WikiLeaks throws Uganda’s oil search into more turmoil

Allegations that two ministers received money to push for ENI’s botched bid to buy Heritage Oil assets for $1.5bn late last year in “a corrupt back-door deal” have thrown Uganda’s oil industry on its head.

The whistleblower website, WikiLeaks, last week released a summary of a private conservation in which Tim O’Hanlon, Tullow Oil’s Vice President in Africa, reportedly told the US Ambassador to Uganda, Jerry Lanier, that energy minister Hilary Onek and Security Minister Amama Mbabazi benefited when ENI signed an agreement to buy Heritage Oil’s assets in the Albertine Grabben.

ENI’s bid later collapsed because Tullow, as Heritage’s partner in the exploration of oil in Lake Albert, had the right to purchase the assets. Uganda has about two billion barrels of oil and Tullow is the main exploration firm.

WikiLeaks has lately rattled American diplomats with its access to over 250,000 secret correspondences between top US diplomats and their government.

The cable on the alleged corruption within Uganda’s oil industry, written by Donald Cordell, the Economic Officer at the US State Department, was drawn up to have the US raise the issue of transparency and accountability with the government of Uganda.

The timing of the release of the cables, however, could not have come at a worse time for ENI, Tullow, or government. The revelations have damaged ENI’s image, rattled Tullow officials, raised public doubt over the custodians of Uganda’s interests in oil, and placed at least two massive investment deals on the line.

Soured Relations

While Tullow Oil has rubbished the reports, describing them as “false,” the company’s rebuttal is not expected to mend its already fractured relationship with top government officials.

Tullow Oil is currently trying to recover two exploration licences from government that formed part of the $1.5 bn acquisition of Heritage Oil assets.

Government reclaimed the exploration licences as part of a bargaining chip to get $404 million in capital gains tax from the $1.5 bn deal between Heritage and Tullow. The licences were reclaimed on grounds that Heritage had not renewed them.

Tullow has suspended drilling in Western Uganda until the tax dispute is resolved. The Irish company has had a tetchy relationship with some government officials ever since the ENI bid came up.

The release of the leaked cable is now expected to damage whatever cordial relationship that had been built between Tullow and government over the last couple of months, at the very least. But on a broader side, with the leak, there is tension that the accusation – regardless of its level of credibility – could undermine quick resolution of the tax dispute.

When the impasse between Tullow and government is resolved, it will open the way for the Chinese firm, CNOOC, and France’s Total, into Uganda’s oil industry. Tullow has issued both a public statement, and written a letter of clarification to President Museveni over the WikiLeaks cable.

In his defence, O’Hanlon notes: “As part of a private discussion about doing business in Africa with the US ambassador to Uganda, I made reference to a number of rumours then in circulation in Kampala to illustrate the issues the oil and gas industry faced.

At no time did I give any credence to these rumours nor did I make any allegations of corruption against government ministers, ENI or Heritage. Indeed, I have no reason, either now or then, to believe any of these rumours were true and do not recognise, in any way, the conversation as recorded.”

For ENI, the timing of the leaked cable, in which Lanier proposes harsh repercussions such as visa revocations for Onek and Mbabazi, who the cable notes as Italian firm’s “patron” in Uganda, could not have come at a worse time, and ENI is not taking the accusations lightly.

The release of the cable comes at a time when ENI, a company many thought had lost interest in Uganda after its failure to buy Heritage Oil’s exploration rights, is pushing for a meeting with President Museveni to invest in the country’s oil sector.

The Observer has a letter that shows that Hilary Onek is to coordinate a meeting between top officials from ENI and President Museveni.

In that November 10, 2010 letter from Hilary Onek to Paolo Scaroni, the Chief Executive Officer of ENI, the minister says: “I am glad that you have continued to show interest in our country…I have now requested H.E the President to meet you any day during 17th – 24th November, 2010 at his convenience and will communicate to you after confirmation from his office.”

The meeting has not happened yet because Museveni is on a campaign trail seeking reelection.
The secret files from WikiLeaks now jeopardize that meeting.

The meeting is expected to be postponed in the wake of the release of the cables because any formal announcement between government and ENI, with Onek at the centre of it, could easily be linked to the corruption allegations.

ENI has threatened to take legal action against Tullow although the details of this action are still unclear. Tullow notes that it intends to get in touch with ENI and convince the Italians that O’Hanlon was quoted out of context.

jeff@observer.ug