Tullow contests massive Ugandan tax bill

Monday, 21 July, 2014

As you may have heard, last week a court in Uganda ordered Anglo-Irish firm Tullow Oil to pay USD 407 million in tax related to the USD 2.9 billion sale in 2012 of three exploration blocks to France’s Total and the China National Offshore Oil Corporation (link here via Kenya’s The Nation newspaper).

Tullow (previously both hero and villain in various other narratives of differing weight, and generally well thought of in extractives CSR circles) has already paid $142 million and is contesting the decision on the basis that, according to Chief Exec Aidan Heavey, “…ignores a contractual term signed by a Government Minister in Uganda.” 

He goes on to say that, apparently while doesn’t contest the legality of the tax bill itself, it has an issue with the fact that the company had agreed with government that it wouldn’t have to pay it.

“Over the last 10 years, Tullow has spent $2.8 billion in Uganda and discovered 1.7 billion barrels of oil. This money was spent by Tullow on the understanding that our contracts with the government, which contained important incentives to invest that were vital at a time when no oil had been discovered in Uganda, would be honoured.” 

He also said that the company would take the case to international arbitration and expected the arbitration court to rule in its favour.

As the Tax Justice Network points out in this blog, this development is evidence of a global trend. Uganda’s not unusual in having cut a deal, the Ugandan government cut a deal with a major corporation to solicit investment; but in Europe these practices and situations are coming under increasing scrutiny. The European Commission has launched investigations into the sweetheart deals reached with companies like Amazon and Apple - also detailed on a TJN blog post here.

In Uganda’s case, what the legal argument essentially comes down to is the question that TJN summarises as whether or not “a private deal between a company and a Minister [can] override law in a democracy.” It’s a key point and if the precedent is set, here and elsewhere, over the next few years, it could have serious implications for the investment landscape throughout the developing world.