Tanzania to review 26 contracts on oil, gas

By Alex Bitekeye, The Citizen Reporter

Dar es Salaam, Tanzania. 

Energy and Minerals minister Sospeter Muhongo has ordered the new board of the Tanzania Petroleum Development Corporation (TPDC) to review all 26 production-sharing agreements with oil and gas companies.

He 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. 

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 yesterday handed over such contracts to the new board, telling it to “review them and advise the government accordingly”.

However, he 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.

Opposition MP Zitto 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 yesterday.

“They need to negotiate harder. They shouldn’t be selling out,” Jenik Radon of Columbia School of International and Public Affairs was also quoted by Reuters as saying.

Donors have also urged Tanzania to hold off on licensing more blocks for exploration until contracts are made transparent and better terms have been put in place.

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 Expl oration 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.

Meanwhile Energy and Minerals minister Sospeter Muhongo has directed companies under his ministry not to renew the contracts with various legal firms unless they win at least 80 per cent of cases.

“There is no need to keep contracts with such companies. These should also include firms which normally delay cases so that they can be paid more fees,” he said.

Prof Muhongo gave an example of 200 pending cases at the Tanzania Electric Supply Company Limited, ordering the parastatal not to sign contracts which include those on capacity charges.

Source: The Citizen (16/09/2012): http://www.thecitizen.co.tz/component/content/article/37-tanzania-top-news-story/25726-tanzania-to-review-26-contracts-on-oil-gas.html