Tax Disputes Flare as Africa Fights ‘Secret’ Oil Deals

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Sitting before a parliamentary oversight committee last month, two top executives from Tanzania Petroleum Development Corp. declined to reveal details of billions of dollars in gas contracts that the state company had signed with foreign investors. Parliamentarians had a sharp riposte: They called the police.

The two company board members had argued they needed permission from their investors before they disclosed details of the deal. But soon after a police officer showed up, the executives were fumbling with their paperwork, according to lawmakers who attended the hearing—but in the end, they didn’t release any documents.

The executives were escorted out of the parliamentary building and into a police truck. They were briefly taken into custody, detained for a few hours and released without charges.

“Companies must accept the era of secrecy is over,” says Zitto Kabwe, the head of the Tanzanian parliament’s public-accounts committee, who witnessed the scene.

TPDC declined to comment on the police detention of its executives, and Tanzania’s ministry of energy and minerals didn’t respond to requests for comment.

Battles over contract transparency are brewing across Africa, touching on sensitive tax issues among energy and mineral giants trying to tap into a new frontier of the global economy. The clashes show how once-malleable African governments are fighting for a bigger share of earnings in sometimes-secretive deals, often following the advice of Western groups such as the Soros Foundation and the African Governance Initiative, which is headed by former British Prime Minister Tony Blair.

The upshot: A raft of legal disputes that have stalled production of some key projects and frayed relationships between African governments and foreign investors.

Uganda remains embroiled in a litany of tax disputes with Tullow Oil PLC and Heritage Oil Corp., nearly a decade after oil reserves were discovered. The country had amended its income-tax law to introduce a capital-gains tax on the sale of oil rights shortly after the discoveries, prompting Heritage and Tullow to contest the new tax assessments.

Zambia’s mining industry is faltering after the government in October decided to more than triple mine royalties to 20%, following the advice of Western groups. This compelled miners such as First Quantum Minerals Ltd. and Glencore PLC to suspend $2 billion in expansion projects.

And in Guinea, disputes stemming from government changes to a lease for the Simandou iron-ore mine are dogging the project.

Some experts argue the disputes reveal a blurring between demands for more disclosure from investors and more tax revenue from governments. “It’s about negotiating to get a better deal in terms of money ... income, but not necessarily transparency,” says Carlos Lopes, the chief of the United Nations Economic Commission for Africa.

African governments have found ready partners for both endeavors. Western organizations such as the Soros Foundation, founded by hedge-fund billionaire George Soros , and international institutions like the United Nations and the World Bank are providing advisory services to resource-rich nations on how to adjust ownership structures and rejigger tax laws for a bigger slice of revenues.

Some analysts say this is a necessary tilting of the scales toward African governments.

“The deals often favor the companies which have access to vast experience and capital, while the governments do not have the experience, institutions or laws in place to manage their natural resources,” says George Boden, an analyst with U.K.-based anticorruption group Global Witness.

The African Governance Initiative—headed by Mr. Blair—has helped Rwanda become the region’s first country to issue mining certificates at the point of export, in an effort to keep conflict minerals out of the supply chain.

In Guinea, Mr. Soros, through his foundations, played a key role in advising the government on its review of mining deals struck by previous governments. This led to the ouster of BSG Resources, the mining arm of Israeli tycoon Beny Steinmetz ’s family-owned conglomerate, from the country earlier this year and the ushering in of Rio Tinto PLC.

Mr. Steinmetz has since sued Global Witness—partly funded by the Soros Foundation—which accused his company of obtaining mining rights in the country through corruption. BSG also is in international arbitration with Guinea in a bid to win compensation for being stripped of the Simandou mine. BSG Resources has denied wrongdoing and accused President Alpha Condé ’s government of seeking to expropriate its rights by stealth—a claim the government rejects.

Simandou’s current operator Rio Tinto has also sued rival Vale SA and Mr. Steinmetz, alleging that they colluded to rob the Anglo-Australian company of the highly prized iron-ore concession, further complicating the legal battles around the mine. Both parties denied Rio Tinto’s allegations, which a BSG Resources spokesman called “baseless and bizarre.”

In Tanzania, the recent police detention of the oil-company executives capped months of a simmering row at the local parliament over whether the East African nation is getting a fair deal for its newfound vast natural-gas resources.

Mr. Kabwe’s fight to make all contracts public kicked off in August, when part of the contract with Norway’s Statoil AS A and ExxonMobil Corp. was leaked to the local press, showing that the state-run Tanzania Petroleum Development Corporation, or TPDC, had agreed to terms yielding 30%-50% of the revenue for state coffers—well below the 50%-80% yields recommended by the World Bank and the International Monetary Fund.

Tanzania in 2009 signed the Extractive Industries Transparency Initiative, an effort led by non-governmental organizations to bring contracts to light. Though most of Africa’s other mineral-rich nations also are signatories, implementation has been uneven.

Mr. Kabwe, who heads the parliament’s public-accounts committee, ordered TPDC to bring all contracts to parliament for scrutiny, but the state-run company cited investor reluctance to publicize the terms. It didn’t comply with a Nov. 3 deadline—at which point the two senior TPDC board members were briefly taken into custody.

An official with TPDC said that confidentiality clauses in the deals prevent the state company from revealing them to third parties.

ExxonMobil, the minority partner in the venture, referred questions to Statoil. Knut Rostad, a spokesman for Statoil, said the deal was “balanced and comparable to commercial terms in other places with similar risks.” He added that his company was making a long-term commitment to the country and has already spent over $1.5 billion on exploration.

But Mr. Rostad said he wouldn’t comment on parliamentary debates or police detention of TPDC executives. He confirmed his company didn’t release the contracts but declined to answer why, given the demands of the Tanzanian parliament.

Source: Wall-Street Journal, December 15th, 2014,