VZCZCXRO9001
RR RUEHRN RUEHROV
DE RUEHKM #1401/01 3511138
ZNY SSSSS ZZH
R 171137Z DEC 09
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 0017
INFO IGAD COLLECTIVE
RWANDA COLLECTIVE
RUEHKI/AMEMBASSY KINSHASA 0002
RUEHLO/AMEMBASSY LONDON 0001

S E C R E T SECTION 01 OF 02 KAMPALA 001401 
 
SIPDIS 
 
E.O. 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 
 
KAMPALA 00001401  002 OF 002 
 
 
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