Viewing cable 09KAMPALA1401, UGANDA: TULLOW SEES CORRUPTION IN OIL SALE

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Thursday, 17 December 2009, 11:37
S E C R E T SECTION 01 OF 02 KAMPALA 001401 
SIPDIS 
EO 12958 DECL: 2019/12/17 
TAGS PREL, EPET, ECON, EIND, PGOV, KCOR, UG 
SUBJECT: UGANDA: TULLOW SEES CORRUPTION IN OIL SALE 
REF: KAMPALA 1356
CLASSIFIED BY: Donald Cordell, Economic Officer, State; REASON: 1.4(B), (D)
¶1. (C) Summary: Tullow Oil claims senior Ugandan government officials were “compensated” to support the sale of a partner/rival firm’s exploration and production rights to Italian oil company ENI (ref. A). Tullow Vice President for Africa Tim O’Hanlon identified Security Minister and National Resistance Movement (NRM) Secretary General Amama Mbabazi and Energy and Mineral Development Minister Hilary Onek as Ugandan officials who benefited from the sale of production rights by Heritage Oil and Gas to ENI. He requested U.S. assistance in ensuring the open and transparent sale of oil assets. If Tullow’s allegations are true - and we believe they are - then this is a critical moment for Uganda’s nascent oil sector. The Heritage-ENI sale will likely derail any potential partnership between Tullow and Exxon Mobil and have profound consequences for transparency and openness in the future management of the industry. End Summary.
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Seeking Partners
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¶2. (U) On 14 December, Tim O’Hanlon, Tullow Oil’s Regional Vice President for Africa met with Ambassador Lanier to discuss recent developments in oil exploration in Uganda (see ref. A for background). O’Hanlon explained that the $10+ billion required to produce, refine, and export oil from Uganda far exceeds the financial capacity of Tullow and other mid-sized exploration companies currently working in Uganda. Tullow is therefore considering selling a portion of its Uganda holdings to a larger international oil partner, and has unofficially “short listed” three major companies as potential partners - including Exxon Mobil, Total (France), and the Chinese National Offshore Oil Company (CNOOC). After Tullow concludes its process of selecting a partner, likely in January or February 2010, Tullow will present the “bids” to the Uganda government and work with Ugandan officials to gain approval of the much larger oil partner.
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An Oily Business
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¶3. (S) In contrast, O’Hanlon said the recent effort by Heritage Oil and Gas to sell its oil exploration and production license to ENI was apparently a corrupt back door deal. O’Hanlon observed that since news of the ENI sale broke, even Ministers unrelated to oil (such as Minister of State for Fisheries Fred Mukisa) have issued public statements supporting ENI. O’Hanlon alleged that Security Minister Mbabazi and Energy Minister Onek received payments from Heritage and/or ENI in exchange for their support. O’Hanlon referred to Minister Mbabazi, who facilitated an August 2009 meeting between ENI and Tullow, as ENI’s “patron” in Uganda, and said ENI created a shell company in London - TKL Holdings - through frontmen Mark Christian and Moses Seruje - to funnel money to Mbabazi. O’Hanlon also noted what he described as Onek’s recent unsolicited “grandstanding” before Parliament in support of ENI, and similar statements of support during a recent Indo-African energy conference in New Dehli. Onek made impossible claims at the Indo-African conference regarding ENI’s ability to export 100,000 - 200,000 barrels per day within two years. Comment: These statements of support by Onek appear completely inappropriate given that the deal is still technically pending. End comment.
¶4. (C) O’Hanlon said ENI’s Uganda deal is part of a wider effort, facilitated by Heritage, to gain control of all oil fields on both sides of Lake Albert. In addition to its exploration blocks in Uganda, Tullow claims to have exploration rights on the Congolese side of Lake Albert. O’Hanlon said Tullow’s exploration efforts on the DRC side of Lake Albert are hampered by Tullow’s refusal to pay off key Congolese officials, including President Laurent Kabila. O’Hanlon added that Heritage recently offered to help Tullow “take
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care” of problems on the Congolese side in order to begin exploration. Tullow refused, according to O’Hanlon.
¶5. (C) O’Hanlon concluded by asking the U.S. to help bring these corruption allegations to light and raise concerns - perhaps in concert with the British High Commissioner or other development partners - over how the Heritage-ENI sale has transpired. O’Hanlon confirmed that Tullow has the contractual right to prevent the Heritage-ENI sale by exercising its contractual “right of first refusal” as a 50% partner in both of Heritage’s exploration blocks and will exercise that right. He said Tullow is confident that one of the potential major oil partners (preferably Exxon Mobil) will be able to assist Tullow in financing the approximately $1.5 billion needed to foil the GOU supported ENI deal by purchasing Heritage’s Ugandan holdings. An Exxon Mobil executive confirmed to EconOff on December 16 that Exxon Mobil has a strong interest in Uganda but is still evaluating available data before making an offer. Because an eventual Tullow-Exxon deal will require Ugandan government approval, the GOU could still prevent Tullow from raising the funds needed in order to buy out Heritage (so it could then sell those shares to Exxon Mobil) and thereby deny Tullow the means to effectively block ENI’s entrance into the Ugandan oil market.
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Comment: Inaction Sets Bad Precedent
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¶6. (C) This is a critical moment for the future of Uganda’s oil industry. The Heritage-ENI deal could prevent a multi-billion dollar deal for Exxon Mobil by drastically diminishing both the size and value of Tullow’s Ugandan holdings. Allegations that Minister Mbabazi, who has already been implicated in other government corruption scandals, solicited and/or accepted payment in exchange for government support will, if true, have serious adverse effects on the economic activity of U.S. businesses in Uganda and U.S. Mission goals regarding accountability, good governance, and economic development. After discussions with Exxon Mobil to confirm Tullow’s story, we intend to approach the British High Commissioner and the Irish Ambassador about drafting a joint letter to President Museveni expressing concern about these very troubling signs of high-level corruption in Uganda’s oil sector, and advocating for the open and transparent sale of oil assets and management of future oil revenues. Depending on the outcome of this major deal, we believe it could be time to consider tougher action - to include visa revocation - for senior officials like Mbabazi who are consistently linked to corruption scandals impacting the international activity of U.S. businesses, U.S. foreign assistance goals, and the stability of democratic institutions. LANIER