Kampala — If sealed, the Heritage Oil and Eni SPA deal will earn the government between Shs700 billion and Shs1.3 trillion in tax making it the first such oil cash gain since the resource was discovered here.

Mr Paul Kyeyune, the spokesperson of the Uganda Revenue Authority, said Heritage will have to pay capital gains tax from the sale of its 50 per cent interest in Blocks 1 and 3A around Lake Albert in western Uganda.

Tullow Oil, which is also exploring oil in Uganda, holds the other 50 per cent.

Heritage intends to sell its share of the oil wells for Shs2.8 trillion ($1.5 billion) to Italian energy firm Eni SPA.

"If they are changing shareholding, no tax will arise but if they are selling their assets they will have to pay capital gains tax," Mr Kyeyune said in interview yesterday. "But we have not yet received any communication from them about the deal."

The maths

According to the Income Tax Act, a large firm mining in Uganda pays between 25 and 45 per cent in corporate tax on worldwide income recorded as dividends, profits, or interest from the sale of assets.

This means that Heritage Oil will be required to pay between $375 million (Shs701 billion) and $675 million (Shs1.26 trillion), as part revenue generated from the oil deal.

Mr Kyeyune added that the calculations also take into account the loss in value of the assets. Unlike assets like plant machinery which depreciate, oil wells, like land, gain value because the global oil price tends to fluctuate as consumer demand rises and falls.

As of yesterday, a barrel of crude oil sold for $77 (Shs144,000) almost half of its July 2008 price.

Both Tullow and Heritage have discovered close to two billion barrels of oil in the western and north western parts of Uganda.

In a related development, newswire Dow Jones yesterday reported that the Uganda government supports the proposed takeover of Heritage Oil's interest by Eni; Europe's fourth largest energy firm.

Museveni nod

"An official with the president's office said Tuesday that government wants the $1.35 billion deal to sail through and will do what it can to ensure that United Kingdom based Tullow Oil doesn't scupper it," Dow Jones said. Daily Monitor could not confirm the claim by last evening.

Tullow Oil, which holds stakes in the two blocks with Heritage, has indicated that it will exercise its anticipatory rights to block the deal. Government was reported to favour Eni because "it is a big and respectable company."

According to the report, political analysts say President Museveni wants oil production and a refinery in place before the 2011 elections to use as a campaign tool and only Eni can sponsor such a project due to its experience and financial muscle.

A statement on the Eni company website says on August 13, this year, its Chief Executive Officer Paolo Scaroni met Mr Museveni where the Italian business executive "confirmed the company's strong intention to create a new and lasting partnership with Uganda".