Oil

By Eriasa Mukiibi Sserunjogi

New US law to expose details of Shs 1.3 trillion Tullow deal

When Tullow Oil pays US$140 million (Approx. Shs 395 billion) to the government this month, it will mark the first time such a deal will have been struck without secrecy in Uganda.

It will contrast sharply from the US$1.5 billion deal in which Heritage sold its assets in Uganda to Tullow in 2009 and is now the subject of tax dispute resolution process in London. Heritage and the Uganda government are disputing over the validity of a Capital Gains Tax that experts say should have been resolved before the sale.

Since the Tullow money expected this month is also a partial payment of a Capital Gains Tax which is also in dispute, it has re-ignited the demand for more openness about the government’s oil policy, how much it gets from oil, and how it uses it.

This time, however, details of the Tullow deal with CNOOC and Total are readily available on the Tullow website and other places.

Transparency crusaders are also excited that Total and the Chinese National Offshore Oil Company (CNOOC) which are listed in the US, might soon be required to provide the tiniest details, including undeclared payments to government officials, in countries like Uganda to the Securities and Exchange Commission (SEC).

Under a new law, the Dodd-Frank Wall Street Reform and Consumer Protection Act, all companies dealing in oil, gas and minerals which are listed on American stock exchanges are to report to the SEC all their payments to host governments.

The law’s section 1504 is being touted as the first ever ‘publish what you pay’ law. Companies subject to the new reporting rules would be required to disclose the total amount of payments made by the company or entities under its control to the government of the country where they operate. These payments would include: host government’s production entitlement, national state-owned company production entitlement, profit taxes, royalties, dividends, bonuses, license fees, rental fees, entry fees and other considerations for licenses or concessions, and other significant benefits to host governments.

Such information will effectively be public.

The new US law could wipe out the secrecy behind the Production Sharing Agreements (PSAs) with Tullow and other oil firms that President Yoweri Museveni and the Minister of State for energy, Simon D’Ujanga want hidden from public scrutiny.

Although Tullow is not obliged to declare its payments to the US government since it is registered in London, it holds a third of the shares in the three oil concessions in Uganda. It will be easy to calculate the payments made by Tullow basing on what Total and CNOOC will have declared to the SEC in the US.

Tullow Oil, which is listed on several exchanges around the world, is a relatively transparent company but in Uganda, its dealings with the government are shrouded in secretive contracts and the exploration areas heavily guarded by elite Special Forces of the Uganda army close to President Museveni.

That is in sharp contrast with Ghana, West Africa, where it listed recently, and publishes on its website all its agreements with the government, environmental impact studies, and every penny it pays to the government.

When The Independent asked the minister D’Ujanga why the government keeps oil dealings secret while they are in the open in places like Ghana, his answer was cryptic.

“That is Ghana and this is Uganda,” he said.

Fear of oil money being swindled and the country being hit by the so-called ‘resource curse’ are high in Uganda. Although oil production has not started in Uganda, its estimated levels of 200,000 Barrels of Equivalent per Day (boepd) and more is far higher than Ghana which produces 105,000 boepd and could peak at 120,000 boepd.

Years back, when journalists sought access to the oil production, prospecting and exploitation agreements under the Access to Information Act which is designed to ensure that citizens have free access to information in possession of the state, the courts ruled that “certain documents need to be kept confidential for the proper functioning of the public service”.

Tullow Uganda Corporate Affairs Manager, Jimmy Kiberu, who has given The Independent some details of the Tullow deal with CNOOC and Total, says Tullow is open to scrutiny of its dealings but its hands are tied.

“We always seek to publish agreements but only do so with the consent of host governments since Tullow Oil is a contractor to government,” he said.

Now, however, President Yoweri Museveni could lose his bid to keep a lid on contracts because of a new law in the USA.

In any case, details of the US$140 million that could fall into the government coffers this week in the Tullow deal with CNOOC and Total are available on the Tullow website and other places.

In its 2011 Half Year Results posted on the site, Tullow explains that following the signing of Sale and Purchase Agreements (SPAs) with Total and CNOOC on March 29 for US$2.9 billion to be paid this month, the Uganda Revenue Authority gave the deal a tax assessment of US$472 million (Approx. Shs 1.3 trillion payable by Tullow. The amount is disputed by Tullow which is pursuing a tax dispute resolution process with URA in Uganda. However, under the MoU for the farm down, as soon as Tullow gets the US$2.9 billion from Total and CNOOC this month, it will within five working days, pay URA US$141.8 million (Approx.  Shs 395 billion). However, under the same MoU, the government of Uganda granted Tullow new production licenses details of which remain secret.

Big oil fights back

Such secrecy is what the Dodd-Frank Act is designed to eliminate.

Although it has been mired by foot-dragging in the SEC, which faces pressure from big American companies that fear to be out-competed in the corruption infested world of secret oil deals, it expected to be effective soon.

The SEC’s rulemaking process, which will pave way for the implementation of the Dodd-Frank Act, has been delayed three times already. Originally expected to be ready by April 15, the conclusion of the rules was pushed to end of August 2011, and is now expected in the first week of October at the earliest.

This has led to fears that the guiding rules the SEC will eventually publish would be a watered down version of what was anticipated.

Alisa Zomer, a Programme Coordinator at the Washington-based World Resources Institute, Institutions and Governance Programme, told The Independent by email that there is a possibility that the US Congress will “scale down Section 1504 by defunding the SEC”.

Major oil interests claim that reporting payments to governments on a per project basis is too burdensome and expensive for companies, and that revenue disclosure is a threat to their economic competitiveness. Zomer says there is also a “strong possibility that companies may sue the SEC over these two issues”.

In a Nov. 2010 letter to the SEC, the American Petroleum Institute (API), a trade association representing over 400 oil and gas companies, said that “Section 1504 could provide competitors with commercially sensitive contractual information and insight into bidding strategies, placing US listed companies at a competitive disadvantage.”

Peter Voser, the CEO of Royal Dutch Shell, who is one of the most ardent critics of the law, has warned that the Section 1504 “may even require companies to violate sovereign laws to disclose information that the laws do not allow.”

This means the new reporting rules might force companies like CNOOC and Total to renegotiate their contracts with the Ugandan government.

Voser argues that the requirements under the law could undermine the progress made under the Extractive Industries Transparency Initiative (EITI), a voluntary initiative in which companies and governments disclose payments made and received in oil, gas and mining.

EITI rules require complying companies and governments to report, through an independent auditor, the payments to governments. The aim is to reconcile what companies say that they pay and what governments say they receive. The initiative was launched by British Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, September 2002.

Uganda has said it is not interested in the EITI process. This means that even companies like Tullow Oil which have already registered to comply with the EITI initiative cannot have their payments to the government disclosed.

Only eleven countries are currently fully compliant with the EITI, including five from Africa – Ghana, Central African Republic, Liberia, Niger and Nigeria. Tanzania is the only EITI candidate country in the East African Community.

Minister D’ujanga said the government will not join the EITI initiative because of its European-driven stance.

“We don’t “believe in the club but we believe in including their principles in our oil law,” he said.

D’ujanga said a proposed oil law, which he said is currently before the first parliamentary council and is to be passed in October will effectively regulate the sector.

UK plots own rules

Joe Powell, UK Policy Manager for ONE which is campaigning for a European law similar to the US’s Dodd-Frank, says “Europe has a great opportunity in the coming months to propose a law which goes further than section 1504 of Dodd-Frank.”

Powell told The Independent that Europe should require extractive companies to disclose their profits, production levels and contracts.

“Only then will we have a clear picture of companies’ operations in countries like Uganda, and be able to secure the social and economic development outcomes that citizens deserve,” Powell said. He said declaring profits in each country would prevent companies from avoiding taxes and would help African governments collect their fair share of revenues.

Europe is expected to propose their legislation in November, for the EU parliament and the Council of Ministers from all 27 member countries to approve, a process expected to take about a year.

Winnie Ngabiirwe, the chairperson of Uganda’s version of Publish What you Pay, an advocacy coalition that in March petitioned UK Prime Minister David Cameron to speed up the process of introducing a similar law within the European Union, says this law would enable citizens to demand accountability for oil revenues from the government.

In the absence of an Oil Policy and regulatory framework in Uganda, President Museveni has been accused of treating Uganda’s oil as “personal”. He has also appeared to be arbitrary decisions when URA demands Capital Gains Tax from Tullow, and Heritage Oil before under unclear rules.

Using oil bounty

So far the government has been paid US$313 as capital gains tax when Heritage Oil sold its Uganda assets to Tullow. Although Heritage, which refused to pay the tax and Tullow paid as its agent in order to allow the CNOOC, Total deal to proceed, is still appealing, utilisation of the oil money has become a concern.

The World Bank has recommended that the government creates a separate account for oil money to be used for big infrastructure projects. As a result, the government says tax money from Heritage has been put aside for the construction of Karuma hydropower dam, but doubts remain because Uganda’s oil sector is shrouded in secrecy.