Shs 6bn was paid to government officials in the Tullow oil capital gains tax dispute
& Giles Muhame
Sometime after the 2011 elections, President Museveni met then Attorney General Peter Nyombi at Rwakitura.
Nyombi was accompanied by a high ranking government official who had interests in Heritage Oil which had just sold its 50 percent stake to Tullow Oil.
The two officials tried to convince Museveni to drop the litigation process against Heritage.
Museveni’s visitors told him a protracted international legal battle would leave Uganda vulnerable and financially exposed.
Highly placed insiders say the oil firms’ games infuriated the president.
“Museveni was disgusted,” recalls a senior official who participated in the battle to claim the disputed tax, adding, “He was, however, relieved when bright Ugandan lawyers assured him of victory.”
Museveni had earlier been informed by his private lawyers that Uganda should not be arm-twisted by the oil firms.
After the duo’s departure, Museveni received a senior URA official and four lawyers who assured him of triumph in the tax dispute.
On that evening, Museveni promised the lawyers and URA a “handshake” if they won the case. Three years later, the handshake would cost the country an arm and leg as this website reported in its exclusive story.
There were two separate cases.
In Tullow’s farm-down to CNOOC and Total, Tullow made a capital gain which would have been taxable.
But in accordance with the Production Sharing Agreement which expressly provided for it as an investment incentive to Tullow, Energy Minister Syda Bbumba issued a Capital Gains Tax exemption with written authority of the Attorney General and Cabinet, under her powers against the petroleum laws.
Allen Kagina, acting equally legally vide her powers under Income Tax Act, insisted the $430 million tax be paid.
Tullow lost the case in the Tax Appeals Tribunal (TAT) and appealed to the High Court as well as an International tribunal for the settlement of investment disputes.
Government of Uganda opted to settle out of court for a lower sum of $250m because the international tribunal had always ruled in 13 prior cases that governments cannot take away from investors with one hand, what they have given with another hand.
It is understood Uganda would have lost the case in London.
Tullow opted to pay something because it had lost the case in the Uganda Tax Appeals Tribunal and needed to resolve a separate VAT dispute with URA worth $2.5bn.
Museveni was in favor of upholding the exemption, which he had authorized, but was totally defied by Kagina who assured him he could uphold petroleum laws but had no power to direct her to defy the Income Tax Act.
So Museveni back-tracked on Tullow who opted to settle at $250 million.
It’s the Heritage case for which the Shs6bn “honorarium” has been paid to public officials.
When Heritage sold out to Tullow, it too made a Capital Gain which was taxable at 30 percent. Unlike Tullow, Heritage had no exemption granted to it but fought a long legal battle to dodge the tax.
Kagina and other officers fought hard and beat Heritage in the British courts.
Tullow withheld from Heritage, the tax payable to Uganda and later remitted it to URA after GOU and Tullow jointly beat Heritage in the British courts.
It will be recalled that Uganda recruited Curtis Mallet-Provost, Colt & Mosle LLP at a cost of about $10m to help in the litigation in London.
The prominent Ugandan law firm, Kampala Associates also received about Shs 2bn in legal fees to support the legal battle.
URA lawyers and staff at the Attorney General’s office also participated in the legal assault.
On May 17, 2015, Museveni met URA lawyers and other high-level officials who participated in the capital gains tax case.
Museveni thanked the officials for a job well done.
Towards the end of the meeting, the lawyers said Museveni had promised them a “handshake” after winning the case which they badly wanted.
Museveni directed URA Commissioner General Doris Akol to recommend an appropriate reward for the team.
Akol hunts for the treasure
A month later (June 26, 2015), Akol wrote to President Museveni reminding him of a meeting at Rwakitura where “you instructed me to recommend an adequate reward for the team that delivered victory for the government of Uganda in the landmark and groundbreaking case against Heritage Oil and Gas limited to the tune of USD 434m in the Heritage Oil and Gas Limited Arbitration case.”
Akol then made the suggestion: “I do hereby propose that a sum of Shs 6bn be allocated as a reward to the team out of which Shs 2.3bn will be deducted as tax and the net sum of Shs 3.6bn will be given to the team as a take home package.”
She then justified what she called her philosophy behind the recommended award: “Your Excellency, the amount recommended as a reward is an amount that will enable the beneficiaries use the funds for something tangible i.e. to leave a legacy to remind them and their offspring of their contribution to the nation.”
Akol further said in her letter to Museveni that, “for instance, the recommended amount could enable one to either acquire a decent plot of land, pay a deposit on mortgage or perhaps facilitate finishes on home construction.”
Interestingly, the top beneficiaries of this project, including Akol, are well paid government officials.
Akol earns Shs 40m (gross) per month as salary minus other benefits.
The URA Commissioner General told Museveni that the amount proposed will be distributed among 42 individuals that make up the core, non-core and support staff of the team.
Akol went ahead to suggest that she believed the Shs 6bn will be “motivation sufficient for them to gallantly face future challenges and bring glory and victory to our nation.”
She added: “The amount proposed constitutes less than 1 percent of the amount in the award and is 50 percent of the costs awarded to the government of Uganda. After such a ground-breaking achievement, I believe this to be a reasonable amount to thank and congratulate the team and do hereby recommend it. The proposed reward enables government to retain 50 percent of the costs awarded to fund its priority areas.”
Interestingly, in her letter, Akol proposed that the “different categories receive equal amounts regardless of rank in spirit of team work and in recognition of the great effort each put in this case.”
However, while sharing the money, the big shots took home an average of Shs 200m while others received less than Shs 50m.
Museveni took about five months before responding to Akol’s letter.
That was the time security forces were battling opposition protesters on the streets.
Museveni was very busy with groundwork for the impending presidential election. It was the moment when NRM were working day and night to frustrate Amama Mbabazi’s presidential bid.
No wonder, Museveni responded on the eve of presidential campaigns. In a letter dated November 16, Museveni wrote to Kasaija, informing him that government won a case against Heritage oil and was awarded $434m.
“I met with a team of officials that handled the case and they requested to be considered for a reward in appreciation for the work done. Given the amount of money that was recovered for the government, I agreed that government pays them some money as a token of appreciation,” said Museveni.
Museveni endorses Akol’s request
“I therefore direct that a team of 42 government officials be paid Shs 6bn only,” said Museveni, adding, “The applicable taxes should be deducted.”
URA received this letter on December 3, 2015.
On December 4, Secretary of Treasury Keith Muhakanizi met with then Attorney General Peter Nyombi at the latter’s office.
Muhakanizi, according to Akol’s correspondences, recommended that she be designated as the Accounting Officer through whom the “handshake” will be paid and for the purpose of ensuring that the beneficiaries to this directive receive their payments.
Akol on December 11 wrote to Muhakanizi, requesting him to “formally designate the URA Commissioner General as the responsible Accounting Officer and secondly to formally requisition for the Shs 6bn needed to effect the payments to the 42 beneficiaries in line with the presidential directive.”
Her letter was signed, “Developing Uganda together”.
Due to a tense election exercise, the request did not materialize in time.
On May 2, Muhakanizi wrote back to Akol, saying “supplementary funding is not possible due to the PFM Act 2015 limitations. You will therefore need to seek authority from the Finance Minister to reallocate from the tax refunds money to the relevant item.”
Muhakanizi then designated Akol as the responsible accounting officer through whom payments to the beneficiaries be made and also advised her to seek authority from Kasaija to reallocate funds from the tax refunds to enable her effect the payments.
On May 5, 2016, Akol wrote an ‘urgent’ letter to Minister Matia Kasaija reminding him of previous correspondences between URA and the Finance Ministry over the bonus payments.
“In accordance with section 22 of the Public Finance Management Act 2015 as amended, I request that you approve budget allocation of Shs 6bn from URA Tax Refund Budget to URA expenditure budget so that payment can be made to the 42 beneficiaries,” she advised Kasaija.
“Since payment to the beneficiaries will be treated as an expense to URA, the additional funds for the expenditure from the reallocation I have mentioned in the paragraph above is supplementary budget to URA for which your ministry should handle in accordance with section 25, 26 and 28 of the Public Finance Management Act 215 as amended.”
On May 25, Muhakanizi told Akol that supplementary funding was not feasible “given that we have already hit the 3 percent supplementary legal requirement for financial year 2015/2016; and this ministry will provide the funds for payment to the beneficiaries in FY 2016/2017.”
Muhakanizi responding to Akol
Due to what appears as intense lobbying, Muhakanizi on July 8, 2016 wrote to Akol, authorising her to “meet this expenditure (Shs 6bn) from the resources available to you in the FY 2016/2017.”
Muhakanizi promised Akol that “supplementary funding of an equivalent amount will be provided to you in the course of the financial year.”
The Auditor General also gave a nod to the expenditure in a letter dated November 1, 2016 without a pre-audit.
“In accordance with Article 154(3) of the 1995 Constitution and Section 31 and 32 of the Public Finance Management Act 2015, I hereby grant a credit to the Treasury on the Consolidated Fund Account with Bank of Uganda Kampala to the tune of Ush.6,000,000,000 as specified on requisition number 016/2016/17 dated 20th/10/2016 for the financial year ending 30th June 2017 for Uganda Revenue Authority: (Vote 141: Supplementary Recurrent Budget),” part of Muwanga’s letter reads.
Auditor General, Muwanga approved the payments
The letter was addressed to Kasaija and copied to the Governor Bank of Uganda, Emmanuel Mutebile, Secretary to the Treasury, Keith Muhakanizi and the Accountant General.
“No pre-audit of the release has been made,” the letter stressed, adding that the Office of the Auditor General shall only verify when the amount is already spent.
“The amount spent from the release and documents will be post audited and the expenditure shall be subjected to a post audit procedure and matters arising there from shall be subjected to accountability laws and regulations thereof.”
- Wouldn’t one be fair to accuse Akol of conflict of interest as she was the initiator, facilitator, pursuer, financier and benefactor of the bonus payments?
Isn’t Museveni setting a dangerous precedent by offering huge sums of money as bonuses for government officials who already paid and facilitated to execute their duties
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