Tag Archives: uganda

Tullow sues Heritage – Uganda pays the price; court papers published for $300m oil trial

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Guestblog by Taimour Lay, Former Platform researcher, Uganda and DRC. Download the full court papers (30 megabytes)

A court case in London between Tullow and Heritage will reveal much of what went wrong in the battle over Uganda’s oil.

It is a long way from the shores of Lake Albert to the new commercial court building in central London, from fishermen and farmers in poverty, the heat and dust of Kaiso-Tonya, to £500-an-hour barristers and the concrete cold of a British autumn.

"Royal Courts of Justice" - London

But on Friday 18 November Tullow and Heritage, former oil exploration partners in Uganda, began their preparations for a $313 million legal fight. The case is about Uganda’s oil, Uganda’s tax laws and, ultimately, Uganda’s politics, but it will be decided by an English judge in an English court.

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The world’s biggest data leak

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On Friday 2 September, Wikileaks finally published the full batch of over 250,000 US diplomatic cables. The unredacted cables are now available online. The decision to dump the data in the open has landed Wikileaks in further controversy and drawn condemnation from its former media partners around the world, due to the possible risk of harm or danger to individuals named in the cables.

Perhaps it was only a matter of time. As interest in the story waned at The Guardian and other media outlets, Wikileaks engaged a wider range of partners, including 234NEXT.com in Nigeria, to leak country specific material. But the sheer number and size of documents would put any media organisation under strain, and within a few weeks 234NEXT had moved on like its predecessors. The task of editing and redacting the material presented a substantial burden which nobody seemed able to bear for too long.

Over the year, PLATFORM was able to provide timely analysis of cables that exposed Shell’s infiltration of the government of Nigeria, BP’s cover up of a major offshore gas leak in Azerbaijan, ENI’s corruption in Uganda and UK firm Heritage offers to bribe officials in Congo. Now, 9 months after the first cables were released, we will be able to look deeper into the cables and expose the oil industry’s hidden channels of power, influence and abuse and the role of our governments have played.

Wikileaks cable shines light on ENI corruption in Uganda; Heritage offered to pay bribes in Congo

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• SECRET US CABLE SHINES LIGHT ON ENI CORRUPTION IN UGANDA
• HERITAGE OFFERED TO PAY BRIBES IN CONGO

‘’If Tullow’s allegations are true – and we believe they are …”
US Embassy, Kampala, 17 December 2009

A secret United States diplomatic cable (below and here) published by Wikileaks last week has exposed the real politics of oil in Uganda, confirming that the Americans believed that corruption was endemic at the highest level of decision-making. The December 2009 report sent by the US embassy in Kampala confirms that:

- The Americans believed the allegations that Italian oil major Eni was trying to bribe its way into Uganda’s oil fields in late 2009 by making payments through the security minister (and ruling party secretary-general) Amama Mbabazi , using a holding company, TKL Holdings
- Tullow believe Tony Buckingham’s Heritage Oil – the very company it was partnered with -had also ‘compensated’ Ugandan politicians in order to facilitate a deal with Eni and assist Heritage’s exit from the country
- Heritage also offered to ‘take care’ of Congolese officials on behalf of its partner Tullow to get exploration moving on the other side of the lake

The cable, which largely reports a conversation between Tullow Vice President Tim O’Hanlon and the US Ambassador Jerry Lanier, was written at a crucial time: Heritage was seeking to sell its Lake Albert oil licenses to Eni; its then partner Tullow wanted them too. The three-way tussle resulted in weeks of secret negotiations in Kampala in which senior politicians lobbied on behalf of different corporate interests and money was widely rumoured to be changing hands.

Platform was handed a Ugandan intelligence document in January 2010, two months after the US cable was sent, outlining the ENI bribes – naming Mbabazi, the use of TKL Holdings, the role of frontmen Mark Christian and Moses Seruje, and the presence of Eni ‘broker’ Oded Mayer in Kampala.

No concrete evidence ever emerged. Heritage ultimately sold to Tullow, not Eni, and skipped the country without paying $400m in capital gains tax on the $1.3bn it received in the deal. Mbabazi remains one of the most influential of the National Resistance Movement old guard, close enough to President Museveni that few think he would have coordinated bribes without his boss’ sanctioning. It was reported at the time that Eni were furious that their payments had yielded no result.

Key questions remain:
- On what basis did the US embassy believe the allegations to be true? Had they conducted their own investigation and why were their concerns not shared?
- Why was evidence not shared with the US Securities and Exchange Commission, which was then investigating ENI for violating the Foreign Corrupt Practices Act for bribery in Nigeria?
- Do the United States or other embassies have evidence of other payments made by oil companies in Uganda? Has Tullow sanctioned bribes or has it turned a blind eye to payments facilitated by its new partners, Total and CNOOC?
- Why have repeated Freedom of Information requests made by PLATFORM to the United Kingdom Foreign and Commonwealth Office produced no answers when these matters are almost certain to have been under discussion? Especially given that the US cable documents O’Hanlon specifically asking the US Ambassador to work “in concert with the British High Commissioner” to raise concerns over the Heritage-ENI sale.

The leaking of the cable has caused a storm in Uganda, with just weeks to go before the Presidential election and with Tullow still fighting for government approval for production to start alongside Total and the China National Offshore Oil Company. The decisions taken in 2009/2010 – and the process by which Tullow ultimately won the battle of the companies – are still cloaked in secrecy.

ENI have issued a spluttering denial. ”ENI denies the serious allegations which are completely without foundation and has instructed its lawyers to initiate legal proceedings to compensate for any damage caused to the company’s reputation,” a spokesman said.

Meanwhile, Tullow’s O’Hanlon wrote to President Museveni two days ago, denying the conversation with the American Ambassador and desperately trying to smooth out the situation. Tullow are already unpopular with Ugandan politicians – these revelations so close to the election will sour relations further.

He wrote: “No doubt you have been made aware of the illegal theft of confidential communications from various US Embassies around the world including that in Kampala and the publication of selected and often doctored elements of these on the internet.

In one such release, I have been mentioned as accusing your Honourable Ministers ONEK and MBABAZI of involvement in corruption during a meeting I had with the US ambassador last year. This is absolutely false.

Of course, I never made such a claim to the US ambassador but merely discussed with him at our meeting in December 2009 the detailed stories published in the previous week’s local press and the associated rumors circulating in Kampala at that time. I have no evidence to present implicating the Honourable Ministers in corruption and have no reason to believe that the rumors sweeping Kampala at the time were actually true.

I can assure Your Excellency that we will continue to monitor these matters closely and will work in any way we can with the two Ministers involved to help clear their names. I remain available in Kampala and welcome any advice you may have to offer in this regard and sincerely regret this entire unhappy episode.

Respectfully Yours

Tim O’HANLON 
Vice-President, African Business

HERITAGE OFFER TO PAY BRIBES IN DRC

The cable also quotes O’Hanlon bemoaning the company’s lack of progress with its license on the other side of Lake Albert, in the Democratic Republic of Congo.

‘O’Hanlon said TULLOW’s exploration efforts on the DRC side of Lake Albert are hampered by TULLOW’s refusal to pay off key Congolese officials, including President Laurent Kabila. O’Hanlon added that Heritage recently offered to help TULLOW “take care” of problems on the Congolese side in order to begin exploration. TULLOW refused, according to O’Hanlon.’

Platform was handed a letter in Kinshasa in May 2010 confirming that Heritage had handed over legal “rights of negotiation” to its partner Tullow two years before. The two companies had signed a disputed Production Sharing Agreement in 2006 (leaked to PLATFORM and available here) and had been lobbying for exploration to start since then. The cable now reveals that Heritage did in fact still have a presence in Kinshasa which it was willing to exert on behalf of its partner – but behind the scenes. In the cable, O’Hanlon says Tullow refused this help. But Congolese are still asking:

- Why were Heritage and Tullow granted their original PSA in 2006? What payments were made then?
- If Tullow was officially handling negotiations with Kinshasa in 2009, why were Heritage still in a position to ‘take care’ of problems?
- Does Tullow now admit that it believed its DRC partner was prepared to offer bribes?
- Did the British Embassy in Kinshasa know about Heritage’s proposal to pay bribes? If so, why have the FCO, UK Trade & Industry and BIS not restricted their diplomatic support for the company, including its operations in Iraq?
- If the British Embassy was not informed by Tullow about Heritage’s offer, will it now – in light of these revelations – re-evaluate its close relationship with Tullow?
- Given the allegations about Heritage’s willingness to pay bribes, has the British Embassy in Kinshasa now passed all relevant information to the Serious Fraud Office in London?

The leaked cable only provides a first, partial picture of how companies and governments are colluding at Lake Albert to enrich themselves and the lengths oil executives will go to in order to secure contracts. Many other examples of corruption are well known to local journalists and communities at Lake Albert but cannot be proved without tracing the money or catching intermediaries red-handed. In many cases, evidence will only emerge much later, or when particular politicians and companies fall out of favour. But we are already getting glimpses of the dirty deals and dishonest politics that lie behind the promises and public relations. Heritage have left Uganda and DRC with $1bn in their pocket. But the nature of their relationships in both countries must still be the subject of urgent investigation.

This blog piece was written by Taimour Lay, Former PLATFORM researcher, Uganda and DRC

For more information on the history of Tullow and Heritage in Uganda and DRC, see PLATFORM’s reports athttp://www.carbonweb.org/uganda and http://www.carbonweb.org/drc



PLATFORM reveals Congo oil contracts that threaten resource wars and $10 billion rip-off

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Tullow & British Embassy push disputed deal that could cut Congo’s revenues by $10 billion

Confidential oil contracts held by UK companies Tullow and Heritage in the Democratic Republic of Congo were leaked today, revealing the danger of economic rip-off and rights abuses in one of Africa’s most unstable countries.

The Production Sharing Agreements (PSAs) are accompanied by a legal analysis, ”A Lake of Oil – Congo’s controversial contracts compromise rights, environment & safety”, published in English and French by PLATFORM in partnership with the African Institute for Energy Governance (Afiego).

As the dispute between Tullow/Heritage and the South African-led Divine Inspiration consortium over lucrative oil licences on Lake Albert comes to a head [2], the contract terms have been released for the first time. [3] PLATFORM’s analysis compares revenues delivered by two competing contracts, revealing that:

* Both Tullow/Heritage & Divine/H Oil’s contracts guarantee excessive profits, at the expense of Congo’s poor
* Tullow’s contract terms reduce the Congolese take by around 15%, compared to Divine’s.
* If recognised, Tullow’s contract will cut Congolese government revenues by over $10 billion – a figure equivalent to the country’s entire national debt. Tullow and the British Embassy in Kinshasa have been lobbying hard for these contract terms. This represents a significant transfer of wealth from some of Africa’s poorest to British and Irish investors.

In ”A Lake of Oil”, PLATFORM also raises concerns about:

* Co-operation between oil companies and military groups and the likelihood of escalating resource-driven war in eastern Congo.
* The legal rights granted to flare natural gas
* The complete absence of penalties for environmental damage
* The ‘stabilisation clause’, which will restrict DRC’s ability to improve its environmental protection and human rights standards in the future

Alfred Buju, head of the Justice and Peace Commission in Ituri, DRC, at the heart of Exploration Block 2, said: “This report reveals the contracts that will affect our communities and raises serious concerns about who will benefit from oil extraction in Ituri. We need the government and international companies to be honest and clear – will our environment be protected? The history of natural resources in eastern DRC makes us worry that oil will lead to more conflict.”

PLATFORM Campaigner Mika Minio-Paluello said, ”The reality is that extracting Congolese crude will escalate resource wars, transfer wealth from Congo’s poorest to London’s richest, create new health problems for local communities, increase corruption and pollute the land, water and air. It is up to social movements and civil society to create the pressure to defend rights, livelihoods and Congo’s rich environment.”

PLATFORM Researcher Taimour Lay in Bunia, Congo DRC, said “The confidential documents we have published make clear that the British government and oil companies have been lobbying for terms which leave Congo significantly worse off than another contract already on the table. This shows a wanton prioritisation of profit and British control of African resources over all else.”

Taimour Lay added, “Tullow’s statements demonstrate strength in corporate responsibility rhetoric. Yet their practice here on Lake Albert tells a different story – one of arrogance, environmental damage, collusion in secrecy and indifference to human rights abuses.”

Cleaning up Museveni’s oil mess in Uganda

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Taimour Lay envisions the potential for a new government in 2011 to renegotiate and restructure Uganda’s oil contracts with Tullow, Total and CNOOC:

“Faced with the mess Museveni has bequeathed, the new president will find that the most important thing he ever does in power is to mobilise support for renegotiation of the oil agreements. Even if he ensures changes are made and the PSAs are significantly improved, oil extraction will bring upheaval, pain and dislocation to Uganda. So the new president’s role in amending the existing deals is to reduce the impacts of the ‘oil curse’, share what benefits are derived and help Ugandans weather the coming changes. This is an opportunity that could still be lost without sustained democratic engagement with the issues and radical institutional reform.”

See the full article published in Sunday’s Monitor.

Giraffes don’t like oil

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Tullow’s controversial drilling in Murchison Falls National Park in Uganda continues to threaten wildlife and local communities’ income, leading to increased opposition.

This picture from Tullow shows giraffes impacts by a nearby oil rig inside the park.

As reported in our February report “Cursed Contracts”, previous loud construction work by the oil companies in 2009 was followed by herds of elephants leaving the area and not returning until 5 months after drilling ended. The park is also home to giraffes, lions and rare birds.

It seems that the pressure from the Ugandan Wildlife Authority in Parliament and the release of our report made Tullow sit up and release that they needed to reinforce their PR operation. Seems they’ve brought in additional staff from London, and are offering to make certain new commitments over biodiversity. Begs the question why this wasn’t done in the first place, given the company’s claims to “best practice”?

Contracts Curse: Leaked Oil Deals Put Ugandans at Risk

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Oil contracts signed secretly in Uganda and exposed by PLATFORM will allow major oil companies to flare gas with impunity in the country’s Lake Alberta region on the border with Congo. As the New York Times reports:

“Production is going to start in 2010 with no environmental assessment having yet been carried out,” said Platform’s researcher in Uganda, Taimour Lay. “Once we move to major production, the legal rights given to the companies to flare gas will lead to pollution, carbon emissions and local conflict, as has happened in Nigeria.” Mr. Lay added, “Under these Ugandan contracts, the government won’t even have the right to ask them to stop flaring.”

“There are no provisions for fines or penalties in the event of an oil spill or other problems,” Mr. Lay said. “This is extraordinary given that companies will be operating in one of the regions with the greatest biodiversity in Africa.”

The contracts, known as Production Sharing Agreements, were kept secret until they were leaked to PLATFORM, and analysed in a new report produced by the Civil Society Coalition on Oil in Uganda.

Read more coverage of the report’s findings on the BBC News website and visit PLATFORM’s Carbon Web project for the full press release and further analysis.

Oil companies provide equipment to military in Congo

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Another investigation by Taimour Lay shows the risks of Tullow & Heritage’s oil finds on Lake Albert fueling new fighting between armed forces (armies and militias) in the region.

“Heritage Oil, owned by former mercenary fighter Tony Buckingham, had donated speed boats to the FARDC (Congolese national army) in March 2007 and had also been responsible for the delivery of 30 Land Rover jeeps to Bunia, which were then distributed to local commanders across the region.”

Bunia has been the scene of repeated clashes between government forces and militias since then, causing tens of thousands of people to flee.


Rukwanzi Island, on the international border, was the scene of Uganda-DRC clashes in 2007. (c) Taimour Lay

SPECIAL REPORT: Fresh fears of fighting on Lake Albert’s oil shores

In a packed wooden hut on the docks of Rukwanzi, a cacophony of Swahili, Lingala and French fills the air. Islanders’ hands shoot up to demand answers. Will the companies make us leave? Is Uganda already taking the oil? How will a joint production area work? What will happen to the fishermen if there’s a spill? Taimour Lay visited Ituri, eastern DRC and Rukwanzi and tells the story.

The 3,000 people here, eking out a living from the dwindling fish stocks of Lake Albert, find themselves at the centre of an area believed to contain up to 2 billion barrels of oil. They also live on the volatile, disputed border between two neighbours only just beginning to re-establish diplomatic ties after decades of conflict.

Eastwards across the water, you glimpse Uganda. To the west, the shore of war-torn Ituri, eastern DR Congo. Oil will either force the countries together as partners, or create tensions that lead to a future war – no one on the ground is willing to say which is more likely.

Read more

PLATFORM leaks Uganda’s oil contracts – not such a rosy deal after all

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Held secret by the Ugandan government and oil companies Tullow Oil and Heritage Oil, PLATFORM today is revealing the terms of the contracts for oil operations by Lake Albert on the Uganda-Congo border, and their economic implications.

For the first time, one of Uganda’s Production Sharing Agreements is available to the public to read, after a leaked copy was placed online. PLATFORM’s analysis of the contract reveals that the repeated claims by the Ugandan government and the oil companies that Uganda has received a very good deal and the best in the region are not only a fiction, but were reliant on the real terms of the contracts being kept secret. While the contracts will deliver vast profits to Tullow Oil and Heritage Oil, the contracts will prevent the Ugandan people from receiving their due benefits. The terms of the contracts and the lack of openness are placing Uganda on a track set for the “resource curse”.

Download:

“A Bad Deal Made Worse – How the PSAs are ripping off Uganda” - PLATFORM’s preliminary economic assessment of the contract

(A full qualitative and quantitative analysis will follow at a later date)

Leaked copy of Heritage’s Production Sharing Agreement for Block 3A signed in 2004: Part 1 Part 2

Summary of “A Bad Deal Made Worse – How the PSAs are ripping off Uganda”

* There is currently no transparency over Uganda’s oil contracts, on the part of the Ugandan government or the foreign oil companies. This will prevent positive development outcomes while enabling corruption and environmental degradation on the part of the oil companies. Past experience indicates that without public debate and accountability, the “resource curse” is largely inevitable.

* The Production Sharing Agreements signed in Uganda do not represent the great deal publically claimed by the government. Internal figures modelled by the government indicate that the state will receive 67.5% – 74.2% of total revenue. A Credit Suisse analysis of Heritage Oil predicts government take of between 55% and 67%. PLATFORM’s assessment indicates the government will received between 47.4% and 79.5% of revenues, depending on the price of oil, size of fields, development costs and other factors. The highest figures will only be achieved if the government takes up the possible 15% state participation. These figures are all below the 80+% regularly trumpeted by the government and the oil companies.

* The contracts are highly profitable for the participating oil companies. In the most likely scenarios, Tullow Oil could make a 30-35% return on its investment. This represents a very high profit level for the oil industry, even for risky projects, and indicates excessive profit-taking at the expense of the host government. Even in the least promising (and less likely) scenarios, Tullow would received a 12-14% return – a comfortable profit margin.

* Compared to contracts in other countries, Uganda is receiving a worse deal. Modelling the same field under the terms of Heritage’s contract in Iraqi Kurdistan (a more dangerous environment) indicates that the Kurdistan Regional Government will receive a greater proportion of revenues than Uganda, while Heritage will receive a higher rate of return in Uganda.

* Uganda’s contracts fail to capture increased rent as the oil price rises. This is a major flaw, especially in light of the recent high oil prices. As prices rose through the 2000s, there was a recognition amongst producer governments that the state has a duty to its citizens to capture the rent from higher prices and that the private companies do not have a right to excessive profit-taking. As the oil price rises, the oil companies make a higher and unlimited profit. However, the state take plateaus at under 80%. Thus the oil companies will take close to one quarter of oil revenues, whether the oil price is $70 or $200 – raking in enormous profits.

* Most of the risks lie with the Ugandan state, not the private companies. Price risk lies primarily with Uganda, with the private companies virtually guaranteed a profit even at low prices. While project risk (eg increased costs) are shared between both, Ugandan revenues will fall significantly further if the project runs over-budget.

“Worst kept secret? Tullow Oil’s contract” in Uganda

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Great article by Taimour Lay in Uganda’s Independent:

The full release of Uganda’s Production Sharing Agreements (PSAs) with Tullow Oil and Heritage Oil & Gas is the fundamental first step towards forging a democratic and socially responsible extraction of oil in the Albertine rift.

Instead, Ugandans are being subjected to a disinformation campaign coordinated by the government and the oil companies, consisting of selected leaks to state-owned newspapers, off-the-record briefings to chosen NRM Parliamentarians, and disingenuous public statements from ministers and company executives alike.

The latest stage in this deliberate attempt to throw Uganda’s growing opposition off the scent came last weekend with Tullow Oil founder Aidan Heavey’s ‘’exclusive’’ interview with New Vision (‘’Details of oil deal revealed’’, September 26), in which the chief executive claimed that ‘’for every 10 barrels of oil the Ugandan government gets eight, which is 80%.’’

Heavey, who earned $46m in the last financial year, also – astoundingly – asserted that ‘’the [production sharing] deals have been published. There are IMF reports about it.’’ The interviewers allowed this manifest untruth to go unchallenged.

Given that the PSAs are still secret, why was Heavey able to ‘’reveal’’ the 80% figure so freely? Now that these details are being thrown to the public piecemeal through unofficial channels, it makes the government’s current position – that it is bound by a strict confidentiality clause – increasingly untenable.

This isn’t the first time parts of the contracts have supposedly been released at a politically sensitive juncture beneficial to the government; ‘supposedly’, since FDC members of the Parliamentary Natural Resource Committee still vehemently deny they were shown the PSAs in June 2008. As MP Beatrice Atim directly told a Ministry of Energy representative at an oil conference on September 10: ‘’We have not seen the PSAs. [NRM] MPs lie and say ‘we were shown it’. But I can assure you we were not.’’

As recently as September 22, Mitzi Westwood, finance director at Heritage Oil & Gas, used the Daily Monitor to complain that high rates of tax in Uganda were affecting the company’s ability to attract new investment partners. That Heritage is contractually obliged to pay corporation tax at 30% came as news to observers who had repeatedly been given to understand that such details were part of the ‘’confidential PSA’’. Why are the oil companies free to release key information when it suits them but Ugandans still have no right to a full view of the contracts that their government has signed?

And now we have Heavey using a newspaper to proclaim the 80% profit-oil share – ‘’Best deal in the world’’, the frontpage headline unabashedly declared. The reality is that the ‘’80%’’ figure – even if superficially true – confuses more than it clarifies. The PSAs will reveal the relative share of ‘profit oil’ between the government and the companies but these complex agreements cannot be reduced to a headline figure in this way, however much Heavey would like us to believe otherwise.

The profit oil percentage is merely one measure – and a misleading one at that – of whether the existing contracts are a good deal for the country. The terms of a production sharing contract determine not just how the extracted resources will be shared between state and investor but also the legal rights and obligations of both parties. The devil is all in the detail: it is of the greatest urgency that Ugandans are informed of the PSA clauses over duration, cost recovery, economic risk, and where financial responsibility will lie in the event of economic delays and environmental problems.

Heavey is predicting two billion barrels of reserves on the Ugandan side of Lake Albert. In 5-10 years, the country could be producing 100,000-150,000 barrels a day. But before we can begin to assess what this means in dollar terms for the national treasury, the 80-20% profit-oil split has to be viewed in the context of the ‘cost recovery’ provisions which will dramatically reduce Ugandan proceeds in the short to medium term. This means that in the first years of production, the company will be taking up to 60% of the profits to recoup the capital it has invested over the exploration period. Only once that money has been made will the ‘normal’ profit split become relevant.

Moreover, the profit-oil split is designed on a sliding scale which reduces the government take as a whole. Using the draft PSA negotiated with Hardman Petroleum Africa (taken over by Tullow two years ago) for Block 2 in 2001 – it is of course unclear how this was modified prior to final signature – the highest government share of 65% only kicks in for each barrel produced over the 40,000 mark. In other words, at potential production of 100,000 a day for that particular block, it is not simply a case of dividing total profit by, say 80%, to find the government share. Rather, Uganda’s incremental proceeds will be levelled down as a whole.

If President Yoweri Museveni has signed good deals, then he has nothing to lose by making them public – now, and in full, as opposed to the current cynical drip-drip of leaked information. If, as many now fear, the government is simply desperate to conceal the terms of PSAs that are dangerously skewed in favour of international companies, maximum democratic engagement and participation must be brought to bear to ensure amendment before it is too late.