Friday May 25 2012

AG in London to plead oil case

By Emmanuel Gyezaho

The Attorney General is in London, for the second time, with a team of legal experts to press Uganda’s wish that arbitration over a long-standing multibillion tax dispute between the government and British oil exploration firm, Heritage Oil, reverts to Kampala.

Mr Peter Nyombi is reported to have travelled with a number of attorneys from the AG’s chambers last week.

The assignment, this newspaper understands, is expected to last two weeks.

Speaking from London by telephone yesterday, Mr Nyombi declined to offer specifics about his trip. “We are in London, yes, but you will have to wait until Monday for the details,” he said.

London-listed Heritage Oil is fighting to keep $404 million (about Shs969 billion) in capital gains tax following its 2010 $1.45 billion sale of stakes in two oil blocks in Western Uganda to Tullow Oil, another U.K based company.

Tullow Oil deposited some $313 million on an escrow account, money it said had been paid on behalf of Heritage, first to ease renewal of operating licenses and also to pave way for the sale of part of its assets to France’s Total and China’s Cnooc, a deal that was eventually sealed in February 2012 at a whopping $2.9 billion.

Uganda had hoped that the multibillion tax disagreement would be handled in Kampala, following a landmark ruling by the Tax Appeals Tribunal requiring the company to pay capital gains tax.

But Heritage Oil disagreed and initiated an arbitration process at the London High Court in July 2010 on grounds that contracts it signed with the government provided this requirement.

Uganda’s Tax Appeals Tribunal, which had initially started hearing the matter, suspended its proceedings indefinitely in September 2011 to allow completion of the London arbitration.

Uganda insists, however, that the tax dispute falls under the country’s laws and should be decided from within the country.
Justice State Minister Freddie Ruhindi said yesterday that Uganda had “put in a preliminary objection on matters of jurisdiction” to have the case returned to Kampala for settlement.

“The team is trying to follow up our preliminary objection,” he said. “We feel that that matter should not be handled in that arbitration process. Now if that is sustained, which we believe it will, following our preliminary objection, then the arbitration [in London] will not proceed.”

The government has marshalled both local and international expertise for this critical case and hired a US based-law firm Curtis, Mallet-Prevost to aid its defence at the London arbitration.

The firm, whose lawyers are reported to have teamed up with Mr Nyombi for this latest assignment, is reported to have been hired at Shs11 billion, a staggering amount of money the Attorney General admitted to Parliament last year would cater for arbitration costs, travel expenses and operation costs.

Heritage received a claim from the London High Court in April 2010 in which Tullow was seeking to recover $313million deposited on an escrow account on its behalf. A month later, Heritage also began action in London against the Ugandan government, saying the sale of its assets in Uganda did not attract a capital gains tax based upon “comprehensive advice” from leading tax experts in Uganda, UK and US.
-Officials marshalling the country’s defense in this tax dispute have made several trips to London over this case. For each of these trips, the Ugandan tax payer must pick up bills for lodging, air travel and other perks including out-of-pocket allowances estimated in millions of shillings.