Have the vampires pulled off first big win in oil business?

One of the esteemed readers of this column brought my attention to a little publicised fact in the ongoing tax battles between Heritage and the Government of Uganda over Uganda Revenue Authority’s (URA) insistence to collect $404 million capital gains on Heritage’s investment in two oil exploration blocks in Bunyoro. This position has been supported publicly by the Minister of Energy, Hilary Obaloker Onek.

Tax-writing and by implication, tax collection and tax enforcement, is one of most privileged acts of a sovereign state. It also is by no accident one of its most political. In the United States for example, there is a long list of Congressmen who have gotten into trouble for using their perches on the Ways and Means, the US House of Representative’s taxing authority, to obtain material favours from parties with business before the Committee. Many Congressmen have moved from Congress to the slammer for all sorts of corruption cases serving on Congress’ most prestigious committee.

Politically, this power may be exercised by the government to keep a tab on its vocal opponents. It’s a tradition for the Internal Revenue Service to be unleashed on such entities, especially those that seek to keep privileges like tax-exempt status and hide under this shield to conduct politics.

The reader’s little publicised fact repeated in blogosphere by a tax expert and attorney Susan Bakaawa who publishes Render unto Caesar, are the possible merits of Heritage’s case. In 2008 while considering estimates on the budget and, as is customary, amending the principal taxation statute, Parliament inserted Section 89G of the Income Tax Act stipulating that no gain or loss would be taken into account on the transfer of interest in a Petroleum Agreement.

Uganda’s legislators-- it’s too early to figure out who the principal culprits were from the Hansard; any motion has seconders-- added in Section 89B that in case of any inconsistency between Uganda’s Income Tax Act and the Petroleum Agreement, the latter would prevail.

The summary of this information is that Heritage has a case. Enter other sections of the Act which Heritage has agreed to comply with; the deposit of 30 per cent of the tax liability as required to lodge a dispute against tax assessment and the story continues.

In this case, Heritage is willingly depositing over $100 million in an account that may “earn interest”. Enter President Museveni sounding quite irritated with the actions of his cabinet minister.

The media on August 19 reported that the President had ordered Minister Onek to stop endorsing deals between oil and gas mining companies on behalf of the government. In the future the President would have to personally approve such agreements, the presence of other statutory safeguards including the opinion of the Attorney General notwithstanding.

Heritage’s public relations woes complicate their case because Mr Onek’s patriotic bugles on the matter cannot be un-sounded. Any publicity on Section 89G in the form of parliamentary hearings, especially the manner in which the provisions were tabled and passed at serious loss to the treasury is not welcome at this time.

The President as the government’s chief administrative officer probably also forgot that this one already has a lot of conflicts written over it. The President’s son-in-law, Edwin Karugire, is doing battle in the courts on behalf of Heritage. Why would he go to lengths to hire a whole minister if all of this work can be done through the presidency?

In fact, Onek’s woes may be far from over. The minister slammed the brakes on Umeme, apparently solving a problem that took down two ministers and a former Inspector General of Government. The language used by some of his subordinates and the use of some of them (subordinates) to denigrate him in public were part of his welcome to the Ministry of Energy.

In Uganda’s charged politics, it sometimes makes sense to give politicians from marginalised areas a chance to shine and showcase their talent. It’s a pity that the brains of another minister from the same region, Daniel Omara Atubo, were taken down defending a sham piece of legislation, the Land Amendment Act of 2008 that after inflaming tempers, has not meaningfully changed the status quo. The status quo of course includes the reality that the biggest landowners in Uganda today, especially of prime and agricultural land, may not be the ones targeted by the legislation initially.

Nothing really changes if these officials are not given a chance to apply their talents. After all, most of Uganda’s blood and treasure is now singularly locked in one part of the country, the Army, Police, intelligence agencies, Coffee, Cotton, URA…

The spirit of Section 89G to elevate a private contractual right and wrap around it authority of a statute is unprecedented in our jurisprudence. It has been many years when Acts of Parliament in Uganda were written to benefit individuals; and even these were mostly deposed royals who were reinstated in 1993. Section 89G goes beyond that because its sweetheart provisions do benefit one entity and victory maybe theirs.
Mr Ssemogerere, an attorney and social entrepreneur, practices law in New York
kssemoge@gmail.com