Atoke fails to explain how $157m waiver to Tullow was hatched

Francis Atoke (Solicitor General): Amicable settlement negotiation meetings, without prejudice, were held on 3rd, 4th, 18th and 19th December 2014 and on 9th January 2015.The parties agreed that all the disputes between government and Tullow in relation to Capital Gains Tax, including the court cases be resolved amicably. Following the protracted negotiations and consultations with the government stakeholders and engagement with Tullow, the parties agreed to settle the tax disputes for the three areas (EA1, EA2 and EA3A) AT $250m. The settlement sum of $250m was in full and final settlement of all the disputes relating to Capital Gains Tax arising out of Tullow’s Farm-down of its interests in EA1, EA2 AND EA31 to Total and CNOOC.

It was also agreed that Tullow shall waive any of its future right to the application of Article 23.5 of the EA2 Production Sharing Agreement(PSA) in respect of any assignment or transfer of its interests and that the EA2 PSA will be amended to remove the contentious Article 23.5. Cabinet in a meeting held on 12th June 2015 approved the settlement of $250m payable by Tullow in full and final settlement of all the disputes relating to CGT arising out of Tullow’s farm won in EA1, EA2 a and EA3 to Total and CNOOC plus the waiver of the future application of Article 23.5 in respect to Tullow and authorised the Attorney General to register a settlement deed with the Arbitral Tribunal in the case. On 18th June 2015, a settlement deed in the sum of $250m was entered into between the parties (Attorney General, URA and Tullow) in full and final settlement of all disputes relating to CGT arising out of Tullow’s farm down in EA1, EA2 and EA3 to Total and CNOOC.Subsequently, the settlement deed was registered with the Arbitral Tribunal and the High Court of Uganda.

Arbitration Awards are final and binding to the parties and therefore a sum of $250m is final and binding on the government. The Settlement Deed under clause 12 contains a confidentiality clause to the effect that; subject to clauses 12.2 and 12.3, the terms of the Deed shall be kept strictly confidential and shall not be disclosed to any third party without the prior written consent of all the parties. Under clauses 12.2 and 12.3, the Deed can be disclosed to the parties’ affiliates, directors, officers and employees or professional advisors or if the disclosure is required by law or by any regulatory or tax authority or for purposes of governmental or legislative review. Non-disclosure of the Deed is important since the government is currently pursuing arbitration proceedings with Total BV E&P premised on the same Article 23.5. On the issue of the$ 157m. The $ 157m was not a tax waiver but rather the difference between the amount in the TAT ruling of $407m and the negotiated settlement of $250m. It should be noted that the TAT amount of $407 was not final. Tullow had appealed to the High Court of Uganda challenging the TAT ruling and had also commenced arbitration proceedings with the ICSID against the government challenging the payment of CGT in respect of the EA2 alleging that Article 23.5 exempted Tullow from payment of CGT arising from the transfer of its interests to Total and CNOOC. Therefore, the tax amount was in contention. Government weighed the benefits of settling the case against the consequences of a prolonged, expensive and adversarial litigation and arbitration the outcome of which was uncertain. Government could have lost the cases and got nothing out of the cases. It is best practice for lawyers to settle cases out of court if such cases do not merit contention. The amount of $250m was a negotiated settlement arising from the High Court and the arbitration cases. About the Memorandum of Understanding (MoU) of 15th March 2011. The purpose of the MoU was to facilitate smooth completion of the farm down transaction of Heritage’s interests to Tullow. The MoU particularly addressed the: Resolution of certain matters concerning the tax payable by Heritage on the disposal of interests to Tullow in respect of Areas 1 and 3A i.e. reiteration of the appointment of Tullow as an agent under the Agency Notice to pay $313m to URA on behalf of Heritage within 10 business days.

Effectiveness of the consent by the Minister of Energy and Mineral Development regarding the Heritage/Tullow farm down transaction, upon the payment of tax by Tullow on behalf of Heritage. Stamp Duty payment by Tullow upon transfer of interests to Total and CNOOC. Breaking the monopoly by Tullow:by ensuring that Tullow which was owning 100% interest in EA1 and EA3A following farm down from Heritage, is obligated to transfer 33% interest in each of those areas to Total and CNOOC.Further Tullow was obligated to transfer 25% and 8.33% to each of CNOOC and Total in EA2,addressing the tax payable by Tullow in respect of the farm down transactions to CNOOC and Total and objection proceedings, certain other matters relating to the development of the petroleum resources in the Albertine Graben(commercialisation plan),grant of production licence for the Kingfisher Discovery, grant of Exploration Licence for the Kanywataba Prospect Area, grant of new licence for EA1 to Total/CNOOC. The confidentiality nature of this MoU relates to the sensitivity of the information contained in the said MoU which required to be protected from disclosure to third parties.

Abdu Katuntu: We just have a few clarifications to seek. On Pg. 2 you say that Article 23 reads: “Article 23.5 read: “The Assignment or transfer of an interest under this agreement and any related Exploration or Production Licence shall not be subject to any tax, fee or other impost or fee levied on the assignor or assignee in respect thereof”. First of all, who signed this PSA?

Atoke: The minister of Energy.
Katuntu: Is this particular clause founded in law that the Minister of Energy can commit this country to this kind of agreement?
Atoke: Those were issues in arbitration but he signed it.Whether he can sign it is another matter.
Katuntu: You are the Solicitor General and let me tell you why we are asking this. If Ministers are going to commit the country to this kind of provision which prima facie is actually illegal, then that has to be examined. As the SG, did the Minister have powers under the law to commit the country to this clause under these terms?
Atoke: It depends on the circumstances under which he signed it?
Katuntu: No, this thing speaks to itself. Can a Minister commit the country to say the transfer of interests under this country and any related production shall not be subject to any tax, fee or any impost. Does he have those powers?
Atoke: Mr Chairman, my response is that the Minister signed it. Whether he can sign it or not is another matter.
Katuntu: The other matter is what we are interested in because we actually know that he signed and the person we are asking is the Solicitor General of the republic of Uganda?
Atoke: And I said Mr Chairman that I do not know the circumstances under which he signed. It depends on the circumstances.
Katuntu: Mr Atoke, can you try to appreciate that this Committee has to make a decision one way or another. And I am talking to the Solicitor General of Uganda. That a Minister actually caused all this problem because eventually this was the subject of contention. If this clause was not there, then it should not have arisen. And what we what to examine is the origin of the contention?
Florence Namayanja (Bukoto County East): I would like to know and be advised and educated what the Solicitor General of Uganda is supposed to do. What is his role?
Atoke: The role of the Solicitor General is to advise government, allied institutions and the public on legal matters.
Katuntu: Given that role, can we now ask you whether the Minister had powers to sign this agreement and commit the country?
Atoke: Mr Chairman, I am not at liberty to answer that question because the same issues are rising in a matter involving Total and I am not at liberty to answer that.
Katuntu: Go back to the confidentiality agreement. Under clauses 12.2 and 12.3, the Deed can be disclosed to the parties’ affiliates, directors, officers and employees or professional advisors or if the disclosure is required by law or by any regulatory or tax authority or for purposes of governmental or legislative review. This is the Parliament of Uganda. Are you saying that this agreement you signed is confidential and Parliament cannot know what is in this deed?
Atoke: That is not what iam saying.
Katuntu: Can you go to Article 41 of the constitution?
Atoke: I know it.
Katuntu: You know?
Atoke: Yes.
Katuntu: What does it say?
Atoke: Access to information. And there is a law that operationalises that Article and there is certain information that is confidential.
Katuntu: Mr Atoke, the law you are talking about was a Private Members Bill and the person talking to you was actually the mover if you do not know. That was my law and so I know the details of the law because I am the author. Can we go back? Did the deed prohibit you from disclosing the details to the Parliament of Uganda?
Atoke: No. But not everybody here is a member of this Parliament. You can look around.
Katuntu: Okay. We shall make consequential orders. On that note, we shall ask the media to give us five minutes to interrogate this. And I hope you understand because we need to get to the crux of the matter. The money we are talking about is $157m and we shall not leave it hanging. That is for sure. So Fourth Estate, give us some time we finish this and we shall require you back.
Committee proceeds in a closed session.
Katuntu [Re-opens to the media]: I had promised that the proceedings of this Committee will be open because we do treasure the principle of transparency. For the first time in the proceedings of this process, we had to ask the media to leave because officers from the Ministry of Justice and Constitutional Affairs led by the SG pleaded confidentiality of some of the issues they wished to discuss. The SG knew that had had to disclose everything to Parliament because there can never be anything confidential against Parliament. Or an agreement which government enters into and is so confidential that Parliament may not know the details. We had a 20 minute conversation with the Solicitor General in relation to a tax waiver of $157m granted to Tullow by government upon the sale of Tullow’s interests to Total. This particular waiver arose out of a tax dispute which had been handled and concluded by the Tax Appeals Tribunal and CNOOC appealed to the High Court but the matter had not been heard but it also filed for Arbitration proceedings at the ICSID in Washington D.C. Thereafter, they agreed that a sum of $250m be paid by Tullow in full and final settlement of their obligations. Having paid the $250m instead of the $407m, there was [a balance of] $157m that was not paid. The point of contention in the Tax Appeals Tribunal and the ICSID was a provision in the PSA which provided and I will read it verbatim. It reads: “The Assignment or transfer of an interest under this agreement and any related Exploration or Production Licence shall not be subject to any tax, fee or other impost or fee levied on the assignor or assignee in respect thereof”. We are not going into the details of the arbitration of the contest but this is where the problem was. We have heard a discussion with the officers and we have made the necessary directives. One is that we would like to know whether this particular PSA was approved by the office of the Attorney General or Solicitor General. Two, if so, which officer from the office of the SG or AG approved this particular clause. Three, we would also like to know which Minister signed this PSA. For purposes of the proceedings, we shall end at this point. The rest we shall brief you keeping in mind that there are some issues which we shall keep to ourselves because of the confidentiality of the agreement government entered into with Tullow.
***The committee will be on recess as members travel to London to cross-examine MS Curtis,a London-based law firm that was hired by the government during the oil cases.***

Cosase MPs head to London
MPs investigating the circumstances under which selected government officials controversially shared out Shs6b as a reward for winning oil cases against British oil firms will today fly to London to cross-examine lawyers from a law firm that was involved in the cases.
Curtis, Mallet-Prevost, Colt & Mosle LLP, a London-based law firm, was hired by the government to beef up Uganda’s legal and technical teams in cases against British oil firms Tullow and Heritage.
The case was triggered after Tullow sold 66% of their interests in the Albertine Graben to Total E&P and CNOOC but turned around and rejected a $472m Capital Gains Tax(CGT) assessed by Uganda Revenue Authority(URA)on grounds that Production Sharing Agreement(PSA) exempted them from any such tax.
Key among the queries that the MPs want answered is how much money MS Curtis was paid to execute work for the Ugandan government after it emerged during the ongoing inquiry that the law firm was separately hired by the Attorney General and the Uganda Revenue Authority (URA) to handle the same case.
Queries over the money MS Curtis bagged from the two cases sprung up after it was discovered that URA paid the law firm Shs2.5b even as the correspondences from the Attorney General to the Committee indicate that the law firm was separately paid Shs36 billion.
Last week, URA Commissioner General Doris Akol failed to table evidence of work done by MS Curtis, insisting that the law firm jointly worked with the Legal and Board Services department of URA but did not independently produce legal opinions.
Committee Chairman Abdu Katuntu declined speaking about the line of investigations that the Committee will pursue in London saying he is wary of jeopardizing the inquiry.Mr Katuntu is the only member authorized to speak to the media about the inquiry.