On the re-opening of SLPP Office … “We would never encourage violence” John Benjamin...

Salutary Lessons from Tullow Court Case

27Countries in Africa where oil has been found and are looking to exploit the resource for national development, such as Sierra Leone, would do well to learn lessons from the case in the High Court in the UK where Tullow Oil is disputing a $404 million capital gains tax slapped on it by the Ugandan government following the purchase of Heritage Oil’s interests in the country for $1.5 billion. Tullow, which also has operations in Ghana and Kenya, however disagrees, saying that Heritage should pay up.
The court finished hearing evidence just before Easter and final arguments are to be heard around the end of this month.
The case has highlighted the rather weak bargaining position in which new oil-producing African countries find themselves when dealing with oil companies and how these companies try their best to rake in profits without paying much tax.
When Tullow bought Heritage, the former kept the money from the sale in an escrow account, on which the Uganda Revenue Authority (URA) was claiming tax. In court, it was stated that while the URA was “unwavering” in its position over the amount of tax to be paid, while Tullow was trying to use all sorts of tactics to be let off the hook.
The company even involved President Yoweri Museveni in its attempt to resolve the tax problem with the URA. In the process, Tullow failed to record $50 million in its accounts, which company documents produced in court said should “remain undocumented”.
The implication was that the money was meant as a bribe for Mr. Museveni, according to Heritage’s lawyer, Khawar Qureshi. This, though, was denied by the Ugandan government. But it had cast some doubts on the business practice of Tullow.
Indeed, Tullow’s Ugandan operations appeared disjointed, with General Counsel Graham Martin telling the court that he was unaware of so many documents and emails that were criss-crossing members of the company’s management. Given that he was also Company Secretary, his ignorance did not show him in a good light.
Asked by Mr. Qureshi whether he had seen a certain document, Mr. Martin replied: “I recall having seen it before. I don’t recall exactly when I received it. I clearly wasn’t copied on that email trail.”
Mr. Qureshi then asked: “Is it possible that you — just tell me whether or not it is the case that you would have looked at this at some stage, end of February/March, 2011?”
Mr. Martin replied: “I think that’s more than likely, yes.”
Mr. Qureshi pressed on: “You say it is more than likely. Can you help us as to why you say it is more than likely?”
Mr. Martin said: “As I say, I believe I’ve seen it before. I can’t exactly recall when around 21 February I got round to looking at it. There were a lot of things going on at that time.”
Mr. Qureshi continued: “Right. But again you have no specific recollection between 21 February and the end of March of having looked at this document?
Mr. Martin replied: “I believe I saw this document around that time.
All this did not make for an efficient office of the General Counsel who admitted in court that he did not keep notes and when he did, he destroyed them.
Mr Qureshi asked Mr. Martin: “But what we have in this case is a situation where we have no notes from you at all as General Counsel/Company Secretary of Tullow Oil plc; correct?”
Mr. Martin replied: “I am not saying I didn’t take notes. I didn’t keep notes.”
“Let’s be clear about this,” Mr. Qureshi said. “Can you confirm whether in respect of any of the meetings that took place with the Ugandan authorities you took notes or somebody took notes on your behalf?”
Mr. Martin replied: “Notes were taken. I didn’t keep many. I got rid of a lot of notes when I left Kampala.”
“So you are telling us that you actually did make notes but you destroyed them, Mr. Qureshi stated. “When did you destroy them?”
“I don’t know, Mr. Qureshi,” responded Mr. Martin, a dour Irishman who has 30 years’ experience as a lawyer.
To many observers, it would appear that Tullow’s rather lax manner in which it was operating in Uganda was because it was an African country where the company could try to cut corners.
In another exchange in court, Mr. Qureshi asked Mr. Martin what was meant by “double dipping”, which was mentioned in one of Tullow’s documents. “Does that mean that Tullow was taking money from two sides?”
Mr. Martin said he did not try to find out what “double dipping” meant. “Sure you did not ask…because you knew what double dipping means,” Mr. Qureshi said.
“No, not in this context,” Mr. Martin replied.
Tullow’s Head of Tax, Richard Inch, gave the impression that the company did not care for local legal advice, and as such Tullow would refer matters to lawyers and accountants in London.
Mr. Inch went on to say that there was some confusion over Tullow’s tax liability because there was not much clarity in the advice they got from Ugandan lawyers on the matter. Tullow’s own tax arrangements were questioned by Mr. Qureshi who pointed out that in February 2010, two weeks after acquiring Heritage, Tullow undertook a tax planning exercise, which he said would mean that the company was trying to greatly reduce its tax liability in Uganda.
“It was tax planning. Not tax avoidance,” Mr. Inch, a combative Scotsman, responded.
“No one used the phrase ‘tax avoidance,’” Mr. Qureshi said.
What the case has clearly spotlighted is the need for transparency in the African oil industry. Experts in the field argue that transparency, which appears to have been lacking in Tullow’s dealings with Uganda, should lead to more information in the public domain; provide public access to contracts that are signed; and provide details about the amount of oil produced and the revenue earned by the government.

Comments are closed.