11 August 2014

Tanzania Gas Contract Appears Reasonable, Though Questions Remain - Natural Resource Group Says

Photo: heipmann/Flickr
Construction of a gas pipeline (file photo).

Washington/Dar es Salaam — A leaked gas contract with Western energy companies that has sparked a furore in Tanzania on suspicion it cheats the country of millions of dollars does not appear to be grossly unfair, the Natural Resource Governance Institute says.

Several blogs and local media reports said the Tanzanian government's contract for offshore gas exploration and production with Norway's Statoil and U.S. oil giant ExxonMobile potentially would rob the country of as much as $1 billion - largely due to a smaller-than-expected share of profits.

But Natural Resource Governance Institute, an advocacy group for natural resource transparency, said it is "plausible under a reasonable set of assumptions" that an amended 2012 contract would return 61 percent of revenues to the government, as estimated by Tanzania's national oil company.

"An NRGI financial analysis suggests that the deal is not out of line with international standards for a country that had no proven offshore reserves of natural gas at the time when the original contract was signed," the institute said in releasing its findings.

Tanzania's original oil and gas exploration contract with Statoil and ExxonMobile was signed in 2007, before major natural gas finds were made deep in the Indian Ocean in 2010 and a surge in global demand for gas.

The contract, which was amended in 2012 to reflect new gas finds, says the government would get 30-50 percent of the profitable gas. However, critics say Tanzanians have been led to believe, based on model contracts provided by the state agency Tanzania Petroleum Development Corp., that the country would get a 60-85 percent share of profitable gas after expenses.

Once taxes and royalties are added to the share of profitable gas that Tanzania receives, the contract does appears to be in line with the model agreement, NRGI said.

NRGI said it was premature to say whether the contract does represent a fair deal for Tanzania, given the limited amount of information publicly available - notably that the original 2007 contract is not public so it cannot analyse what changes were made or compare it to similar contracts.

The furore over the leaked 2012 contract underscores the need for transparency, it said.

"Publication of all contracts would support informed debates within Tanzania on the management of extractive resources, which is necessary to build trust and management expectations around what these new resources could mean for the future of the country," it said.

Ben Taylor, a blogger and consultant with the Tanzanian governance think tank Twaweza, brought to light the large discrepancies over the Statoil contract. He said NRGI made some good points, but that it was critical to end secrecy over oil and gas contracts.

"Without transparency in oil and gas contracts, Tanzanians are simply asked to trust that the government has negotiated a good deal on their behalf," Taylor said.

Taylor said it was "very unlikely" that Statoil did not already know that there was a lot of gas available at the time of their contract negotiations, though there are unknown factors.

"Also, what is the point of having Model PSAs (production sharing agreement) if the terms of final signed contracts are so different in such an important aspect?" he said in an email.

"This underlines the need for transparency. It is not possible to conduct a complete and thorough analysis of the leaked PSA addendum without having access to the original PSA signed with Statoil to cover oil exploration. Without transparency in oil and gas contracts, Tanzanians are simply asked to trust that the government has negotiated a good deal on their behalf," Taylor said.

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