Tullow Oil

Court proceedings at London's High Court commenced after Tullow Oil sued Heritage Oil in a claim that it was forced to pay Heritage's $313 million tax bill after Tullow acquired Heritage's Ugandan assets.[26]

In 2010, Tullow had paid Heritage $1.45 billion for its 50 percent share in two huge Ugandan oil fields - Blocks 1 and 3A. The Ugandan government initially demanded $405 million from Heritage in capital gains tax, and, with Heritage's agreement, Tullow paid the Ugandan Revenue Authority (URA) $121.5 million. This was a third of the original tax demand, as Ugandan tax rules required a one-third payment before Heritage could challenge the demand.[27] Tullow placed the remaining $283.5 million into an escrow account, pending the outcome of the challenge, which left a reduced $1.045 billion payment that went directly to Heritage in exchange for the assets.[27] However, in 2011, Tullow complied with another URA demand for a further $313.5 million payment, which was the balance of the original tax demand, plus an extra $30 million which the URA had added to the bill.[26]

Tullow signed a Sale and Purchase Agreement with TOTAL and CNOOC on 30 March 2011.[28] The second payment to the URA was made on 7 April 2011. The farm down to TOTAL and CNOOC was completed over 10 months later on 21 February 2012.[28] The Total-CNOOC transaction netted Tullow $2.9 billion in a farm-down arrangement sanctioned by the government. Heritage claims that Tullow was motivated to pay the $313.5 million by the desire to help the deal go through.[29]

During the trial, it emerged that senior directors at Tullow had discussed making an "undocumented" $50 million payment to the Ugandan government before considering funding parts of President Yoweri Museveni's re-election campaign.[30] Angus McCoss, an exploration director at Tullow, suggested to other executives in a group email in April 2010 that the company should pay for an oil licence to "meet the short term needs and demands" of President Museveni.[30] Graham Martin, Tullow company secretary, responded firmly in court, saying this was an "outrageous suggestion".[31]

Tullow's vice president for Africa, Tim O'Hanlon, was also alleged to have suggested that Museveni slur Heritage as part of a deal to settle the tax dispute. Additionally, it was brought up that Tullow's CEO, Aidan Heavey, is a known donor to the Conservatives, having donated more than £50,000.[32]

President Museveni denied the bribery claims in an official statement on 18 March 2013. The statement caused some controversy for the court case as he went on to claim within that Tullow Oil completed the tax payment in order to successfully transact business within the country, a claim that Tullow denied in court.[33] In a public statement in Uganda, Jimmy Mugerwa (Tullow Uganda) deeply regretted the embarrassment caused by "false allegations" and quoted a personal letter from Aidan Heavey to President Museveni, which stressed Tullow's history of "fair and ethical dealings".[34]

During the court case, Graham Martin, Tullow's General Counsel, was criticised by Heritage's QC for disposing of hand-written notes potentially relevant to the proceedings. Martin rejected the criticism and stated that he had destroyed the notes when he had periodically cleared his office in Kampala in 2010–12.[6] On 14 June 2013, it was announced that Tullow Oil won the arbitration of the court case with Heritage Oil.[35]

In March 2013, British government ministers were implicated in receiving business-related donations from oil and resources companies including Tullow Oil. A report by the World Development Movement (a political campaigning group) alleged "that one third of ministers in the UK government are linked to the finance and energy companies driving climate change" and that "Government figures were embroiled in the nexus of money and power fuelling climate change include William Hague, George Osborne, Michael Gove, Oliver Letwin, Vince Cable and Prime Minister David Cameron himself. Both William Hague and Michael Gove were said to have connections to Tullow;[36] Hague reportedly telephoned the president of Uganda to lobby for the firm's £175 million tax bill to be waived, while Tullow's CEO, Aidan Heavey, donated £10,000 to education secretary Gove before the 2010 general election.[37][38]

In 2013, Platform London, an environmental campaigning group, released a report that alleged that Tullow Oil was avoiding UK tax by minimising the amount of profit that passes through the company's UK books and routing it through an international network of subsidiaries instead. The report also accused the firm of exploiting international legal mechanisms in Uganda to avoid tax.[39]

In December 2012, reports surfaced in the press that Tullow Oil was subject to arbitration with the government of Uganda at the International Centre for Settlement of Investment Disputes in the United States.[40] The dispute arose after value added tax was imposed on goods and services that Tullow purchased for its oil exploration work in the country. The original case was filed in October 2012 at the International Centre for Settlement of Investment Disputes (ICSID) and due to the case being under seal, the intricacies are not open to the public. Information on the ICSID website reveals that the basis of the court case relates to "petroleum exploration, development and production agreement".[40]

Tullow Oil is represented by Kampala Associated Advocates. In light of this legal representation, Peter Kabatsi, Uganda's former solicitor general and partner at Kampala Associated Advocates, has denied that he negotiated agreements with oil firms during his tenure as solicitor general, quashing claims of conflict of interest. The founder of Kampala Associated Advocates is Elly Kurahanga, the President of Tullow Uganda.[40]

Government sources said that the real cause for concern for Uganda is the manner in which it lost millions of dollars over the last decade – money that could have stayed in the country.[41] A report by the organization Global Financial Integrity (GFI) reveals that illicit financial flows from Uganda between 2001 and 2012 amounted to $680 million; in Tullow's case however, the firm argues that it is challenging tax demands that non-governmental organizations like GFI and the Tax Justice Network say should go towards government investment in healthcare, education and infrastructure.[41]

In 2011, the Attorney General of Uganda initiated Parliamentary investigations into bribery allegations levelled at Tullow Oil and three cabinet ministers, named as Prime Minister Amama Mbabazi, Foreign Affairs Minister Sam Kutesa and his internal affairs counterpart, Hilary Onek. Another MP, Gerald Karuhanga, acted as the whistleblower when he submitted documents on the incident in Parliament during the October 2011 Special Oil Debate. On hearing the allegations, MPs also called for the accused to resign.[42]

On 11 April 2012, a Tullow Oil delegation appeared in front of an Ad Hoc committee of the Ugandan Parliament which was investigating these claims. A submission and supporting documents were handed over to the Committee – proving unequivocally that the allegations made against Tullow were false and based on forged documents. The submission to the Ad Hoc Committee can be downloaded from Tullow's website.[43]

After the investigation was announced, a lawyer, Severino Twinobusingye, sued the Attorney General in an attempt to block investigations into the bribery allegations, as well as calls for those accused to resign.[42] Twinobusingye also wanted court to order for him to be paid for the costs incurred in the case. In March 2012, judges awarded Twinobusingye two-thirds of the total costs and decreed that the accused should not have to step down. In July 2012, the Constitutional Court threw out the Parliamentary Commission's intended appeal to the Supreme Court challenging the January 2012 ruling that blocked it from being party to the oil sector probe case.[42]

In February 2013, the court ordered the government to pay 12.9 billion shillings in costs to Twinobusingye in a move that was described as "very unprecedented in the country’s history".[42]

Tullow ran into difficulties in July 2013 after pastoralists in the Turkana County of Kenya rejected the firm's proposal to move to a new exploration site at the Twiga 2 oil site in the Lokichar basin. They complained that the ongoing oil exploration in the region has interfered with pasture land and that future pastures for their animals would be decimated.[44] In late October 2013, local communities in Turkana County staged demonstrations demanding jobs and other benefits from any potential future operations in the region, prompting the firm to suspend drilling and sending the firm's share price down. The locals also managed to gain entry to facilities and two oil blocks, resulting in looting and vandalism. Resumption of drilling was only achieved after peace talks were agreed with local leaders in mid-November.[45][46][47]

In July 2013, Tullow Oil was accused of dumping two trucks of human waste in Kakindo village in Western Uganda, causing serious health risks to locals and a number of diseases. The incident was blamed by the firm on its subcontractor, Saracen Uganda Limited, who in turn blamed another contractor they used. However, the incident did not do well for the firm's reputation in the country after it drew the wrath of members of parliament. Tullow claimed the entire responsibility lay with its contractors, who they believe were cutting corners. The incident was also not the first time the firm had been accused of illegal waste dumping, with reports in 2012 claiming the firm dumped toxic drilling waste in a game park and other areas occupied by people.[48]