Uganda government could earn over US$300million in taxes from the sale of a company disposing of its stake in Uganda's oil fields in Western Uganda, according to highly placed industry source.

This follows an offer last week by Eni SPA, an Italian oil company that is buying Heritage Oil and Gas Oil Company's stake in Uganda's Albertine rift for a sum of $1.5billion.

The offer is however yet to be approved by Heritage shareholders and partners and the Uganda Government

According to the source, the transaction could be finalised in March 2010. Last week, the media reported extensively on the proposed sale Government says they knew Heritage and Eni SPA had since October this year been in talks. Eni was first introduced to government as a potential buyer of Heritage's 50% interest in Exploration Area 1 and Exploration Area 3A during August 2009. Eni is an integrated company and the sixth in the world. It has the financial and technical capability to undertake petroleum exploration, development, production and processing.

It is active in 70 countries around the world including Angola, Nigeria, Ghana, Republic of Congo, Gabon and Mozambique, among others."It has the biggest refining capacity in Europe," the source said. If this offer goes through, Eni will effectively replace Heritage in Uganda.

However the source said "due diligence on Eni and evaluation of any sales agreement will have to be done before government gives approval for any sale to go ahead".

It also said the government of Uganda would tax the sale The source also said that the $1.5billion that Eni was offering to pay Heritage was not recoverable from the production of petroleum once Eni started production.

"The amounts to be recovered are those spent on operations in the area. The funds to be recovered would have to be audited by the Auditor General before they qualify to be recovered," the source added.

This an important proviso since government would only start earning revenue from the oil after the oil companies 'recovered' the expenditures they had made to get the oil out.

The source also noted that government was insisting that the existing legal framework in the country is adequate to handle the proposed purchase of Heritage by Eni like any other normal transaction, "without causing loss to the country".

The source added that Government policy is to refine the crude oil to satisfy national and regional petroleum demand before exports are considered.

"For this reason government has started a feasibility study for developing a refinery in the country and this study is expected to be completed by May 2010 and thereafter to secure funding and partners in developing the refinery will commence" the source futher said.

Four exploration companies have been licensed in five out of the available 10 exploration areas in the Albertine Graben and have invested $495.8million, according to the source.

Currently the energy ministry is calling for a consultant -Chief Technical Advisor- to manage the petroleum industry to develop and assist in the implementation of the institutional framework for development.