Uganda Won't Approve Deal Until Heritage Oil Pays Tax -Minister

25th Jul 2010 10:42

KAMPALA, Uganda (Dow Jones)--Uganda's government won't approve the sale of London-listed Heritage Oil PLC's (HOIL.LN) stakes in two exploration blocks in the Lake Albert basin to Tullow Oil PLC (TLW.LN) until Heritage first pays capital gains tax in full, the Minister of Energy and Minerals Development said. The Ugandan government this month conditionally approved the sale of the stakes and appeared to accept Heritage's proposal to deposit some of the capital gains tax is a special account pending arbitration. According to Hilary Onek, the government's position is "either Heritage pays up 30% capital gains tax on the $1.5 billion deal or there is no deal at all." The "government's new position is that Heritage must pay the capital gains tax in full," he said. "We have been rigid on this issue because oil is a national resource and the Ugandan people must benefit from it" he added. The Ugandan government this month approved the sale of Heritage's stake in two oil blocks to Tullow Oil. However, the deal is still conditional upon resolution of a tax issue and could include arbitration in London. People familiar with the situation say that upon studying the terms of the conditional approval, the head of Uganda's tax body, Uganda Revenue Authority, advised the president earlier this week that Uganda stood to lose out on taxes on the deal should it allow the dispute to go for arbitration. Heritage had previously agreed in June to deposit 30% of the disputed tax sum with the Uganda Revenue Authority and had offered the government the option of arbitration in London. However, according to Onek, the oil production sharing agreement between the government and Heritage states that tax matters fall under Ugandan law -- international arbitration wouldn't be appropriate. A Heritage spokesman declined to comment. Heritage said early this month that it had been advised that its plans to dispose off the assets wouldn't attract a capital gains tax. A Tullow spokesman couldn't immediately be reached. Uganda revised its income tax laws in 2008 to introduce a capital gains tax on the disposal of assets following the discovery of commercial oil reserves in three blocks in the Lake Albert basin. -By Nicholas Bariyo, contributing to Dow Jones Newswires; 256-75-2624615 [email protected] (END) Dow Jones Newswires July 25, 2010 05:42 ET (09:42 GMT)