Tanzania in a new initiative to attract oil, gas investors

Summary

  • During the nine years of the current MPSAs, Tanzania has not sold any block even as the government put eight blocks in the deep sea and Lake Tanganyika up for auction.

Dar es Salaam. The government of Tanzania is readying to amend the Model Production Sharing Agreements (MPSAs) of 2013 to loosen conditions in the oil and gas sector after Tanzania failed to sell any exploration block during the past nine years.

The changes will take into consideration the global trends in trade, fuel prices over the past decade and estimates for the next decade, the institutional changes in Tanzania and current legal system, including the Petroleum Act of 2015, which is said to be unfavourable to investors.

MPSAs give a clear picture of what the terms and conditions offered by a particular government, especially how the oil and gas investor will share revenue with the government.

They play a key role in either convincing the investors to enter into Production Sharing Agreements (PSAs) for exploring and developing the gas blocks, or disappointing the prospective investors.

During the nine years of the current MPSAs, Tanzania has not sold any block even as the government put eight blocks in the deep sea and Lake Tanganyika up for auction.

The director general of the Petroleum Upstream Regulatory Authority (PURA), Mr Charles Sangweni, said the government was conducting reviews under a consultant who was expected to start work this June, and complete the work in February 2023, before announcing the intention to auction more than 20 blocks.

“We are reviewing the MPSAs of 2013 because they had stringent conditions for investors,” said Mr Sangweni.

“The consultant has been found, although contract is not yet signed. We hope the consultant will start working towards the end of this June and he will do that within six months,” he said.

According to the Tanzania Petroleum Development Corporation (TPDC), oil and gas exploration activities in the country began in 1952 when the British Petroleum (BP) and the Royal Dutch Shell launched an oil exploration in all the coastal areas.

From that period to date, a total of 96 wells have been drilled, while 44 of them were discovered to have gas and 52 wells had no gas.

According to PURA, MPSAs are amended in accordance with changes in the sector. In 1989 the government saw the first use of MPSA, followed by others in 1995, 2004, 2008 and the 2013 MPSA which will be amended in 2023.

Tanzania has discovered natural gas reserve estimated at 57.54 trillion cubic feet, with the government feeling pride to save more than Sh16 trillion in foreign exchange through the use of natural gas to produce electricity and in factories between 2004 and 2020.

Amendment areas

According to PURA, the amendments will focus on areas such as the responsibility between the two parties in the contract; the rate of cost recovery; dispute resolution; the participation of locals; and the exploration period.

As Mr Sangweni explains the force behind the change of MPSAs to be the global business trends in the oil and gas sector, the regional director for the Natural Resources Governance Institute (NRGI), Mr Silas Olang, said debates on encountering carbon dioxide in the world are among the main factors.

“Currently, investors want more incentives. It is possible that in the years 2030-2050 the demand for oil and gas will decrease significantly in the world and move to renewable energy in order to encounter carbon dioxide. So, the investor will need the protection of his capital from the government if prices will go down,” he said.

“So, there is a need for reforming MPSAs so that we should not find ourselves giving away that resource for free. It is also time for the government to analyse the business environment so that it can be used more useful in the future,” he added.

Gas and oil industry stakeholder Lucy Shao advised the government to be open to its citizens about the areas it intends to reform in order to avoid conflicts.

“If they admit that there were some mistakes, what should the people do now? If the government involves the public, it will increase trust in them,” said Shao.

Roselian Jackson, a private consultant for international investment and trade laws supports the transparency argument, suggesting that the government should strengthen the legal frameworks that will be strong for every investor.

“MPSAs facilitate agreements with the investor, attracts even bribes due to its secrecy. What is needed is transparency and strengthening the laws like Botswana, where they benefit from their resources,” he said.