Areas EA1 and EA3A (the Heritage interests”) at a consideration of US$ 1,450,000,000 (United States Dollars one billion four hundred and fifty million), subject to approval from the GOU.
10. On about the 26^th January 2010, TUL and Heritage signed a Sale and Purchase Agreement (the “SPA”) under which TUL would acquire Heritage’s 50% participation rights in Exploration Areas EA1 and EA3A.
11. On the 6^th July 2010, the GOU granted a conditional approval to the transaction between Heritage and TUL.
12. On the 18^th October 2010, the respondent raised assessment number SA/LTO/2569 of US$ 390,924,460 and assessment number SA/LTO/2570 of US$ 84,999,660 on TUL and TUOP respectively being income tax (Capital Gains Tax).
13. On the 1^st December 2010, the applicants objected to the assessments.
14. On the 24^th February 2011, the respondent made an objection decision that adjusted the assessment on the TUL. The assessment No. SA/LTO/2569 of US$ 390,924,460 was amended to US$ 387,748,469, while assessment No. SA/LTO/2570 of US$ 84,999,660 was unaffected, resulting in a total of US$ 472,748,128.
15. On the 15^th March 2011, the applicant, the GOU and the respondent executed a memorandum of understanding (“MOU”).
16. On the 25^th March 2011, the applicants filed an application for review before the Tax Appeals Tribunal (TAT) contesting the assessments and the objection decision by the Commissioner of the respondent.
17. TUL acquired the Heritage Interests pursuant to the SPA and upon fulfilment of conditions in the MOU of 15^th March 2011. Following the acquisition the holdings in the Exploration Areas were:

a. TUL held 50% of EA2 and 100% of EA 1 and EA 3A; and b. TUOP held 50% of EA2.

8. The applicants disposed of 66.67% of their interests in EAs 1, 2, and 3A to CNOOC and Total at US$ 2,933,330,400 (United States Dollars two billion nine hundred thirty three million three hundred thirty thousand four hundred).
9. Following the disposal the holdings are:

a. TUL holds 33.33% of the interests under the EA 1, and EA 3A PSAs. b. TUOP holds 33.33% of the interests under the EA2 PSA. c. CNOOC holds 33.33% of each of the interests under the EA1, EA2 and EA3A PSAs; and d. Total holds 33.33% of each of the interests under the EA1, EA2 and EA3A PSAs.

1. On or about the 22^nd February 2012, the applicants paid US$ 141,824,438 (United States Dollars one hundred forty two million eight hundred twenty four thousand four hundred thirty eight) being 30% of the tax assessed.

2. ISSUES

The issues agreed upon by both parties are:   1. In respect of EA2   1.1  Whether Article 23.5 of the PSA for area EA2 covers capital gains/income tax arising from gains derived out of disposal of interests in the PSA?   1.2  Whether Article 23.5 of the PSA for EA2 entered into by and between the Government of Uganda acting through the Minister of Energy and Mineral Development is valid/lawful under Uganda Law?   1.3  Whether Article 23.5 is valid/lawful under international law?   1.4  If the answer of either issue 1.2 or 1.3 is in the affirmative, should Article 23.5 be enforced by the TAT, and if yes do the assessments fall to be discharged or not?   1.5  Whether the respondent is estopped by Article 23.5 from raising an assessment in respect of the gains made on the disposal of the applicants’ interest in EA2, and if yes, do the assessments fall to be discharged or not?   1.6  Whether the reference to the respondent being estopped includes references to principles rooted in fairness including legitimate expectation?          2. In respect of the other PSAs   What is the gain, and how is that gain computed, on the disposal of the interests in the PSAs (a) purchased by TUL from Heritage; and (b) otherwise?   3. Reinvestment relief   3.1 Whether the applicants are entitled to reinvestment relief under S. 54(1) (c) of the Income Tax Act Cap 340?   3.2 If so what is the quantum of the disposal consideration in respect of which reinvestment relief can apply?

3. REPRESENTATION OF THE PARTIES      see more on pages 1,2,3,4,5,…below or 
   

   Download file of full ruling here

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This followed a presentation by the Uganda Revenue Authority requesting 1.8
billion shillings as legal fees for 3 cases filed by the Heritage Oil,
Tullow Oil companies

Lawmakers sitting on the Finance committee of Parliament strongly opposed
this request saying the justice and constitutional affairs had also
presented a request of 5.6 billion shillings for the same cases.

Ishaka Municipality MP Odo Tayebwa says that allocating the funds to the
tax body would result into double budgeting for the same item.

However the Commissioner General Allen Kagina told the committee that
whereas the same cases are before the arbitration tribunal in London, the
same oil companies filed cases against the Tax body in the local courts
where URA must be represented and defended.

Budadiri West MP Nathan Nandala Mafabi said that the URA already has a
legal department fully facilitated to handle legal issues regarding
taxation.

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Government sources show that Uganda will announce the lead investor in July and expects to conduct a licensing round for its vacant petroleum exploration acreage next year.

Uganda first discovered crude deposits in the Albertine rift basin at its boarder with the Democratic Republic of Congo in 2006. These oil reserves are estimated by the government of Uganda at 3.5 billion barrels.

The government of Uganda signed a memorandum of understanding with oil firms laying out a blueprint for the commercial development of its oil fields. The firms are Britain’s Tullow Oil, France’s Total and China’s CNOOC.

Britain’s Tullow Oil, France’s Total and China’s CNOOC will share crude produced in Uganda. Uganda is expected to start production of commercial oil in 2016 at the earliest.

Uganda announced five consortia and one individual firm had been shortlisted to bid for the $2.5 billion refinery.

Ends

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Tullow Oil is to sell its stake in Uganda oil field it is currently developing with France‘s Total and China’s Cnooc Ltd.

We are told by sources in Tullow Oil that the international oil company is to sell its shares in Uganda oil to focus on Kenya oil, because the government there is not dictatorial and it is supportive government.

This is the first time Tullow Oil to disclose that it wants to sell its shares in Uganda’s oil development assets.

Tullow Oil project in Uganda had been delayed for years due to corruption among some Uganda government officials and because the Uganda government is generally not supportive.

Tullow and its partners France‘s Total and China’s Cnooc Ltd wrote an agreement in January 2014 with the Ugandan government on a development plan for the Lake Albert basin oil project. But Tullow now has discovered that Kenya’s oil discovered in 2012 is better than Ugandan oil.

Ends

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