30 November 2011

Uganda: Tullow in Court Over Shs800 Billion Heritage Tax

Photo: The Daily Nation
An oil rig near the shores of Lake Albert in western Uganda. Unlike Uganda which has discovered oil, Kenya’s search for the resource will intensify with the beginning of drilling in the next two weeks.

A fresh legal battle has emerged over the country's troubled oil sector, according to court documents leaked by Platform, a UK-basked international advocacy group.

The court documents leaked last week indicate that a London commercial court will next year, in a public hearing, deliberate upon a case in which Tullow Uganda Limited is suing its former partner, Heritage Oil and Gas, for over $313 million (about Shs814 billion).

Filed on June 10, the documents indicate Tullow wants Heritage to pay back the money it reluctantly paid in April to the Uganda Revenue Authority (URA) in Capital Gains Tax dues owed by Heritage Oil.

Heritage had declined to pay the tax, saying the obligation was never mentioned in its Production Sharing Agreements (PSA) with the Uganda government. The claim follows Tullow's $1.45 billion acquisition of Heritage's stake in July 2010 of two oil wells (Block 1 and 3A) on Lake Albert.

Tullow says Heritage was unnecessarily 'enriched' by the due amount. Heritage, however, claims the deal between Tullow and Uganda to pay the tax was made under a "Memorandum of Understanding, which is not legally binding."

Heritage's defence

In its defence Heritage said: "Tullow made no payment under legal compulsion, or in circumstances of necessity. Tullow made payments because it felt commercially impelled to do so in order to obtain government consent...

" Tullow officials could not be reached for official comment. However, speaking to this newspaper on condition of anonymity, a highly placed Tullow official said the company indeed paid the tax "in order not to break Ugandan laws" and that Tullow had the right, under its agreements with Heritage, "to claim the money back."

"Heritage is wrong to state that the tax bill was paid through the MoU. Tullow paid because of the legal force of the statutory agency notices served by URA on Tullow. The agency notices designated Tullow as Heritage's agent under the Income Tax Act," the official said.

Although Tullow's bid to buy off Heritage's stake was known since January 2010, no mention of the tax obligation was made by URA until July 2010 when the deal was sealed, a thing that has left Tullow 'suspicious'.

Recently, the Uganda Tax Appeals Tribunal ruled that Heritage was liable for the disputed capital gains tax when it sold its stakes in two blocks to former partner Tullow Oil.


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