disposal of Ugadan asset8 Sep 2012 13:40
On 18 December 2009, Heritage announced that it and its wholly owned subsidiary HOGL, had entered into a Sale
and Purchase Agreement (“SPA”), with ENI International B.V. (“Eni”) for the sale of HOGL’s 50% interests in Blocks
1 and 3A in Uganda (the “Ugandan Assets”). On 17 January 2010, Tullow Uganda Limited (“Tullow”) exercised its
rights of pre-emption. The transaction was overwhelmingly approved by Heritage shareholders at the General Meeting
on 25 January 2010.
On 27 July 2010, Heritage announced that HOGL had completed the disposal of the Ugandan Assets. Tullow
paid cash of $1.45 billion, including $100 million from a contractual settlement, of which Heritage received and
retained $1.045 billion.
The Ugandan Revenue Authority (“URA”) contends that income tax is due on the capital gain arising on the
disposal and it raised assessments of $404,925,000 prior to completion of the disposal. Heritage’s position, based
on comprehensive advice from leading legal and tax experts in Uganda, the United Kingdom and North America, is that no tax should be payable in Uganda on the disposal of the Ugandan Assets.
On closing, Heritage deposited $121,477,500 with the URA, representing 30% of the disputed tax assessment
of $404,925,000. $121,477,500 has been classified as a deposit in the balance sheet at 30 June 2012. A further
$283,447,000 has been retained in escrow with Standard Chartered Bank in London, pursuant to an agreement
between HOGL, Tullow and Standard Chartered Bank pending resolution between the Ugandan Government and
HOGL of the tax dispute. Including accrued interest, an amount of $285,941,000 is classified as restricted cash in
the balance sheet at 30 June 2012.
In August 2010, the URA issued a further income tax assessment of $30 million representing 30% of the additional contractual settlement amount of $100 million. HOGL has challenged the Ugandan tax assessments on the
disposal of HOGL’s entire interest in the Ugandan Assets.
In November 2011 and December 2011, the Tax Appeals Tribunal in Uganda dismissed HOGL’s applications in relation to the two assessments amounting to $434,925,000. In December 2011 and January 2012, HOGL commenced appeals to the Ugandan High Court in relation to the rulings from the Tax Appeals Tribunal. The
rulings from the Tax Appeals Tribunal in Uganda are part of a domestic process and are not final and determinative.
HOGL has appealed the rulings, which it believes are fatally flawed in many respects, through the Ugandan
court system commencing with the High Court and subsequently the Court of Appeal and Supreme
Court if necessary.
As a result of the actions of the tax authorities in Uganda, HOGL and its advisers consider that it was compelled to
take part in a Ugandan domestic process before a Tax Appeals Tribunal, notwithstanding HOGL’s belief that
arbitra
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