Writes Leo Odera Omolo

Petroleum explorer Heritage Oil must pay the full amount of tax on earnings from the sale of assets in Uganda before the Government fully endorses the deal, Hillary Onek, the energy minister, has said.

Recently, the Government gave Heritage conditional approval to sell its exploration assets to Tullow Oil after months of delay caused by a dispute over tax on earnings from the sale.

Under the conditional approval, Heritage was to deposit 30% of the disputed $404m capital gains tax with the Uganda Revenue Authority and give the bank guarantee for the remaining 70%, which would be redeemable on completion of an arbitration process.

“Heritage is evasive. They have been doing all sorts of things to avoid paying the tax, but they will have to pay the full amount and the earlier they pay, the better, Onek said on Sunday.

Uganda discovered oil in 2006 in the Albertine Rift basin along the border with the Democratic Republic of Congo and reserves are estimated at about two billion barrels.

Commercial production is expected to start in the last quarter of 2011.

On July 7, Heritage issued a statement saying it had received advice that the disposal of the assets was not taxable.

“These guys are making super-normal profits. They just invested a tiny little figure of $150m and now they are going to earn $1.5b. Why don’t they want to pay taxes on that money?” Onek asked.

He declined to comment on whether the Government had scrapped the conditional approval given to Heritage on July 6 and whether Uganda would go for arbitration in London to resolve the tax dispute.

Once Tullow has acquired Heritage’s stakes in blocks 1 and 3A for up to $1.5b, it plans to bring in China’s CNOOC and France’s Total to develop the fields and turn Uganda into one of the top 50 oil producers.

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