Thursday July 31 2014

In fight between gov’t and oil companies, citizens are grass beneath elephant stumps

By Daniel K. Kalinaki

The tax wars or woes between the government and the oil companies are boring to many, fascinating to a few, but important to all Ugandans.

Government says Tullow Oil should pay Capital Gains Tax (CGT) out of the money it made when it sold part of its assets on to a French and a Chinese firm. Tullow says the Production Sharing Agreement (PSA) governing the deal and signed by former Energy Minister Syda Bbumba exempted it from the tax.

Although the Tax Appeals Tribunal ruled in favour of the government, the arguments continue. Tullow has vowed to appeal. To my layman’s view, there is a legal argument, a moral argument, and a governance argument.

Legally, Tullow has what it says is an exemption offered to it by a Cabinet minister and which other government arms, including the Uganda Revenue Authority, should respect. The counter argument by the government is that tax issues should be left to the relevant tax ‘generals’ that is, the Finance minister and URA.

Only court can settle this legal argument. What should concern us more are the other two arguments. The moral argument, for one, is interesting. Should a company reap all that it sows, plus profit, without giving to Caesar what is due to him? At what point does the moral obligation to play fair override any signatures and covenants?

Take, for instance, a case still before the courts, in which the owners of Zain sold their business to Bharti Airtel but refused to pay CGT because the transaction took place in Netherlands, despite the company revenue and assets being in Uganda and other African countries. It might be legal but is it right?

I once had the pleasure of meeting Aidan Heavey and left convinced he meant no harm; have the frustrations of dealing with the government over the last five years hardened his hand? What are we to make of the fact that Tullow, in a separate case in which it sued Heritage Oil to recover money it believed was owed to it, maintained that a similar transaction was subject to CGT?

This is not to say that the government is blameless. The government, and in particular the out-going URA chief Allen Kagina, must be commended for taking on the oil majors and trying to claim what they believe is owed to Ugandans. However, the underlying problem here is one of governance and inadequate transparency in the oil industry.

First, it appears that the Energy ministry overstepped its mandate in giving tax exemptions they had no authority over. Whether this was due to ignorance, incompetence, or other considerations, we might never know.

Secondly, it also looks like the PSAs signed with different companies over different oil blocks have differing clauses on tax exemptions.

We cannot be sure because the government has refused to make the PSAs public, as if the oil in the ground is the property of a few individuals, rather than the people of Uganda. This lack of transparency became evident when the first oil money hit the government coffers and was promptly “borrowed” by the Executive without the requisite parliamentary oversight, to buy fighter jets at an eyebrow-raising $750 million.

There has been progress since then in passing laws and appointing institutions to run and oversee the oil industry and its proceeds but we start with a history of little confidence and almost no trust.
The biggest danger, therefore, is not that the oil companies could shaft Uganda; it is that the government could, in addition, shaft Ugandans. Government must set rules and follow them fairly and in its dealings with the oil companies and it must do so while being accountable and transparent to citizens.

Mr Kalinaki is a Ugandan journalist based in Nairobi.
&Twitter: @Kalinaki