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Tullow Oil, Air Uganda, and the Blurred Lines of the Law [opinion]

Let’s start with a few ground rules. All companies should heed to a country’s laws, protect the environment jealously, contribute to social programmes, and pay tax.

Governments, on the other hand, should respect the investments companies make in the country by making promises and signing agreements that they will uphold at all times.

In Uganda, recent events concerning two companies point to these simple rules either being ignored or abused. Tullow Oil has just been slapped with a $407m tax bill that it thought it did not have to pay, while Air Uganda was forced to suspend operations indefinitely in what the airline feels is a price it has to pay to cover up for the Civil Aviation Authority’s incompetence.

Tullow’s case is clearer. The Irish firm says the production sharing agreements it signed with Uganda’s then minister of Energy and Mineral Development, Syda Bbumba, barred it from paying tax on the sale of its assets. That promise, if true [Uganda’s PSAs remain a state secret], smacks of high-level deceit to mortgage the country for the biblical 30 pieces of silver.

If we are to believe what Tullow is saying, then this begs the question: what was the Energy minister, and her team of technocrats, thinking making such a wild promise? It is absurd to even imagine that Tullow is making up that excuse. So, there has to be a lot of truth in the assertion that the Energy minister did make that promise.

One wonders what sort of punishment the minister deserves. Unfortunately, that minister is safe and comfortable at some urban palatial mansion, while her team probably continues to play golf at the club at 11am as the rest of us hassle for the day’s meal.

To be fair, Uganda, being a novice in the workings of the oil industry, can be forgiven for putting pen to paper on such agreements. Like the former IMF representative to Uganda, Bill Richardson, once said of Uganda’s entry into the prestigious club of oil producers – “it’s like playing in the [football] World Cup.”

But then again, a country cannot alter an agreement it signed with an investor simply because it realized later on that some parts of the text did not favour it. Much of the investments are made based on agreements. Changing goal posts simply sends a wrong message to other potential investors.

This case should have been resolved outside court. It is the least Tullow Oil deserves, although it should pay some tax on the sale of some of its assets to France’s Total and China’s Cnooc for $2.9bn. Ugandans deserve an explanation over that promise the Energy minister made to Tullow Oil. Heads should roll, not balls on a golf course.

Pity Air Uganda. Where Uganda has carried the proverbial wooden spoon of being one of the few countries in the region without a national carrier, Air Uganda was viewed as an airline that almost came close to filling that gap. That is no longer the case. The airline has suspended operations after it failed to recover its licence from the regulator, Civil Aviation Authority, in time.

Civil Aviation Authority says it withdrew the airline’s licence over safety concerns. Air Uganda, owned by the Aga Khan, says safety issues are a normal occurrence among all the major airlines. Although that reason is valid, it should not be taken for granted. Instead, Air Uganda says the regulator is incompetent, and is just passing on the blame to the operators. Now, ticket prices between Entebbe and Nairobi on the only available airline, Kenya Airways, have since shot through the roof.

It is almost difficult to pass judgment on who is to blame for this aviation mess. It still looks odd that Air Uganda is not in the skies [For heaven’s sake Malaysian Airlines has just lost two planes in a space of four months but the company is still in business]. What is troubling is the manner in which the Civil Aviation Authority has handled the situation. Air Uganda has suffered deep reputation damage it will struggle to attract customers if it ever decides to make a comeback.

The authority has put out a statement where it said it is looking at bringing in new investors to take over the affected routes. It is now easy for Air Uganda to suspect that perhaps this was part of CAA’s intention – to bring in new investors.

There should have been an orderly closure to this aviation dispute. A joint statement from both parties would have been a good idea for the sake of future investments. Let’s treat investments, and the country’s laws, with the respect they deserve.

Twitter: @jeff_mbanga

The writer is the business editor of The Observer.

Source : The Observer

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