About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Tuesday, November 22, 2011

Who is Karuhanga fighting for?

Without arbitration, Uganda has US$ 405m in its treasury. With arbitration, we have a 50 percent risk of losing it.

I read with great pain and frustration the Sunday Monitor interview with the western youth Member of Parliament (MP) Gerald Karuhanga about alleged bribes paid to ministers Sam Kutesa and Hillary Onek in the ongoing oil-bribes-saga. Asked why he thought the documents he tabled before parliament were genuine, Karuhanga said: “we saw some people trembling; if it was not true, why were they trembling?” First, the evidence came while making accusations in parliament. Second, is this really evidence of guilt? And I am told Karuhanga is a lawyer. If we accept this as a standard for our MPs to make policy and pass resolutions then we are doomed as a country.

I was even more surprised at the ignorance of Karuhanga when he talked about international arbitration. He alleged that when Onek was minister of Energy, he was against this arbitration; that when Onek was removed, his successors decided to go for arbitration. This suggests that Karuhanga believes international arbitration is good for Uganda. He does not even know that the arbitration has been brought against the government of Uganda by Heritage Oil.

Heritage is contesting a US$ 405m Capital Gains Tax (CGT) assessment by Uganda Revenue Authority (URA). Heritage invested about US$ 150m in oil exploration in Uganda. But when it was selling its shares, it was paid US$ 1.5billion i.e. its investment had acquired extra value (capital gain) of US$ 1.35billion. According to Ugandan law, this gain is taxed 30 percent when someone sells their asset.

Under the oil agreements, for any international oil company to sell its interest, it has to get approval from government. When Heritage sought this approval, government of Uganda asked URA to make a tax assessment hence the US$ 405m bill. Heritage contested this arguing that the capital gain was accrued on the London Stock Exchange where it is listed and is therefore not liable to pay the tax in Uganda. Uganda is saying the capital gain accrued on an asset that is a natural resource of the country. Heritage called for international arbitration to resolve the dispute.

I had heard allegations that Onek was attempting to give consent for Heritage to sell even before paying the taxes. It was also alleged that many government officials had been bribed to accept international arbitration. Uganda has lost all international arbitration cases. So I felt government should not accept it. I got information that top government officials were putting URA boss Allen Kagina, under pressure to withdraw her tax assessment. I called Kagina encouraging her to stand firm.

That is when I got documents showing that Tullow was paying the said bribes to make Uganda accept international arbitration. Why would Tullow pay bribes for Heritage to avoid tax liability? Under the oil agreements, if Tullow bought Heritage shares, it would be required to farm out (sell) its shares to a third company. If Tullow sold part of its shares, its tax liability would be above US$ 900 million. It seemed to me Tullow needed to use Heritage to create a precedent on CGT.

Although the bribes paid seemed to be too high, I reasoned that if Tullow can create a precedent that allows it to avoid paying US$ 900 million, then it is worth investing US$30 million in bribes. I needed to expose these bribes, but I could not establish the authenticity of the documents. If I had to make an error, I felt I should do it on the side of caution. However, I felt that what was strategically important for Uganda was to get government to insist that Heritage pays the CGT.

The person with ultimate power to do this was President Yoweri Museveni. Armed with the documents I had, I sought an appointment with him. When I showed them to him he was shocked. Like me, I felt the President believed them to be true. But what impressed me about his reaction was when he asked me: suppose they are forged? I told the President I could not confirm their authenticity. However, there were steps he could take that could insulate Uganda from a loss.

Thereafter, the President did three things: first, he revoked any consent of sale that Onek was alleged to have given to Heritage; second, he insisted that Heritage pays all the taxes before any discussions; third, he resisted international arbitration. He wrote a letter saying there should be no consent and if it has been given, he had revoked it. He refused to meet delegations from Heritage and Tullow until they had paid the taxes. He made strong public statements against arbitration.

These actions forced Tullow and Heritage to deposit the money on an escrow account in Standard Chartered Bank in the UK pending the results of the arbitration. I supported the President’s insistence that nothing happens until and unless the money is banked in a government account with Bank of Uganda. Tullow yielded and paid because it risked losing the Block. Heritage stood its ground and insisted on arbitration.

If I had any doubts, Museveni’s actions on this issue convinced me that he was genuinely protecting the national interest. It also showed me that he is a fair person because although he believed that the documents I had taken to him were true, he was not willing to take action without first verifying them. In fact I worked with him to hire an international investigative firm to do a parallel search – in case the police investigation got compromised. None of the firms we approached in UK, USA and South Africa could do the job because of the difficulty of accessing bank records. But his actions served the public interest that I sought.

Yet Karuhanga supports international arbitration. Without this arbitration, government of Uganda has US$ 405 million in its treasury. With arbitration, Uganda has a 50 percent risk of losing that money. If Onek was opposed to arbitration, then he was defending the national interest of Uganda. I do not know how Uganda was finally arm twisted to accept this arbitration. If we lost in this arbitration, the country will forsake both the US$ 405 million Heritage paid and the US$900m Tullow is supposed to pay. If Karuhanga supports arbitration, whose interest is he fighting for?


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