Tanzania: Petroleum Board Fails to Review Oil, Gas Contracts

Bagamoyo, Tanzania — It has been realised that the new board of the Tanzania Petroleum Development Corporation (TPDC) has failed to review even one quarter of the existing oil and gas contracts as it was asked to by the minister for Energy and Minerals.

The Minister for Energy and Minerals, Prof Sospeter Muhongo has thus ordered the new board of TPDC to start immediately reviewing all 26 production-sharing agreements with oil and gas companies since September, this year.

Speaking exclusively to East African Business Week in Bagamoyo recently during the post 2015 global development agenda national consultations dialogue organized by President's Office, Planning Commission in collaboration with the University of Dar es Salaam Department of Economics, the Chairperson of the Public Investments Committee, Mr Zitto Kabwe, said that the TPDC fail to review the contracts due to lack of expertise.

"This is very embarrassing....we still have a long way to go in this sector, because until now (December) the board has so far reviewed only four out of existed 26 contracts of the oil and gas companies," Kabwe said.

According to Kabwe, who is also a shadow Minister for Finance, the delay makes the government to be in darkness regarding the future of oil and gas industry and the way this sector could benefit Tanzanian economy.

Head of Department of Economics of the University of Dar es Salaam, Dr Adolf Mkenda urged the Government to hold off on licensing more blocks for exploration until contracts are made transparent and better terms have been put in place.

Minister Muhongo also ordered the board to closely supervise the auditing of the cost of prospectors to prevent cheating.

According to the production-sharing agreements, exploring companies bear the total cost of prospecting. But concerns are mounting that some firms are exaggerating the costs to reap more profits during production, Kabwe said.

Under the directive, the board will audit even costs incurred by firms in the past. The aim is to ensure that the country gets a fair share of its resources.

Prof Muhongo handed over such contracts since September to the new board, telling it to "review them and advise the government accordingly". However till today according Kabwe, only four-contracts reviewed and about 22 contracts still pending.

However, Minister Muhongo noted that some of the pacts were signed between the government and oil and gas companies a long time ago, and Tanzania might be getting a raw deal.

The order comes at a time when the government has been under criticism for striking oil and gas deals with multinational companies without taking national interests into account.

It has been confirmed that Tanzania has natural gas reserves of 43 trillion cubic feet worth $430 billion and more deposits are being found.

The discoveries have prompted the government to initiate the review of its oil and gas exploration legislation as well as draw up strategies and tax regime to enable the country benefit from the boom.

Recently the government delayed a licensing round for up to nine deep-sea oil and gas blocks until an appropriate legislation is enacted.

The fourth licensing round was scheduled to be launched in Houston, Texas last Friday. MP Kabwe urged the government to impose a ten-year moratorium on oil and gas exploration to prepare the country to handle huge projects.

The government is renegotiating the Songo Songo production-sharing agreement it entered with the PanAfrican Energy Tanzania Limited 2001, seeking an amendment.

The government's shift towards a more aggressive tone on gas and oil contracts and legislation is not at all unexpected, analysts assert.

"As discoveries are made and it becomes clear the size of the prize you can start to see political pressures to change the terms after the fact," John Malone, GH Securities analyst told the Reuters News Agency in a report recently.

According to the model production sharing agreement of 2008 TPDC, on behalf of the government, is entitled to a share of profit from gas production of between 60 and 85 per cent.

However, contracts are considered "state secrets" and not meant for public consumption, causing concerns.

The review of revenue sharing agreements is part of the 10 major duties assigned to the board by the minister.

Other duties are to hasten the drafting of a natural gas policy, review of the Petroleum Exploration and Production Act of 1980 and supervision of the construction of the Mtwara-Dar gas pipeline.

The board should also ensure clauses are put in the legislations to guide the amount of oil and gas to be retained in the country.

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