The closed-door arbitration between Uganda and the U.K.-listed Heritage Oil is the latest example of the secrecy plaguing the East African country's oil sector, transparency watchdogs said Tuesday.

Private proceedings deny Ugandans the right to know how the country's oil wealth is being managed, the groups said, as a tribunal in London started hearing a case to decide whether Heritage Oil should pay $435 million in a capital gains tax from the company's $1.45 billion sale of two Ugandan oil blocks to Tullow Oil in July 2010.

Transparency campaigners see the secrecy surrounding the case as a classic example of the lack of transparency that has prevented many African countries from benefiting from the profits of their oil.

George Boden of Global Witness said Tuesday that Uganda's Western donors "need to question the hypocrisy of a London arbitration process which deprives Ugandan civil society of the ability to hold their own government to account on vast public assets."

Uganda has confirmed oil reserves of about 2.5 billion barrels. Even though it will be at least three years before oil flows in Uganda, the country's nascent oil sector is already troubled by corruption allegations of the kind most Ugandans have become familiar with over the years. An independent legislator last year told parliament that some senior government officials had accepted bribes from foreign companies scrambling to get a stake in Uganda's oil, setting off a storm that ended with the passing of parliamentary resolutions preventing the government from signing new transactions until new laws were passed.

In February the government defied the lawmakers, signing new agreements with Tullow Oil, which at the time was the sole operator of Uganda's oil wells along the border with the Congo. Tullow Oil then sold some of its stake to China's CNOOC Ltd. and France's Total in a $2.9 million deal.

For observers of Uganda's attempt to become a credible oil producer, the government's defiance of parliamentary resolutions was a bad omen, and since then the work of a committee scrutinizing oil bills has been closely monitored by civil society groups which hope the laws will be strong and clear enough to guard against corruption and environmental degradation.

Parliamentarian Yokasi Bihande, who sits on the committee examining the bills, said they were "shallow" in their original shape.

"We couldn't make the mistake of leaving all the power to the (oil) minister," Bihande said. "We have given the (bills) a thorough surgery."

Bihande said new drafts of the bills would "spread the powers" of oversight between the oil minister, a national oil company as well as a regulatory authority.

Global Witness warned in a report that "if the committee fails to hold the government to account there is a real risk that oil could be a curse rather than a blessing for Uganda."

The closed-door case in London, transparency campaigners warn, offers some clues as to where Uganda is headed.

"Oil could be a blessing or a curse for Uganda," said Henry Bazira of the Kampala-based Civil Society Coalition on Oil. "But the sector has been marred by secrecy, close executive control and corruption allegations from the start ... Greater transparency now is vital to restoring confidence in the government's handling of the sector."