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sharing in governance of extractive industries

Uganda: Include Oil Sector Secrecy in Economic Sabotage Crime

President Museveni recently requested NRM Members of Parliament to support the proposed amendments that will see suspects for crimes related to murder, rape, treason, rape, defilement, rioters and economic sabotage denied bail for at least six months. A committee to study the President's wish led by Mr Amama Mbabazi was formed to expedite the wish.

Save for economic saboteurs, I do understand the other crimes. Mr Museveni did not define who an economic saboteur is either. The Government Chief Whip Daudi Migereko said the committee will define it and give instances when one is considered as such. It's this curiosity that has prompted me to propose to the Mbabazi Committee to consider inclusion of those promoting opacity in the oil and gas sector as economic saboteurs. And this is why.

The only known secret about Uganda's oil sector is that so far it has been characterised by unlawful high level secrecy. Parliamentarians had to wait for so long before Production Sharing Agreements with oil companies could be tabled in Parliament, almost three years after they had been signed. They were already stale. Ideally, the same Parliament should have discussed, understood and approved these contracts before they were signed.

Not surprising, it seems these contracts were signed with serious gaps that has seen government lose revenues and get entangled in embarrassing tax wrangles with the oil companies. This will definitely affect Uganda's ability to attract reputable investors in the oil industry, which I believe, Mr President, is economic sabotage of the highest order.

The consequence of this opacity is that oil companies have utilised this secrecy by exploiting the gaps in the contracts. When Heritage sold its interests to Tullow Uganda for $1.45 billion, it refused to pay the computed Capital Gains Tax of $404.9 million, choosing to only deposit $121.5 million with the URA in July 2010 and a further $283.4 million in an escrow account in London as a collateral awaiting disposal of a complaint it filed in a UK Tax Tribunal. With Heritage gone, the agents now turned to Tullow and arm twisted them into paying the debt left behind by their former partners. Faced with no choice, Tullow agreed to pay and later claim this money from Heritage.

As of now, Tullow appears set to seek payment for its costs from Heritage and has filed an application in a tax tribunal in the UK. Heritage describes the claim as having no basis because Tullow's payment to the URA was made without Heritage's knowledge or consent, contrary to the terms of the agreement between the two firms.

Uganda insists the tax issues are to be settled locally. This was before Hon. Beatrice Anywar informed Hon. Hilary Onek during a parliamentary debate on April 5th that the agreements tabled in parliament provided for arbitration to be done in the UK. To this the Minister said there was an amendment in that clause which was not tabled in Parliament; again exposing the level of secrecy with which things are being done.

To cut the long story short, Ugandans stand to lose close to $404.9 million in unpaid Capital Gains Tax because a few principal agents, I suppose for selfish interests, have chosen to be unlawfully secretive in their dealings with the oil companies. This will definitely affect the construction of the new dam at Karuma falls, and to me, Mr President, that's the highest level of economic sabotage!

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Comment by Kobina Aidoo on June 30, 2011 at 4:06

Mukalazi - In your estimation, is there really a clause requiring arbitration to be done in Uganda, or did Hon. Onek say that to avoid his own embarrassment? Either way, the apparent deliberate withholding of information from Parliament doesn't smell right. 

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