17 March 2013

Uganda: Museveni 'U.S. $50m Bribe' - the Inside Story

The on-going tax dispute between rival oil firms has opened up yet another murky window into Uganda's fledgling oil industry, with British newspapers awash with reports that Tullow Oil executives attempted to pay President Museveni to cheat Ugandan taxpayers.

According to the Irish Times and the Daily Mail newspapers, the top honchos in Tullow dangled a carrot towards the president to accept a $ 50 million inducement which would not be documented, if he accepted to drop his government's demand for the tax revenue.

They also suggested oiling the president's financial war-chest in preparation for the 2011 elections.

There is no evidence to suggest that anyone in Kampala demanded what would be tantamount to a bribe. But the suggestion that it was considered is a reminder of how public interest in poor countries is rarely safe in the face of wealthy multinationals.

As the High court in London started hearing of a suit between Tullow and Heritage last week, Tullow's legal chief, Graham Martin, revealed that the company executives contemplated making payments to meet President Museveni's "short-term needs and demands."

The London case is premised on $404m worth of capital gains tax demands made by the Uganda government after Heritage Oil sold its assets to Tullow in a $1.45bn deal in 2010. However, Energy Minister Irene Muloni said at the weekend, that the issue of bribery was out of the question.

"The president put it very clearly before that he didn't take a bribe. For them [to insinuate] something like that is such a pity," she said.

The president's spokesperson, Tamale Mirundi, also dismissed the insinuation.

"We have been having campaigns; why should we need oil money? I know the president, I have worked for him for 10 years, he cannot accept money from Europeans," said Mirundi.

He, however, that if anyone asked for the money, it must have been the "usual thieves" in government. The Observer has obtained the Tullow freedom of information files, which chronicle a series of meetings between top honcho executives, the president, his then Energy Minister Hillary Onek and Foreign Affairs Minister Sam Kutesa.

When the tax dispute first arose, Tullow firm executives did not sit on their laurels. They immediately engaged shuttle diplomacy and powerful politicians like Foreign Affairs Secretary William Hague and his Africa counterpart Henry Bellingham to engage their lobbying skills.

According to the now declassified dispatches, on July 2, 2010, Tullow executives raised the issue of the tax dispute with Heritage, which had stalled their progress on the commercial front. A meeting between Africa Secretary Bellingham and Tullow CEO Aidan Heavey was scheduled for Sept 16, 2010.

By then, Tullow was planning to farm out its 50 percent stake in the Albertine region to French firm Total and China's CNOOC.

Bellingham meets Museveni

At his meeting with Museveni on July 23, Bellingham made clear the UK's strong support for Tullow's engagement in Uganda. Tullow had given Bellingham a full brief on their business, and its potential to transform the Ugandan economy and generate significant returns for the UK.

The executives also suggested that a letter from Bellingham following up his visit to Uganda would be timely. The letter would cover the Tullow angle, the forthcoming UK Trade and Investment, oil and gas mission to Uganda and other key bilateral issues.

Engaging Kutesa:

Some of these correspondences were copied to the British High Commissioner to Uganda, Martin Shearman, and an unidentified person.

"If nothing has changed since the Minister's visit, please let us know as soon as possible as he wanted to tell the Foreign Secretary that progress was being made after the Museveni meeting and he clearly can't if this is not true," reads one of the files sent to the UK High Commissioner.

On August 12, 2010, an idea was mooted to send a follow up letter to Museveni's confidant Kutesa. By the time they decided to write to Kutesa, it appears communication had broken down with the president ever since he met with Bellingham.

The tone of the message also portrayed frustration and jitters within the Tullow establishment.

"Will there be any opportunity to get a letter signed off before August 27th? The 27th wouldn't necessarily be too late, but from our perspective the sooner that action is taken on this tax dispute the better," reads another file.

On August 10, 2010, Bellingham wrote to Foreign Secretary Hague informing him that the Democratic Republic of Congo (DRC) would benefit from a deal with Tullow as they intended to build a pipeline to the east coast for oil from the Uganda side of Lake Albert.

"My meeting with President Museveni allowed me to raise a specific trade issue, again regarding Tullow Oil. Though better than in DRC, the situation is stuck due to the question of taxes paid by [An oil company], from whom Tullow have bought the rights to the blocks on Lake Albert. Consequently, Tullow have concluded the deal with [two oil companies], allowing both companies' share prices to rise by approximately 50p and £1, respectively," Bellingham wrote.

On August 24, 2010, British High Commissioner Shearman wrote that Tullow had been rocked with serious problems which could threaten its investments in Uganda and recommended that 'we intervene urgently at ministerial level with President Museveni.'

"I have just seen Aidan Heavey, CEO and founder of Tullow Oil. He came from a meeting last night with President Museveni, the aim of which was to settle the next stage of Tullow's investment in Uganda," wrote Shearman.

According to the Daily Mail, Shearman's wife Miriam was employed by Tullow Oil, although it is unclear whether Hague or Bellingham knew this while lobbying for the firm.

The newspaper also claims, Heavey gave £10,000 to the Tory party before the 2010 general election and viewed British Foreign & Commonwealth Office (FCO) documents though he was not given security clearance to view the restricted files. On September 3, 2010, another file was sent to the Foreign Secretary, Hague titled, 'Update on the Ugandan Government's dispute with Tullow.'

The dispatch was a follow-up of a telephone conversation barely three days ago on August 30, 2010, between Hague and Museveni. Hague had expressed concern about Tullow's interests in Uganda.

"We are aware of the disagreement between the government of Uganda and [name withheld] around [name withheld]'s liability for capital gains tax on the sale of its Ugandan assets to Tullow Oil at the end of July," read the September 3, 2010 dispatch.

The dispatch also acknowledged that her Majesty's Government (HMG) supported Tullow's investment in Uganda, which is an important part of the bilateral commercial relationship.

"HMG expects all British companies operating overseas to comply with local laws and tax regulations. We understand that Tullow, for its part, has made clear in public that it will continue to meet all its tax obligations in Uganda in full," it reads.

On September 8, 2010, Shearman exchanged communication with an anonymous person about an article concerning the tax dispute that had been published in the UK newspaper, the Daily Mail titled 'Hague backs Tullow in Ugandan tax row, carried on the same day.

In a nutshell the article paid glowing praise to William Hague.

"The Foreign secretary's intervention appears to have been successful, as the Ugandan Energy Minister Hilary Onek said that Tullow would be considered 'favourably' for an exploration license," reported the Daily Mail.

On September 10, government rocked the boat when it informed Tullow that its oil exploration license in the King Fisher block, which had expired, would not be renewed. Government had been angered that although Tullow bought oil exploration blocks from Heritage, the latter had not paid tax amounting to $405m.

A day later, Shearman attempted to organize a crisis meeting between him, Tim O'Hanlon, who is Tullow's vice president Africa and President Museveni, before the president flew out to New York for the UN General Assembly. But Museveni flew out without meeting the duo. However Bellingham continued to pursue the matter. Later that month, he met Kutesa at the UN General Assembly ministerial week in New York.

Bellingham informed Kutesa that the UK government's top bilateral issue with Uganda was the Tullow dispute, which needed to be resolved urgently. Hague had also telephoned Museveni about the latest set-back.

On October, 5, 2010, Britain's permanent representative to the UN, Mark Lyall Grant arrived in Uganda as concerns continued to grow over the revocation of the license. Grant's visit came on the heels of a charm offensive from Hague and Bellingham after the president agreed to discuss a new proposal from Tullow. The files do not reveal whether Grant met the president.

On October 18, 2010, another meeting was held between Bellingham, Tullow CEO Aidan Heavey and the company's Vice President for External Affairs, Rosalind Kainyah to discuss the economic and political barriers/ obstacles the firm is facing in Uganda.

By the end of October, 2010 and after some haggling Tullow paid $121.5 m, to the Uganda Revenue Authority (URA), which was a third of the original tax demand of $404m. However it was agreed that it would put the remaining $283.5m into an escrow account to be able to seek legal redress with Heritage, it believes should have paid the tax. It's then that the license was renewed.

Heritage is also embroiled in a separate legal dispute with the Ugandan government, arguing that no tax is due on the transaction. When the allegations of oil bribery first surfaced in 2011, an angry Museveni said disparagingly that he would never take money from Europeans for personal use.

"General Yoweri Museveni. To get money from a Muzungu (white), or anybody, for my personal use, is contempt of the highest order," he said.

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