Shs6b oil bonanza: The inside story

Some of the notable recipients

What you need to know:

  • Reward. During a meeting with President Museveni Ms Doris Akol was directed by the President to recommend an “adequate reward” for the team that represented Uganda in the Capital Gains Tax Case against Heritage Oil and Gas.

KAMPALA. The decisive arrangement to reward 42 government officials with Shs6b was hatched during a May 17, 2015 meeting between President Museveni and Ms Doris Akol, the Commissioner General Uganda Revenue Authority (URA), correspondences that have emerged indicate.
The documents were presented by a group of nine MPs led by the Usuk County MP, Mr Peter Ogwang, to the press.
During the meeting at the President’s country home in Rwakitura in Kiruhura District, Ms Akol was directed by the President to recommend an “adequate reward” for the team that successfully represented Uganda in the Capital Gains Tax Case (CGT) against Heritage Oil and Gas.

Following the meeting, Ms Akol, who, prior to that headed URA’s legal department that led the court battles against both Tullow and Heritage, wrote a letter on June 26, 2015 to the President recommending that Shs6b be gifted to the team, with Shs2.3b deducted as tax, leaving Shs3.642b as the net take home for the officials. Ms Akol was appointed URA Commissioner General in October 2014,
In her letter, Ms Akol defended what she termed as the “philosophy behind the recommended reward”, that she referred to as the “presidential handshake”, arguing that the “reward will enable the beneficiaries to use the funds for something tangible.”

“…the amount recommended as a reward is an amount that will enable the beneficiaries use the funds for something tangible i.e. to leave a legacy to remind them and their offspring of their contribution to the nation. For instance, the recommended amount could enable one to either acquire a decent plot of land, pay a deposit on a mortgage or perhaps facilitate finishes on a home,” Ms Akol wrote in her letter to the President.
Ms Akol copied her letter to Finance minister Matia Kasaija, Energy minister Irene Muloni and the then Attorney General Fred Ruhindi. Mr Ruhindi and Mr Kasaija had just assumed office three months earlier following a mini-Cabinet reshuffle that year.

“I believe it will be motivation sufficient for them to gallantly face future challenges and bring victory to our nation. The amount proposed contributes less than 1 per cent of the amount in the award and is less than 50 per cent of the costs awarded to government,” Ms Akol adds in her letter.

Ms Akol followed her letter with a directive that the Shs6b be re-allocated from the URA tax refund budget to the URA expenditure budget to clear the beneficiaries, ordering that the re-allocation be treated as supplementary expenditure.
“Since payment to the beneficiaries will be treated as an expense to URA, the additional funds for the expenditure from the re-allocation is also a supplementary budget to URA for which your ministry should treat as a supplementary,” Ms Akol wrote in a follow-up directive to the Finance minister dated May 5, 2016.
Ms Akol’s letter set the process in motion as it was followed by a letter from Mr Museveni directing Mr Kasaija to pay the proposed Shs6b to the officials who had been variously involved in the Heritage Oil vs Uganda Capital Gains Tax (CGT) case.

“As you are aware, the government of Uganda won a case against Heritage Oil Limited in London arbitration and was awarded $434m (about Shs1.5 trillion). I met with a team of officials that handled that case and they requested to be considered for a reward in appreciation of the work done. Given the amount of money that was recovered, it was agreed that the government pays them some money as a token of appreciation,” Mr Museveni wrote.
He added: “I therefore direct that the team of 42 government officials be paid Shs6b. The applicable taxes should be deducted,” the President added.
Insider sources, however, say more than 42 officials were paid.
Mr Museveni’s letter was copied to the vice president, prime minister, Attorney General, Secretary to the Treasury and the Commissioner General, Uganda Revenue Authority (URA).
Secretary to the Treasury Keith Muhakanizi tried in vain to push the payments to the 2016/17 FY, arguing that “supplementary funding is not feasible given that we have already hit the 3 per cent supplementary legal requirement for 2015/16 FY.” Mr Muhakanizi’s reservations were over-ruled by advise contained in a November 1, 2016 letter from the Auditor General, Mr John Muwanga, arguing that the Shs6b payment can be “post-audited.”
Yesterday, Mr Muwanga told journalists at Parliament that he will conduct an audit in the Shs6b release.
The Shs6b was subsequently wired to the accounts of the select 42 officials in August last year. The team led by Ms Akol, who had been designated as “accounting officer” for the money, then moved to categorise the officials into three groups—Core, Noncore and Support Staff—with the official in each group getting contribution on the basis of their involvement in the case.
Sources familiar with the matter told this newspaper that in order to spread the risk in case of any, money was also wired to officials who were involved with the case at some point but had moved on to other responsibilities. Among these include the Kampala Capital City Authority (KCCA) executive director Jennifer Musisi who received Sh121 million, the late former Finance permanent secretary Chris Kasami on whose account was reportedly wired Shs93 million and Shs242 million was wired to former URA commissioner general Allen Kagina, who assumed role of Uganda National Roads Authority (Unra) executive director in May 2015.
During the hatching of the plot spearheaded by URA, sources added, there was a lot of divided opinion on whether public servants should reward themselves and if it won’t be interpreted as “betraying the public”, but some officials [names withheld] pressed to be paid their “honorarium”, arguing there was no law against it, after all.
One top official [names withheld], sources familiar with the matter, said in one of the meetings with peers, argued that “this was not going to be the greatest” nor “the first loss” to tax-payers, citing previous high profile corruption cases such as the Katosi Road scandal, which was making headlines at the time in which government was conned of Shs24 billion and will never be recovered, the Shs64b Office of the Prime Minister scandal and Shs165b pension scam.
“That money is ours and was blessed by the President to be given to us,” the official reportedly said, according to our sources.
The story, since becoming public, has stirred some back and forth frothing even within government circles, with no official willing to come out to comment on it publically. Several officials referred this newspaper to Prime Minister Ruhakana Rugunda for “further explanation” because the matter was actually authorised at Cabinet level.
Dr Rugunda, did not pick up neither returned our calls nor responded to our message for two days, claiming he was in meetings.
Former Attorney General Ruhindi, on Tuesday, said even before he was named for the office in March 2015, he found the plans for payout already in place and referred this newspaper to his predecessor, Mr Peter Nyombi, who was not readily available for comment.
The MPs, who presented the documents yesterday, also demanded that the officials refund the money. The matter will come to Parliament when it re-convenes from the Christmas break next week on Tuesday.

The tax case
After Heritage, in August 2010, sold its 50 per cent interest in in Uganda’s oil fields (exploration blocks 1 and 3A in the Albertine Graben) at $1.5 billion (Shs5 trillion) to Tullow Uganda Ltd, yielding the first biggest windfall of the country’s nascent petroleum sector at the time, URA slapped a $404 million (Shs1.4 trilion) Capital Gains Tax on the transaction.
The tax dispute became a protracted legal battle and different courts, including a Ugandan Tax Appeal Tribunal and a commercial court in London combined took four years to resolve it. A recent expose by the International Consortium of Investigative Journalists showed that Heritage knew beforehand of the imminent tax liability weeks before it was officially imposed and contracted tax accountants and lawyers to fight it off as unwarranted and illegal.
Heritage settled for two options: tackle the levy head-on and, on failing, move the business and assets to a tax haven with the professional help of lawyers and accountants. But because Tullow, as the buyer had yet to pay Heritage, government threatened not to renew its exploration licences, which were due to expire, unless it deducted and remitted the equivalent Capital Gains Tax.
After a hard bargain, in April 2011, Tullow capitulated and sent to government $121 million (Shs403b), an equivalent of a 30 per cent threshold down payment, antecedent to filing of tax appeals under the country’s laws. The balance of $283 million (Shs943b) was deposited on an escrow account with Standard Chartered Bank in London, pending resolution of the tax dispute that ended in 2013.
Another $30 million (Shs100b) was separately assessed on a $100 million that Heritage additionally paid Tullow Uganda Ltd as cash settlement arising from a breach of the companies’ Sharing and Production Agreement.
Heriatge later opposed these tax payments as “collusion” between Tullow and the Ugandan government, resulting in the London case that Justice Burton on June 14, 2013, decided in Tullow’s favour.
In another case, URA in June 2015 settled for $250m (Shs824b) from Tullow after three years of legal battles over Capital Gains Taxes when the latter sold 66.66 per cent of its stake to CNOOC and TOTAL for $2.9b, making it the largest transaction to date in Uganda’s history against the $142m that Tullow had been arguing was the right tax assessment.

Impunity?

One top official [names withheld], sources familiar with the matter, said in one of the meetings with peers, argued that “this was not going to be the greatest” nor “the first loss” to tax payers, citing previous high profile corruption cases such as the Katosi Road scandal, which was making headlines at the time in which government was conned of Shs24 billion and will never be recovered, the Shs64b Office of the Prime Minister scandal and Shs165b pension scam.
“That money is ours and was blessed by the President to be given to us,” the official reportedly said, according to our sources.