17 July 2014

Tanzania: TPDC Defends State's Stake in Gas, Oil Deals

THE government stands to gain under the Production Sharing Agreement (PSA) entered between the state and Statoil Company, the Tanzania Petroleum Development Corporation (TPDC) has maintained.

Dismissing claims circulating in the local media that the government stands to lose billion of shillings annually under the PSA contract, outgoing TPDC Managing Director Yona Kilagane, said the country will gain more than the investor.

He noted that there is confusion between the PSA on Oil He said out of the total amount of natural gas discovered, 42.5 trillion cubic feet was discovered in deep sea while 8 trillion cubic feet were discovered onshore.

Acting TPDC Managing Director James Andilie, said the PSA documents were public property and anyone who wishes to get more information should visit the corporation's offices or the Ministry of Energy and Minerals.

Recently, an alleged contract between the state and Statoil was leaked online, prompting analysts to say that the government stands to lose one billion US dollars a year.

Kigoma North Member of Parliament (MP) Zitto Kabwe had posted on social media networks what he said was the leaked PSA between TPDC and StatOil, saying the country stands to lose huge amount of money under the deal.

In his postings, Mr Zitto said that the 'leaked document' is not the PSA per se, but an addendum to the original PSA for Block 2 to take account of the fact that the discoveries are of natural gas, not oil.

In his analysis of the deal, Darblogger Ben Taylor@ mtega) argues that if the contract is fully implemented, the government could lose between 400 million US dollars (672 billion/-) and a whopping one billion US dollars (1.68 trillion/-) yearly.

exploration in which the state decided to include an addendum that will ensure the government earns its share if the company finds natural gas instead of oil.

Mr Kilagane explained that in 2005, the state proposed a 50 per cent share each to Statoil in case oil will be discovered for the first tranche.

"This was an offer to form a base for negotiations to take place but it was not an agreement. It was not an obligation to either party but an offer," Mr Kilagane pointed out.

Upon receipt, according to Mr Kilagane, Statoil proposed a 5 per cent share to the government and 95 per cent to the contractor if oil is discovered, which prompted negotiation between the two parties, reaching to a conclusion and resolving that the share should be 30 per cent and 70 per cent for contractor.

"That was the first deep sea exploration in the region, incurring huge costs compared to onshore exploration. Statoil will incur all costs and risks while the government will not contribute any costs towards the venture," he explained, adding that the company also raised the issue of 'no ready market,' infrastructure and pricing mechanism in case natural gas is discovered.

Mr Kilagane said the 30 per cent share for government is exclusive of corporate tax (30%), royalty (5%), TPDC participating interest (10%) and service levy (0.3%), noting that the driving force behind the resolution was the associated risk of first venture in deep sea and to attract more investments.

The PSA was signed between the government through TPDC and Statoil in March 2007 for oil exploration. He said the addendum came into being when Statoil discovered natural gas instead of oil, prompting the parties to go back to the drawing board, coming into effect in 2012.

"With the addendum on aggregate the governments take in the PSA on natural gas is 61 per cent while Statoil take 39 per cent," he explained. He added that it opened new oil exploration areas, spearheaded further exploration activities, attracted multinational oil exploration companies to Tanzania and fostered the country's image worldwide.

He said the profit sharing between the government and the investors will be 30:70, 35:65, 37.5:62.5, 40:60, 45:55 and 50:50 when production is at its peak.

Mr Kilagane said Tanzania has signed 27 contracts with 18 companies doing exploration work in the country, adding that about 32 wells out of 80 were found with natural gas since 1952.

He said proven gas discovery in Tanzania currently stands at 50.5 trillion cubic feet, which is equivalent to 9.6 billion barrels of oil -- more than Uganda's 3-4 million barrels.


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