Eric Watkins
OGJ Oil Diplomacy Editor
LOS ANGELES, Aug. 20 -- Uganda’s President Yoweri Museveni, apparently spurred by recent difficulties between his government and Heritage Oil PLC over taxes, said no future oil or gas agreements are to be agreed to without his prior approval.
“In the case of petroleum and gas, I direct that no agreement should ever be signed without my express written approval of that arrangement,” Museveni wrote in a letter to his government’s energy minister, Hilary Onek.
Museveni’s letter, written in July but made public this week, follows Onek’s conditional approval last month to the sale of Heritage Oil PLC's 50% stakes in two exploration blocks in the country to Tullow Oil PLC.
Onek issued his approval saying that Heritage had to deposit 30% of the assessed capital gains tax on the sale, with the remainder to be paid pending the resolution of the dispute between the two sides over the correct amount of tax to be paid.
When Heritage announced the $1.45 billion sale on July 27, it duly deposited $121.58 million with the government, representing 30% of the assessed tax, and the remaining $283.45 million in an escrow account pending the agreement over the tax dispute.
However, Onek quickly reversed himself, saying that he had written to both firms that their transaction was "incomplete" until Heritage paid the full $405 million in capital gains taxes that Uganda says is owed on the transaction.
In his letter to Onek, Museveni claimed he was changing the normal practice of a minister signing deals on behalf of the government—even after advice from the attorney general—in order to safeguard against mistakes.
The Ugandan president said the discovery of oil in his country had created a lot of “excitement and stampede” among some people who now were scrambling for easy money.
“We should therefore not allow ourselves to be part of this stampede,” Museveni said in the letter to Onek, which also was copied to other senior government officials, including the vice president and attorney general.
Beatrice Atim Anywar, Uganda's shadow minister in charge of natural resources, described the presidential directive as a “dangerous” development for Uganda as the country moves closer to start oil production.
"Why can't the president let his ministers exercise their powers? This shows that government has not been working as a team," she told Dow Jones Newswires.
The apparent disarray over Museveni’s letter coincided with a statement by the executive director of the Uganda Investment Authority that the country’s investment image could be tainted by the apparent reversal on the Heritage sale.
"As a body responsible for attracting investments, we do not support policy reversal," said Maggie Kigozi. However, Kigozi said the oil industry is new to Uganda and that Kampala is still in the process of establishing new policies and laws to cover it.
"Just this week, new taxation laws on oil and gas were presented in parliament, but there are old general taxation laws which require Heritage to pay taxes," Kigozi said.
Despite the apparent disarray over the Heritage sale, however, a Tullow spokesman said the firm is continuing to hold negotiations with CNOOC Ltd. and Total SA over the formation of a joint venture for the development of the three oil blocks it controls—including the two purchased from Heritage.
Underlining that view, Charles Wagidoso, Uganda's ambassador to China, said a delegation from China will visit Uganda next month to explore the possibility of building a refinery.
"The president has been emphasizing that we will not export crude oil and must refine it from the country,” said Wagidoso. “These are some of the efforts being taken to that effect.”
In February, Foster Wheeler said its Global Engineering and Construction Group had been awarded a contract by Uganda to undertake a feasibility study for the development of a 150,000-b/d refinery.
Contact Eric Watkins at [email protected].