Uganda’s Tax Appeals Tribunal (TAT), on July 16, ruled against Tullow Oil Plc and ordered the payment of tax, worth $407m, to Uganda Revenue Authority (URA).
I am informed that Tullow Oil is the single biggest foreign investor in Uganda, with an estimated $2.8bn investment. Tullow appealed against the levied tax on account of a production sharing agreement (PSA) signed bythe then Energy Minister Syda Bbumba, which offered tax exemption to the exploration company.
The TAT rejected Tullow Oil’s claim of exemption (rightly in my view), while agreeing with the submission that Minister Bbumba acted outside the law in granting the exemption. I have read an opinion in the Sunday Monitor of July 20, by one Emmanuel Mugarura, the designated head of secretariat of the Association of Uganda Oil and Gas Suppliers. He warns of the dangers of such a ruling and asserts that the victory to URA is “short-lived”.
Apparently, Tullow Oil will be appealing the TAT’s decision in higher courts in Uganda and eventually at the International Centre for the Settlement of Investment Disputes (ICSID), headquartered in Washington DC, USA. ICSID is a member of the World Bank group – usually involved in financing ‘foreign investors’.
According to Mr Mugarura, “at least 13 third-world governments have won similar cases in their home courts but, without exception, lost all of them at ICSID”.
Natural resources within countries are God’s endowment to the peoples of the respective countries. They are assets owned, in common, by all citizens. All citizens have an inherent right and say on how they (resources) are managed.
Unfortunately, since time immemorial, citizens of African countries have had little or no say at all on how their natural wealth is exploited. It has been the “chiefs” or rogue regimes disposing of these resources, largely for their selfish (corrupt) benefits.
That’s why, in spite of Africa being a major oil and gas producer and having some of the earth’s largest mineral stocks of gold, diamonds, metal ores, as well as other high-value resources above ground, the continent is home to 25 of the top 30 poorest countries in the world, according to the World Bank.
West European and American traders and business interests have ravaged African countries for more than 400 years! That’s, largely, why African states and governments are weak and fragile.
The Imperial British East African Company (IBEAC), headed by Sir William Mackinnon, managed Uganda (and Kenya) and imposed taxes on our citizens. Even after independence, most African rulers have simply acted as agents of the foreign business interests. This state of affairs cannot continue unchecked indefinitely. Foreign ‘investors’ must recognise and respect citizens of our countries, as the ultimate owners of resources in our countries.
Foreign ‘investors’ have the wherewithal to evaluate the political situations and the legal frameworks within African countries. They have a responsibility to seek and deal with legitimate governments and with stable and equitable legal regimes. On October 8, 2001, Australian-based Hardman Petroleum Pty Ltd and UK-based Energy Africa Ltd entered into a production sharing agreement (PSA) with the Uganda government.
It’s this agreement, signed by Minister Bbumba on behalf of government, which “granted” the oil companies exemptions on capital gains and income tax. This is the exemption now claimed by Tullow Oil, the legal successor of the contracting companies.
The petroleum companies that signed an agreement with Minister Bbumba knew that our government had just been formed after a highly disputed election. They knew that since independence in 1962, no government of Uganda had ever peacefully handed over power to another. They knew that Uganda’s president had assumed office 15 years earlier, after a five-year vicious war.
The petroleum companies knew that Uganda did not have an Energy Policy at all. Uganda’s first Energy Policy was made in 2002 the National Oil and Gas Policy made in 2008 and the Petroleum Exploration, Development and Production Act in 2013.
Any ‘investor’ who is prepared to invest in such an environment must have great contempt for the citizens of the country. They must be prepared for all the vagaries that would, for sure, await them, sooner or later.
Even in 2001, when Minister Bbumba signed the controversial agreement, there was a rudimentary legal framework that would have guided the ‘investor’. There was the Uganda Constitution, The Petroleum Exploration and Production Act 1985 (revised 2000), and The Petroleum (Exploration and Production) (Conduct of Exploration Operation) Regulations 1993.
Act of parliament:
None of the above laws or provisions of the Constitution gave power to a minister to exempt companies (investors) of taxes. If I have not read them properly, Mr Mugarura, or anyone, can draw my attention to them.
To the contrary, Article 152(1) of the Constitution is very clear: “No tax shall be imposed except under the authority of an act of Parliament”.
Article 152(2) states: “Where a law enacted under clause 1 of this article confers powers on any person or authority to waive or vary tax imposed by that law, that person or authority shall report to Parliament periodically on the exercise of these powers as shall be determined by law.”
The very legal minds that the ‘investors’ are now relying on to avoid payment of tax would have aised them that Minister Bbumba had no power, under the existing laws, to exempt them from tax liability. I am not aware of any law system (open to lawyer’s aice) that allows an illegal contract to be enforced more so, if it was illegal at its formation.
The very performance of the contract would violate the law. Whether the attorney general (government’s principal legal aisor) endorsed the illegal contract or not, can’t change its illegality. The purpose of Mr Mugarura’s opinion is, in itself, suspect. Why engage in threatening that Uganda will be misunderstood by foreign ‘investors’, when the whole legal process envisaged in the said contract, up to ICSID (where African countries never win) is open to Tullow Oil?
It’s my view that Tullow Oil and its predecessors were imprudent to enter into contracts for exploiting Uganda’s natural resources with a government of questionable legitimacy. Such a government would have equally questionable authority to act on behalf of the owners of the resources in question. Once the legitimate owners regain control, they cannot be expected to ratify what imposters did, ostensibly, on their behalf.
Hon Bbumba, the NRM government minister who made the controversial tax “exemption” to the oil explorers, was in 2012 forced to resign from government – along with Attorney General Khiddu Makubuya – following a string of corruption and abuse of office scandals.
At the time of her resignation, she (this time as Finance minister) had “wrongly” ordered the payment of Shs 142bn to HABA Group of Companies, owned by a notorious businessman Hassan Basajjabalaba – the reigning chairman of NRM Entrepreneurs’ League.
Earlier, just before the 2011 elections, Bbumba, together with former VP Specioza Kazibwe and Minister Ruth Nankabirwa, had superintended over the disappearance of Shs 12.3bn, meant for a “presidential project to support small businesses”.
Minister Bbumba, together with AG Khiddu Makubuya and PS Steven Kagoda, are still under investigation for the Shs 200bn National ID scandal. A country whose government and its officials act with impunity, as if they are mercenaries, cannot be held responsible for the actions of such a government. Worse still, if the foreigners, dealing with the government, seek to violate the established law.
Tullow Oil and other multinational investors need to have respect for citizens of African countries, deal with legitimate governments and respect the law before the government officials. In plain terms, control your greed.
“Earth provides enough to satisfy every man’s needs, but not every man’s greed,” Mahatma Gandhi.
The author is a Ugandan political activist.
Source : The Observer