21 February 2018

Tanzania: Swala Oil, PAE Deal Put On Hold

Dar es Salaam — The government has ordered Swala Oil and Gas to delay its acquisition of 40 per cent stake in PAE PanAfrican Energy Corp, saying it is not fully informed of it.

Swala Oil and Gas announced last month that it would buy up to 40 per cent stake in Orca Exploration Group's PAE PanAfrican Energy Corp for $130 million.

Once completed, the deal would give Swala part ownership of PAE PanAfrican Energy Corp, a company that holds exploration and production rights for natural gas in the Songo Songo block, in partnership with the Tanzania Petroleum Development Corporation (TPDC).

Swala said the transaction will involve the issue of 16.3 million preferred shares, worth $16.3 million, to Orca, if shareholders approve. It will also take on PAE Tanzania's debts worth another $24 million, Swala said.

But TPDC said in Dar es Salaam yesterday that Tanzania's laws stipulate that all natural gas assets in the country are owned by the government and as such, Swala Oil and Gas can only negotiate with it (the government) in issues pertaining to share sale.

"Pan African Energy Corp status is that of a constructor of some natural gas facilities but not the owner. We, therefore, advise Swala to stop the deal until TPDC gives the permission," TPDC's acting managing director Kapuulya Musomba said.

Last year, Parliament endorsed two laws: the Natural Wealth and Resources Contracts (Review and Re-negotiation of Unconscionable Terms) Act, 2017 and the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, with a view to giving the government absolute powers over the country's natural resources.

Mr Musomba said TPDC had instructed Swala to delay the deal until a more detailed analysis was conducted into how it would affect an existing natural gas production sharing agreement (PSA) between PAE PanAfrican Energy Corp and the government.

"TPDC wrote to Swala requesting them to hold the transaction pending government and its institutions' satisfaction that the deal will have no effect on the PSA signed between the government, TPDC and PanAfrican Energy," he said. Mr Musomba said the government would issue a statement when the deal gets approved.

He said the contract between the government and PanAfrican Energy Tanzania was for the latter to construct infrastructure only and that it (the company) may not have the powers of engaging a third party over natural resources without the government's approval.

He warned PanAfrican Tanzania Ltd against trading natural gas contrary to the agreed system.

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