| LONDON, March 13
LONDON, March 13 Tullow Oil colluded
with Uganda to extract tax from its former exploration partner
Heritage Oil in pursuit of its own commercial gain,
Heritage plans to prove in London's High Court this week.
The case centres on over $400 million of capital gains tax
demands made by the east African country's government for a 2010
deal where Heritage sold its oil licences there to Tullow for
Tullow says it had no choice but to pay the tax on
Heritage's behalf, and brought the case against the smaller
company to recover its money. Heritage says Tullow helped Uganda
formulate the tax claim, which it disputes, in order to keep the
government sweet, and claims it is owed payment instead.
The legal battle shines a light on the highly politicised
and risky nature of doing business at new resource frontiers. It
also tests the tightrope governments walk between securing a
fair share of the bounty and scaring off investment.
The money involved is enough to buy almost half of
loss-making Heritage, and would fund several months of
exploration drilling for Tullow. It is equivalent to over three
years of economic growth for Uganda at the current rate of 0.7
percent on annual gross domestic product of about $17 billion.
"From early in 2010, Tullow was engaged in discussions of a
questionable nature with Ugandan government officials,"
Heritage's lawyer Khawar Qureshi told the court of Mr Justice
Burton in his opening statement on Tuesday.
"The collusion took several forms. It was continuous and
extensive", he said, "...and all behind the back of Heritage".
Tullow's lawyer David Wolfson on Tuesday called the Heritage
position alleging collusion "creative, but incorrect" and said
his case would hinge on showing that advice on Ugandan law that
Tullow should pay up was "honestly held".
Heritage, whose chief executive Tony Buckingham once
provided mercenary fighters in Africa when he was a partner in
the military contracting firm Executive Outcomes, is pursuing a
separate legal dispute with the Ugandan government.
Heritage argues that no tax is due on the transaction, which
brought an end to its operations there.
Tullow, which has grown rapidly in recent years and carved a
niche as an African oil exploration specialist, has big
ambitions in Uganda and has opened it up to some of the top
players of the international oil industry.
When the original $1.45 billion asset sale was concluded,
and with Heritage's agreement in the aftermath of the $405
million tax demand, Tullow paid the Ugandan Revenue Authority
(URA) $121.5 million, in compliance with Ugandan tax rules which
require a one-third payment before any challenge can be mounted.
It put the outstanding $283.5 million of the tax demand into an
escrow account pending the outcome of Heritage's challenge, and
paid what was left, $1.045 billion, to Heritage.
Then, in 2011, Tullow complied with another URA demand for a
further $313.5 million payment, an amount which included the
balance of the original tax demand, plus an extra $30 million
which the URA had added to the bill.
The second payment was made a fortnight before the signing
of a deal that brought top international oil company Total
and Chinese national oil group CNOOC into partnership
with Tullow in Uganda.
The Total-CNOOC transaction netted Tullow $2.9 billion in a
farm-down arrangement sanctioned by the government. Heritage
claims Tullow was motivated to pay the $313 million by its
ambitions in the country, and by the desire to help this deal go
Tullow says it had no choice but to pay the second tax
demand sum, and having now paid out a total of $1.718 billion
for an asset that was initially priced at $1.45 billion, it is
suing Heritage for breach of contract for not paying back the
Wolfson noted that the second tax demand, made on March 15
2011, was due by early April, and attached to a monthly interest
rate of 2 percent until it was paid.
Wolfson plans to bring a number of witnesses including
Graham Martin, Tullow's general counsel and an executive
director of the company, Richard Inch, Tullow's head of tax, and
Peter Kabatsi, managing partner of Tullow's Ugandan lawyers,
Kampala Associated Advocates.
Kabatsi is also the former solicitor general of Uganda and
serves as a panel member of the International Criminal
Heritage's main witness in the trial, which the judge said
could run for the next two weeks, will be Paul Atherton,
Heritage's finance director.