Tanzania’s New Regime On Oil And Gas Laws – Legal Analysis By Breakthrough Attorneys

breakthrough-attorneys-tanzania

In this article Tanzanian law firm Breakthrough Attorneys offers an extensive analysis of Tanzania’s new Oil And Gas legal framework, with the recently entacted Petroleum Act 2015.

Undoubtedly, the future economy of Tanzania depends on extractive industry as means of economic expansion being both a usable resource as well as a commodity for international trade and finance.

Together, oil and natural gas may bring Tanzania unprecedented mobility, help generate electricity, and are used to produce everything from agriculture fertilizers to synthetic clothing to product packaging and countless other items.

Moreover, following the recent discovery of oil and gas in Mtwara, arose a need to put in place comprehensive laws to properly govern the oil and gas resources in the country.

Tanzania has put in place a comprehensive legal and regulatory framework regulating the petroleum exploration industry. The government of United Republic of Tanzania, has various substantive and subsidiary laws which affect performances and activities of petroleum development, starting with the Constitution of the United Republic of Tanzania, the Petroleum (Exploration and Production) Act of 1980 and The Petroleum Act, 2008, to name, but a few.

However, despite the existence of the above-mentioned laws there were still contentious legal and regulatory matters. For example, Article 4(3) of the Constitution indicates that matters of natural resources such as oil and gas are under the management of the United Republic of Tanzania. We note that both the current Act and model Product Sharing Agreement (hereinafter “PSA”) are into question regarding the indigenous’ legal right of ownership participation to the petroleum resources explored, exploited.

The laws were further deemed to be silent on natives’ rights for the sharing of revenues derived from the sales of resources after the extraction of those resources which gave basis to the core principles under the formulation of the Tanzania Natural Gas Policy of 2013. The PSA has been crafted in a manner that embodies the TPDC as the trustee of the resources and all PSA contractors enter into the agreement with TPDC in all aspects such as granting of license and regarding incidental matters.

Following these controversies and shortcomings of the oil and gas laws, the Tanzanian Government resorted to enact new legislations namely, The Petroleum Act, Tanzania Extractive Industry (Transparency and Accountability) Act and The Oil and Gas Revenue Management Act.

The process of tabling the bills before the parliament was even more controversial after the central government brought the same under a certificate of urgency leading to the expulsion of 43 opposition parliamentarians who were opposing the hasty manner the Bills were to be presented and passed. Despite these oppositions on the controversies brought by the three laws, the parliament (depleted with expelled MPs and those many who were absent) passed the three Bills into law. And on the 4th August, 2015, President Jakaya Mrisho Kikwete assented to the laws.

In account of the outline above, Breakthrough Attorneys highlights as to what the three new laws present.

A. The Petroleum Act 2015:

The Petroleum Act 2015 has brought about the following new features in the oil and gas field in Tanzania:
• Establishment of the Petroleum Up-stream Regulatory Authority (PURA)
PURA is established as a body corporate responsible for regulating and monitoring of the geophysical exploration, exploration for and development of Petroleum, constructing and operating of wells, production of Petroleum, construction, operating and use of storage reservoir, construction and operation of pipelines and other special infrastructure for Petroleum.

Moreover, PURA will act as a complimentary and advisory organ to the Minister of Petroleum Affairs in matters pertaining to oil and gas management and issuance of licenses i.e. Exploration license and Development license to The Tanzania Petroleum Development Corporation which in turn enters into Product Sharing Agreements with both local and foreign investors.

• Establishment of Oil and Gas Advisory Bureau
This is a department constituted within the Office of the President whose main responsibility is to advise the Cabinet on strategic matters relating to oil and gas economy generally.

• Designation of Tanzania Petroleum Development Corporation as the National Petroleum Company
The Tanzania Petroleum Development Corporation (TPDC) has been designated the status of the National Oil Company whose major role is to undertake Tanzania’s commercial aspects of the petroleum in the upstream, midstream and downstream operations and participating interests of the government in the petroleum and natural gas industries.

Moreover, TPDC will act as an advisory organ to the government on matters relating to petroleum industry as well as participating in the petroleum reconnaissance, exploration and production (development).

The Tanzania government shall have a 51 percent shareholding ownership of the National Oil Company. The remaining 49% of the shares shall be put in the Stock Exchange for public subscription. According to the report issued by the then Chairman of Parliamentary Audit Committee, Mr. Zitto Kabwe, the 49% of the shares will be put on Stock Exchange for public subscription so as to enable the same to participate in the overall management of the exploitation of natural resources of their country.

• Change of Petroleum Permit and Permits Extensions Duration
Under the newly assented Petroleum Act 2015, the duration period of the validity of the extended licenses that is an Exploration License and a Development license has been reduced. The Minister responsible for Petroleum Affairs may extend the Exploration license for three years upon an application from the holder of such license. Moreover, the same can be afforded a second extension for further two years upon an application for such extension. Under the previous repealed law that is, The Petroleum (Exploration and Production) Act, 1980, the duration of the first extension was four years just like the original period and the second extension’s duration was three years.

Additionally, similar changes has been imposed in the validity period of the Development License. A holder of a Development License upon expiry of the initial validity of the licence, that is 25 years when an application for extension of the same is lodged and accepted, an extension of the license for a furtherfifteen (15) years only will be granted. Under the repealed Act, the original validity of the development license was twenty five years and can be extended for a further twenty (20) years.

B. The Tanzania Extractive Industries (Transparency and Accountability) Act, 2015

The reason behind enactment of this Act, is the government’s effort to ensure that there is transparency and accountability in the extractive industry. On that note therefore, the Extractive Industries, Transparency and Accountability Committee is established under the Act with the prime duty to ensure that there is transparency and accountability.

Breakthrough Attorneys reckons that the Act is an amplification of the Natural Gas Policy (2013) especially at Chapter 3 Part 2; Paragraph 3.2.1 which is quoted herein below;

RELATED:  Tanzania Oil & Gas Congress: 11-12 September 2017, Dar Es Salaam

“3.2.1. Transparency and Accountability
Issue: Increasing transparency and accountability to the public on natural gas activities.

Access to information is a fundamental right in activities that may positively benefit or negatively impact individuals, communities and society as a whole. Dissemination of information makes the public aware of the developments in the industry. The Government and stakeholders have important roles to play in order to achieve transparency and accountability to the public as well as eliminating possible elements of corruption in the natural gas industry.

Related to this, the Government has joined the Extractive Industry Transparency Initiative (EITI) to improve transparency and accountability as well as accessing information in relation to revenue accrued from extractive industries. Except for national companies specifically given such mandates, there shall be separation (unbundling of operations) of value chain activities in order to promote accountability and efficiency.”

C. The Oil and Gas Revenue Management Act, 2015

The Act has been enacted with the purpose of establishing an effective framework for fiscal rules and management of oil and gas.
• The Oil and Gas Fund
To this effect, the Oil and Gas Fund is established under the Act with the main purposes of;

i. Receiving and disbursing oil and gas revenues,

ii. To ensure maintenance of fiscal and macroeconomic stability,

iii. Guaranteeing financing of investment in oil and gas, and

iv. To enhance social and economic development as well as to safeguard resource for future generations.

The fund has been divided into two separate accounts all maintained at the Bank of Tanzania (BOT), namely the Revenue Holding Account and the Revenue Savings Account. According to the Deputy Minister of Finance, Mr. Mwigulu Nchemba, the sources of the Oil and Gas Fund will include royalties, government’s profit share and dividends on government participation in oil and gas operations, corporate income tax on exploration, production and development of oil and gas resources and return on investment of the Fund.

• General Public Views and Popular Opinions on the newly assented laws:
The three legislations namely, the Tanzania Extractive Industries (Transparency and Accountability) Act, 2015, Oil and Gas Revenue Management Act, 2015 and the Petroleum Act, 2015 have faced a myriad of criticism and opposition from the opposition members and the public in general. Among those criticisms include the following;

i. The opposition insisted that should the Acts be assented by the President, the country’s natural resources would benefit foreign investors rather than the locals.

ii. The secret clauses to be included in the lucrative mining, oil and gas contracts between the government and foreign companies will encourage corrupt-based agreements.

iii. Prior to drafting and laying of the Bills for debate, the government should have established a natural resources (mining, oil and gas) management committee composed of different experts from all ministries in the country and different fields including NGOs and collected views from the Tanzanian citizens and use them to draft policies pertaining to management of each mineral. This would have ensured full participation of Tanzanian citizens at all levels including business ownership. The committee should have drafted how the revenue is collected and distributed for various economic development use and reserve fund establishment.

• Points of Concern with regards to the newly assented laws:
I. Contradictions with regards to Transparency

The Petroleum Act 2015 makes it a requirement for the Minister, the new Petroleum Upstream Regulatory Authority (PURA) and the Energy and Water Utilities Regulatory Authority (EWURA) “to ensure transparency”. Moreover, the Act allows PURA to make details of all agreements, licenses, permits and any amendments to the licenses, permits or agreements whether valid or terminated and details of exemptions, variations or suspensions of conditions of license and permit available to the public for a fee.

Furthermore, the Act requires EWURA to establish a National Petroleum and Gas Information System (NPGIS), most of which shall be available for inspection by the public. Looking at it lightly, this is seemingly a positive step for the oil and gas industry but it must be noted that there are some provisions in the Act providing for confidentiality which seems like claw-back clauses for transparency. Therefore this law is most likely prone to cause confusion on transparency issues.

II. Access to information impediments in the Oil and Gas Revenue Management Act.

The Act establishes an Oil and Gas Fund, to be fed by revenues from royalties, Government profit share of oil and gas produced, dividends on Government participation in oil and gas operations, and corporate income tax on exploration, production and development of oil and gas resources.

The Act then requires that collection and deposit of oil and gas revenues into the Fund and disbursement from the Fund must be transparent and accountable. In particular, for the purpose of transparency and accountability, the records of oil and gas revenues and expenditure in whatever form, shall simultaneously be published by the Minister in the Gazette, and also be published online on the website of the Government and Ministry of Finance. On the same breath, the Act provides that the public can access such information upon payment of a certain fee. This causes confusion and contradictory to the right of information as provided by the Constitution.

Conclusion:

There are some remarkably clear and unambiguous requirements for transparency in the newly assented Acts. Most obviously, this includes the publication of all existing and new Mineral Development Agreements and Production Sharing Agreements. To have it so clearly stated in law is a big step forward but a downside towards the new legislations as mentioned above could lead to complications and could undermine some of the pro-transparency requirements. It is also a claw-back assertion on the requirement for the public to pay for access to the information that directly affects their own country. But despite the shortcoming on the new Acts, it is right to say that the same are a big step forward to transparency on the overall management of the country’s resources.

Disclaimer: This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, Breakthrough Attorneys, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.