Tanzanian parliament passes Petroleum Act

Tanzanian parliament passes Petroleum Act

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President Jakaya Kikwete

The Tanzanian parliament has finally passed the country’s much awaited petroleum bill, the Petroleum Act of 2015, which will replace existing legislations on the oil sector – the Petroleum Exploration and Production Act of 1980 and the Petroleum Act of 2008.

The new bill also includes new regulations for the gas sector with gas exports expected to start by the end of the decade. The new bill will have to be signed into law by the president before the October presidential and parliamentary elections.

The bill spells out quite clearly the fiscal terms for oil and gas operations. Royalties are 12.5 percent for onshore and shallow waters and 7.5 percent for offshore operations. For tax revenues, the bill grants the government a 60 – 80 percent share of profits from onshore gas operations and 85 percent of offshore gas profits. In the case of future oil discoveries, the government is expected to get between 50 – 70 percent of profits from oil operations.

The bill is also very explicit on the role of the Tanzania Petroleum Development Company (TPDC), the upstream national oil company. The bill gives the TPDC a more extensive role in the upstream segment, including the aggregation of natural gas, ownership and operatorship of gas infrastructure. It also allows the TPDC to form subsidiaries to run various segments of its businesses or functions. This could lead to the formation of new companies to handle perhaps gas infrastructure, exploration studies/reconnaissance etc.
A Petroleum Upstream Regulatory Authority (PURA), which will be responsible for the licensing of oil and gas activities in Tanzania, will also be established. The new regulator will advise the minister of petroleum on negotiations of petroleum sharing agreements and all other contracts with international oil companies. The PURA is expected to also resolve all complaints and disputes in the oil and gas industry.

Analysts have welcomed the passage of the bill, saying it is necessary for the development of the country’s fledgling hydrocarbons industry. ‘In our opinion, the bill is essential for the development of the oil and gas industry in Tanzania and could hasten exploration of the country’s rich gas resources,’ Ecobank said in research note. The maximum term granted for exploration was reduced to 10 years, consisting of three terms – the first term of 4 years, second term of 3 years, third renewal term of 2 years and a 1 year discretionary term based on location. Previously, explorers had 12 years in total. The bill also includes several sections requesting transparency in oil and gas operations and provides for frequent reporting on petroleum operations by the TPDC and PURA to the public.

Ecobank says, however, that the bill does not clarify the domestic supply obligation of oil and gas companies. ‘Earlier versions of the bill had put it at 10 percent of production, but oil companies desired to have it reduced. However, the latest version is believed to have expunged this section. This follows a trend from the [production sharing agreement PSA signed with Norwegian oil company Statoil and US oil major ExxonMobil in 2012, in which the domestic supply obligations were also taken out,’ the bank said.

It added that ‘the absence of the domestic supply obligation could potentially be targeted at providing both the government and operators some flexibility in determining what level of gas consumption is actually required by the market and meeting that demand instead of imposing a fixed amount that could be in surplus or deficit to total requirement.’

According to the Ecobank analysts, although the fiscal terms look comparable to what obtains in other parts of sub-Saharan Africa, the graduated terms could encourage oil companies to maintain lower production volumes to minimise tax payments. Furthermore, it restricts oil companies to lending at the lowest rate available in the market otherwise such loans will not be tax deductible. However, some flexibility may be provided to oil companies as the minister has the right to alter the royalty and fiscal terms (set out in the second schedule) where necessary.

‘ We expect further transparency and accountability in the oil and gas sectors to be spurred by the Oil & Gas Revenue Management and the Tanzania Extractive Industries (Transparency and Accountability) bills to be considered by the parliament before it is closed for the year on [July 22]. These bills should encourage further openness and accountability for gas revenues,’ it added.

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