Identifier
Created
Classification
Origin
10KAMPALA19
2010-01-13 10:47:00
CONFIDENTIAL
Embassy Kampala
Cable title:
UGANDA: SECURITY REPORT DETAILS OIL SECTOR CORRUPTION
how-toVZCZCXRO6636 RR RUEHRN RUEHROV DE RUEHKM #0019/01 0131048 ZNY CCCCC ZZH R 131047Z JAN 10 FM AMEMBASSY KAMPALA TO RUEHC/SECSTATE WASHDC 0108 INFO IGAD COLLECTIVE RWANDA COLLECTIVE RHMFISS/HQ USAFRICOM STUTTGART GE RUEAIIA/CIA WASHINGTON DC
Wednesday, 13 January 2010, 10:47
C O N F I D E N T I A L SECTION 01 OF 02 KAMPALA 000019
SIPDIS
EO 12958 DECL: 2020/01/13
TAGS PGOV, PREL, EPET, KCOR, UG
SUBJECT: UGANDA: SECURITY REPORT DETAILS OIL SECTOR CORRUPTION
REF: 09 KAMPALA 1401
CLASSIFIED BY: Aaron Sampson, Pol/Econ Chief, State, Pol/Econ; REASON: 1.4(B),(D)
Wednesday, 13 January 2010, 10:47
C O N F I D E N T I A L SECTION 01 OF 02 KAMPALA 000019
SIPDIS
EO 12958 DECL: 2020/01/13
TAGS PGOV, PREL, EPET, KCOR, UG
SUBJECT: UGANDA: SECURITY REPORT DETAILS OIL SECTOR CORRUPTION
REF: 09 KAMPALA 1401
CLASSIFIED BY: Aaron Sampson, Pol/Econ Chief, State, Pol/Econ; REASON: 1.4(B),(D)
1. (C) Summary: A December 17 report by the External Security Organization (ESO),which XXXXXXXXXXXX allegedly forwarded to President Museveni, says Security Minister Amama Mbabazi is “eyeing†a $200 million commission for securing a deal between Heritage Oil and the Italian firm ENI. On January 7, a former Ugandan Foreign Ministry official said Heritage commercial rival Tullow Oil helped draft the document, but that Mbabazi and Agriculture Minister Hope Mwesigye are indeed seeking kickbacks from ENI. On January 9, Tullow informed Heritage of its intention to seek an English Court injunction blocking the ENI sale. A corrupt Heritage-ENI agreement would undermine a potential multi-billion dollar deal between ExxonMobil and Tullow, and have serious long-term implications for U.S. Mission goals in Uganda in terms of good governance and economic development. End Summary.
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Security Report Targets Security Minister
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2. (C) On January 7, Tullow Oil’s Director for External Relations, Andy Demetriou, provided EconOff with a copy of a supposedly confidential Ugandan intelligence report on negotiations between Heritage Oil and the Italian oil giant ENI (see attached document and reftel). Tullow has previously expressed concern that ENI is using illicit payments to Ugandan officials to obtain government authorization for purchasing Heritage and depriving Tullow of oil holdings in Lake Albert. The Daily Monitor newspaper printed some details of the report, with key names excerpted, on January 3. The report says western governments - including the U.S., U.K., Sweden, and France - oppose the opaque ENI deal, that Tullow hopes to sell 50% of its Ugandan holdings to ExxonMobil, and that ENI offered Ugandan officials facilitating an ENI-Heritage agreement a $200 million “commission.†The report identifies Security Minister and National Resistance Movement (NRM) Secretary General Amama Mbabazi as ENI’s primary Ugandan deal maker.
3. (C) The report claims that Mbabazi is using a front company belonging to the European owner of Asante Oil, and that ENI representatives distributed “fat envelopes†to a number of visitors - including Energy Ministry officials, representatives from the Office of the President, journalists, and Bunyoro Kingdom officers - while installed at a safari lodge in Murchison Falls National Park close to where drilling has occurred. NOTE: EconOff witnessed ENI’s presence at this lodge during a trip to Murchison in early December. END NOTE. Much of the report highlights ENI’s Libyan ties and accuses Qadhafi of funneling money to the Bunyoro and Buganda Kingdoms to destabilize the Museveni regime. The final two sections of the report purport to “show how ENI corrupts a country’s leadership and forces them to take unpopular selfish policies,†and the “dangers†of an ENI/Libya deal.
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Tullow Ghost Writing?
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4. (C) Tullow officials told EconOff the company did not leak the security report to the press, and said it was not to Tullow’s advantage to reveal ExxonMobil’s interest in the company. On January 7, [name redacted], told PolOff that the President of Tullow Uganda, Elly Karuhanga, contributed to the security services’ report. [Name redacted] added that both Mbabazi and Agriculture Minister Hope Mwesigye are deeply involved with ENI. NOTE: In July and August 2008, Mbabazi facilitated a series of meetings between Tullow and ENI in Italy. END NOTE.
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KAMPALA 00000019 002 OF 002
Tullow Seeks Legal Recourse
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5. (C) Tullow owns half of each of the oil blocks Heritage is attempting to sell. According to Tullow and Heritage’s contractual agreement, Tullow has 30 days to exercise its right of first refusal before Heritage can sell its portion of these two blocks to another firm. On December 18, Ugandan media reported that Tullow had until January 17 to exercise this right by outbidding ENI. Tullow cannot outbid ENI’s $1.5 billion offer for Heritage without significant financial backing from another major oil firm, most likely ExxonMobil. On December 21, ExxonMobil told the U.S. Mission that reports of a January 17 deadline were incorrect, and that the 30 day clock was not yet ticking as Heritage had not officially notified Tullow of its intention to sell. ExxonMobil added that unless ENI managed to negotiate additional yet undisclosed concessions from the Ugandan government, ENI’s reported offer is well beyond ExxonMobil’s price range. ExxonMobil also said it would be difficult to pursue a partnership with Tullow in Uganda if ENI succeeds in purchasing Heritage’s holdings as ENI is not a trustworthy partner.
6. (C) It now appears that Heritage did notify Tullow on December 18 of the impending ENI sale. On January 9, Tullow’s London based lawyers informed Heritage that the December 18 notification was “not a valid pre-emption notice†as it failed to provide cash values for Heritage’s Ugandan holdings and other required documentation. Tullow is demanding a valid pre-emption notice, the missing documentation, and a new 30 day consideration period. If Heritage fails to respond by January 11, Tullow will seek an English court injunction to suspend the ENI sale and activate a dispute resolution mechanism allowing for arbitration by the International Chamber of Commerce in London.
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Comment: Ugandan Oil Getting Dirtier
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7. (C) We believe Mbabazi is positioning himself for a significant payoff, but the security report is undermined somewhat by Tullow’s apparent involvement in its drafting. In December, ExxonMobil said it lacked concrete evidence that its Ugandan interests have been harmed, but noted that ENI’s involvement has had a negative impact. If the Heritage-ENI sale proceeds unchanged, it will significantly reduce the value of Tullow’s Uganda holdings, zap ExxonMobil’s interest, and put Uganda on the road to rampant oil sector corruption. LANIER
C O N F I D E N T I A L SECTION 01 OF 02 KAMPALA 000019
SIPDIS
EO 12958 DECL: 2020/01/13
TAGS PGOV, PREL, EPET, KCOR, UG
SUBJECT: UGANDA: SECURITY REPORT DETAILS OIL SECTOR CORRUPTION
REF: 09 KAMPALA 1401
CLASSIFIED BY: Aaron Sampson, Pol/Econ Chief, State, Pol/Econ; REASON: 1.4(B),(D)
1. (C) Summary: A December 17 report by the External Security Organization (ESO),which XXXXXXXXXXXX allegedly forwarded to President Museveni, says Security Minister Amama Mbabazi is “eyeing†a $200 million commission for securing a deal between Heritage Oil and the Italian firm ENI. On January 7, a former Ugandan Foreign Ministry official said Heritage commercial rival Tullow Oil helped draft the document, but that Mbabazi and Agriculture Minister Hope Mwesigye are indeed seeking kickbacks from ENI. On January 9, Tullow informed Heritage of its intention to seek an English Court injunction blocking the ENI sale. A corrupt Heritage-ENI agreement would undermine a potential multi-billion dollar deal between ExxonMobil and Tullow, and have serious long-term implications for U.S. Mission goals in Uganda in terms of good governance and economic development. End Summary.
-------------- --------------
Security Report Targets Security Minister
-------------- --------------
2. (C) On January 7, Tullow Oil’s Director for External Relations, Andy Demetriou, provided EconOff with a copy of a supposedly confidential Ugandan intelligence report on negotiations between Heritage Oil and the Italian oil giant ENI (see attached document and reftel). Tullow has previously expressed concern that ENI is using illicit payments to Ugandan officials to obtain government authorization for purchasing Heritage and depriving Tullow of oil holdings in Lake Albert. The Daily Monitor newspaper printed some details of the report, with key names excerpted, on January 3. The report says western governments - including the U.S., U.K., Sweden, and France - oppose the opaque ENI deal, that Tullow hopes to sell 50% of its Ugandan holdings to ExxonMobil, and that ENI offered Ugandan officials facilitating an ENI-Heritage agreement a $200 million “commission.†The report identifies Security Minister and National Resistance Movement (NRM) Secretary General Amama Mbabazi as ENI’s primary Ugandan deal maker.
3. (C) The report claims that Mbabazi is using a front company belonging to the European owner of Asante Oil, and that ENI representatives distributed “fat envelopes†to a number of visitors - including Energy Ministry officials, representatives from the Office of the President, journalists, and Bunyoro Kingdom officers - while installed at a safari lodge in Murchison Falls National Park close to where drilling has occurred. NOTE: EconOff witnessed ENI’s presence at this lodge during a trip to Murchison in early December. END NOTE. Much of the report highlights ENI’s Libyan ties and accuses Qadhafi of funneling money to the Bunyoro and Buganda Kingdoms to destabilize the Museveni regime. The final two sections of the report purport to “show how ENI corrupts a country’s leadership and forces them to take unpopular selfish policies,†and the “dangers†of an ENI/Libya deal.
--------------
Tullow Ghost Writing?
--------------
4. (C) Tullow officials told EconOff the company did not leak the security report to the press, and said it was not to Tullow’s advantage to reveal ExxonMobil’s interest in the company. On January 7, [name redacted], told PolOff that the President of Tullow Uganda, Elly Karuhanga, contributed to the security services’ report. [Name redacted] added that both Mbabazi and Agriculture Minister Hope Mwesigye are deeply involved with ENI. NOTE: In July and August 2008, Mbabazi facilitated a series of meetings between Tullow and ENI in Italy. END NOTE.
--------------
KAMPALA 00000019 002 OF 002
Tullow Seeks Legal Recourse
--------------
5. (C) Tullow owns half of each of the oil blocks Heritage is attempting to sell. According to Tullow and Heritage’s contractual agreement, Tullow has 30 days to exercise its right of first refusal before Heritage can sell its portion of these two blocks to another firm. On December 18, Ugandan media reported that Tullow had until January 17 to exercise this right by outbidding ENI. Tullow cannot outbid ENI’s $1.5 billion offer for Heritage without significant financial backing from another major oil firm, most likely ExxonMobil. On December 21, ExxonMobil told the U.S. Mission that reports of a January 17 deadline were incorrect, and that the 30 day clock was not yet ticking as Heritage had not officially notified Tullow of its intention to sell. ExxonMobil added that unless ENI managed to negotiate additional yet undisclosed concessions from the Ugandan government, ENI’s reported offer is well beyond ExxonMobil’s price range. ExxonMobil also said it would be difficult to pursue a partnership with Tullow in Uganda if ENI succeeds in purchasing Heritage’s holdings as ENI is not a trustworthy partner.
6. (C) It now appears that Heritage did notify Tullow on December 18 of the impending ENI sale. On January 9, Tullow’s London based lawyers informed Heritage that the December 18 notification was “not a valid pre-emption notice†as it failed to provide cash values for Heritage’s Ugandan holdings and other required documentation. Tullow is demanding a valid pre-emption notice, the missing documentation, and a new 30 day consideration period. If Heritage fails to respond by January 11, Tullow will seek an English court injunction to suspend the ENI sale and activate a dispute resolution mechanism allowing for arbitration by the International Chamber of Commerce in London.
-------------- --
Comment: Ugandan Oil Getting Dirtier
-------------- --
7. (C) We believe Mbabazi is positioning himself for a significant payoff, but the security report is undermined somewhat by Tullow’s apparent involvement in its drafting. In December, ExxonMobil said it lacked concrete evidence that its Ugandan interests have been harmed, but noted that ENI’s involvement has had a negative impact. If the Heritage-ENI sale proceeds unchanged, it will significantly reduce the value of Tullow’s Uganda holdings, zap ExxonMobil’s interest, and put Uganda on the road to rampant oil sector corruption. LANIER