Wizara ya Nishati na Madini Inakaribisha Wawekezaji Wa Kitanzania Kuwekeza Katika Miundobinu ya Uzalishaji Umeme Katika Vyanzo vifuatavyo
Gesi asilia (Natural Gas)
Statoil (STO+2.2%) says it is seeking clarification on Tanzania’s new petroleum law and wants to determine how it will affect companies like itself already operating in the country.
Tanzania’s parliament passed the petroleum legislation in July, ushering in a royalty regime in which energy companies pay 12.5% for onshore oil and gas production and 7.5% for offshore, and profit-sharing rates will be negotiated with individual companies.
Tanzania has east Africa’s biggest reserves of natural gas after Mozambique, with new discoveries raising hopes it can become an exporter with the development of a processing plant and pipeline; the government estimates reserves at 55T cf.
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In July 2015, we published an energy briefing on the Tanzania Extractive Industries (Transparency and Accountability) Bill 2015 (the TEI Bill) and the Oil and Gas Revenues Management Bill 2015 (the OGRM Bill). Since then, the Bills have been passed by Parliament and assented to by the President. This month’s briefing will briefly highlight what changes have occurred between the Bills and the Acts and summarise the key issues of these Acts of Parliament.
Background
The Tanzania Extractive Industries (Transparency and Accountability) Act 2015 (TEI 2015) and the Oil and Gas Revenues Management Act 2015 (OGRM 2015) have been enacted to further regulate Tanzania’s booming energy sector. The central new law in the energy sector’s legal framework is undoubtedly the Petroleum Act 2015 (PA 2015), an Act which we have analysed at length in a separate briefing which has also been released last month.
Tanzania Extractive Industries (Transparency and Accountability) Act 2015
What are the key changes between the TEI Bill and TEI 2015?
Extension of the application of TEI 2015
Part 2 of the Preliminary Provisions has been amended so that the Act applies not only to Mainland Tanzania, but also to extractive industry companies undertaking joint petroleum operations or petroleum activities in Tanzania Zanzibar, in specific areas or overlapping blocks in accordance with PA 2015. Where the extractive industry activities are undertaken within Tanzania Zanzibar, the activities shall be governed and administered in accordance with the laws of Tanzania Zanzibar.
Clarification of definitions
The definition of “extractive industry company” has been amended to specifically include both private and state owned companies engaged in exploitation of minerals, oil, natural gas and includes any other company engaged in natural resources extraction.
Composition of the Tanzania Extractive Industries (Transparency and Accountability) Committee (the Committee)
Under the TEI Bill the fifteen members, additional to the Chairman of the Committee, were to be made up of individuals who possess knowledge and experience relating to extractive industries. This has been amended in TEI 2015, so that the members of the committee will be made up of those that possess knowledge and experience in the governance of industries in general.
The TEI Bill contained conflicting terms as to whether the majority of Committee members were to be appointed by the Minister responsible for energy and minerals. TEI 2015 clarifies that the Minister shall only appoint five members to the Committee from members of Government (one of whom shall be the Attorney General or his representative). Of the remaining members: five are to be appointed by extractive industry companies and a further five are to be appointed by civil society organisations.
TEI 2015 expressly states that when appointing members to the Committee, specific regard must be given to gender balance.
Functions and powers of the Committee
The Committee shall require extractive industry companies to disclose to the Committee accurate records of the cost of production, capital expenditures at every stage of investment, volumes of production and export data from extractive industry companies in respect of each licence, rather than every financial year as was the case under the TEI Bill.
The Committee’s functions under section 10 have been expanded to include: (a) promoting the effective citizen participation and awareness of resources governance in extractive industry and its contribution to socio-economic development; and (b) making consultations amongst Government civil society and companies for effective management of natural resources.
Obligation to publish information
Along with the obligations to publish information as outlined by the TEI Bill, TEI 2015 also requires that all information on activities undertaken by an extractive industry company which would be required to be reported or submitted to its local or foreign stock markets shall equally be reported or submitted to the Committee.
Key issues
TEI 2015 provides for the founding of the Tanzania Extractive Industries (Transparency and Accountability) Committee, which shall be an independent government body with oversight responsibilities for promoting and enhancing transparency and accountability. The Committee shall be comprised of no more than sixteen members, with the Chairman appointed by the President. The remaining members will be appointed as described above.
The overarching purpose of the Committee is to ensure that the “benefits of the extractive industry are verified, duly accounted for and prudently utilised for the benefit of the citizens of Tanzania”. In order to achieve this, the Committee shall, amongst other things (including those functions new to TEI 2015 outlined above):
Every year the Committee will publish a threshold where every company which exceeds it shall be required to reconcile payments made to the Government against receipts held by the Government and provide a report (a Reconciliation Report) detailing this reconciliation to the Committee. Where a Reconciliation Report identifies a material discrepancy, the Committee shall within fourteen working days submit the report to the Controller and the Auditor General, who shall produce an audit report which shall in turn be provided to the Committee. Having received the report from the Controller and the Auditor General, the Committee shall discuss the matter with the Government before following the recommendations of the Controller and the Auditor General.
All companies working in extractive industries shall also be required to provide the Committee with an annual report detailing their corporate social responsibility programmes and also submit to the Committee their capital expenditures at every stage of investment. Failure to do so will be a criminal offence.
Also as part of the transparency regime, the Committee shall require the publication of the following information:
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Failure to comply with the provisions of TEI 2015 and to fail to provide the Committee with the documents as requested is a criminal offence, with the punishment, upon conviction being either a fine of not less than ten million shillings in the case of an individual, or a fine of not less than one hundred and fifty million shillings in the case of corporate entity.
This is a big point for all companies in the extractive and energy sectors. Will all Production Sharing Agreements and Mineral Development Agreements need to be published for example? How does this sit with the confidentiality provisions in these agreements? We are monitoring the application and enforcement of these provisions.
Amendment of the Mining Act
Finally, TEI 2015 has made numerous amendments to the Mining Act 2010. For a detailed analysis of the amendments made to the Mining Act, please see our specific Mining Act update of November 2015 on the subject.
The Oil and Gas Revenues Management Act 2015
What are the key changes between the OGRM Bill and OGRM 2015?
Extension of the application of OGRM 2015
Under the OGRM Bill, the Act was to apply equally to Mainland Tanzania and Tanzania Zanzibar in relation to management of oil and gas revenues derived from exploration, development and production of oil and gas activities.
As under the OGRM Bill, OGRM 2015 shall apply to Mainland Tanzania and Tanzania Zanzibar respectively. However, OGRM 2015 goes further and states the Act will apply to activities undertaken under joint petroleum operations or petroleum activities in specific areas or overlapping blocks, in accordance with PA 2015. The assumption is that where activities are carried out in these areas, an agreement will be made as to whether the revenues derive from Mainland Tanzania or Tanzania Zanzibar.
Where the extractive industry activities are undertaken within Tanzania Zanzibar, the activities shall be governed and administered in accordance with the laws of Tanzania Zanzibar.
Definitions
“Additional oil and gas entitlements” which in the OGRM Bill referred to the portion of a contractor’s share of oil and gas produced to which the Government was entitled to a share, had been removed from OGRM 2015.
“Government profit share” has been included in OGRM 2015 as the remaining balance of profit gas or profit oil payable to the government after deducting contractor’s profits of oil or gas.
Key issues
OGRM 2015 provides that taxes and levies shall continue to be assessed, collected and accounted for by the Tanzania Revenue Authority (TRA), whereas non-tax oil and gas revenues shall be collected and accounted for by the National Oil Company (TPDC) – this includes surface rentals and block fees. The Petroleum Upstream Regulatory Authority (formed under PA 2015) shall be responsible for auditing the cost recovery on the exploration, development, production and sale of oil and gas to determine government profit share and royalties.
Another significant development is the forming of the Oil and Gas Fund (the Fund), whose objectives shall be to ensure that:
The Fund shall receive its capital from Government royalties, Government profit share, the dividends on Government participation in oil and gas operations, corporate income tax on exploration, production and development of oil and gas resources, and the return on investments of the Fund.
The Fund’s strategy shall be decided by the Minister of Finance, advised by a Board consisting of five individuals appointed by the President. Where the Minister of Finance declines to follow the advice of the Board, the matter shall be determined by the President. Management of the Fund shall be in accordance with the statutory fiscal rules, which are:
Amongst other reasons, these fiscal rules have been based upon the recognition that it is important to protect the Tanzanian economy against the inherent volatility of oil and gas revenue and the presence of uncertainty over the timing and size of that revenue.
Tanzanian Explorers Club
The Tanzanian Explorers Club (TEC) is for people working in, or affiliated with, Tanzania’s energy industry, specifically the mineral exploration sector. TEC provides an informal environment to facilitate networking and information sharing between key participants of the industry.
Government advised to review oil, gas search pacts
Chief Executive Officer of Swala Oil and Gas Company, Dr David Mestres Ridge, advised the government to fast-track oil and gas exploration in the country. “The government should be sensitive to challenges faced by the exploration and production companies.
“Although the oil and gas sector has had a steady growth over the years, the sector had already spent a fortune in the exploration and therefore, needs some consideration especially in the payment of taxes more so for those companies that have not yet made any discoveries,” Dr Ridge explained.
“The oil industry has so far invested over 1 billion US Dollars in exploring for oil and gas in Tanzania and not made anything like that in return.” “It will need to invest another 20 billion US Dollars before it can start producing offshore gas.
That first 1 billion US Dollars has resulted in the discovery of gas resources that could represent a significant return to the country”, said Dr Ridge.
Dr Ridge said that they understand that the nation needs tax but thinks that it is counterproductive to tax operations if by taxing them, they are delayed or made more expensive: the returns from operations will dwarf any revenues that the country may make from the current tax regime and it is that we should be encouraging.
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He said that though he fully supported the government’s desire to encourage more investors into all sectors of the Tanzanian economy, there were already investors entrenched in the country like Swala ‘who should be looked after’ if others were to follow.
Dr Ridge added that as a company listed on the Tanzanian Stock Exchange with Tanzanian DNA, Swala desired to be treated as such over and above other ‘foreign’ companies.
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The CEO also cited little or no corresponding dissemination of information about the role of oil and gas exploration companies to the public as recipe for un-called-for public suspicions that is directed at the investors.
This notion, he said, disregarded the fact that over the years, investors have sank in over USD 1billion in exploration and more than USD 20 billion is needed to complete profitable mining.
Canada and Tanzania have started conducting preliminary exploration of oil and gas in the Rift Valley north of the country.
Swala Energy (ASX:SWE) has repaid an interim loan facility of US$1.1 million to 9.2% cornerstone shareholder Hayaat International that was struck in June 2015.
No interest was payable by Swala under the loan facility. Abu Dhabi-based Hayaat International has been an investor in Swala since November 2013 with an initial A$3.3 million holding.
Swala chief executive officer Dr. David Mestres Ridge said today: “We are once again grateful to Hayaat, a cornerstone investor in Swala, for their ongoing support and in particular having provided interim funding under the Loan Facility.”
The loan was repayable from the proceeds of the farmouts with Tata Petrodyne Limited, a subsidiary of the multinational Tata Sons Limited, which is farming into the Pangani and Kilosa-Kilombero licences in Tanzania.
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Tata Sons is the holding company of the Tata Group and holds the bulk of the shareholdings in the companies within the Group. The Tata Group has a market capitalisation of approximately US$110 billion.
Swala is the first oil and gas company to list a subsidiary on Tanzania’s Dar es Salaam Stock Exchange last year – securing US$5.7 million (A$7.8 million) in development funding earlier this month via the farm-in deal with the conglomerate.
Under the terms of the farm-out agreement with TPL, TPL will carry all of Swala Tanzania’s drilling related costs up to a maximum of US$2.5 million (equivalent to a gross well cost of US$10 million).
Swala firmed up the Kito Prospect within the Kilosa-Kilombero licence as the drill target for the 2016 campaign. Swala Energy has a net participating interest of 29.2% as at 30th September.
Recently, Swala began readiness for an acceleration in onshore oil and gas activity in Tanzania in 2016 by engaging a drilling support contractor ahead of further exploration at the Kilosa-Kilombero and Pangani licences.
The agreement with Tata energy subsidiary Tata Petrodyne covers the Kilosa-Kilombero and Pangani licences in Tanzania, both located on a proven oil trend called the East African Rift System.
While in Uganda, the company has also been preparing for the upcoming licensing round in Uganda, where it is one of 16 companies accepted as pre-qualified by the Ugandan Petroleum Commission. The bids are currently expected to be lodged on the 15th January 2016.
THE Tanzania Petroleum Development Corporation (TPDC) is set to start Airborne Gravity Gradiometry Survey (AGGS) for oil and gas deposits this week in Arusha, Simiyu and Singida, the Corporation’s Managing Director, Dr James Mataragio, said over the weekend.
The second phase for the AGGS petroleum and natural gas analysis using special aircraft is mapped within the Eyasi Wembere and Mandawa blocks under which other regions such as Tabora, Shinyanga and Lindi will also be mapped in the study.
In Arusha, where the aerial survey starts today, the exercise will cover the Lake Eyasi escarpment, the Lake Manyara Basin and Lake Natron (Oldonyo L’engai) landscape. Overall, the task, expected to climax in mid- January 2016, will cost about 14 billion/- with the government footing the bill.
“Since there are noteworthy oil discoveries in the Kenyan and Ugandan parts of the Rift Valley, then it is very possible that there could be some oil or gas reserves in Tanzania’s side as well,” pointed out Dr Mataragio when launching the exploration aircraft at the Kilimanjaro International Airport (KIA) runaway over the weekend.
He said that the “Airborne Gravity Gradiometry (AGG) survey” over the 23,000 line kilometres covering the Eyasi Wembere area would commence today and go on non-stop until January 2016.
“The month-long basic survey is imperative, given the massive oil reserves discovered at similar geological settings in other parts of the East African Region, especially Kenya and Uganda,” the TPDC boss insisted, adding that the survey campaign is being conducted using a low-flying special aircraft, which will be cruising between the altitude 80 and 100m above the ground at a speed of 220 kilometres per hour.
The Head of GGS team, Mr Brett Robinson flying the Canadian aircraft, C-GGSU plane, said there will be a six-man crew undertaking the project, among them officers from the TPDC and the Tanzania People’s Defence Forces (TPDF).
Previously, the TPDC had deployed a similar non-invasive Airborne Gravity Gradiometry Survey (AGGS) over Lake Tanganyika’s North Block, encompassing Kigoma Rural, Kigoma Ujiji, Uvinza and Mpanda Rural where it is believed there are abundant oil resources.
dinburgh-based oil and gas explorer Bowleven is set to acquire stakes in two Tanzania gas projects for up to $28 million (£18.3m).
The Africa-focused group said the proposed deal was in line with its strategy of concentrating on opportunities in Africa that “have the potential to create material shareholder value, whilst maintaining a robust balance sheet and strong capital discipline”.
It has signed a conditional heads of terms with Aminex to buy a 25 per cent interest in the Kiliwani North Development Licence, which is soon to begin production, along with a 50 per cent interest in the “highly prospective” Ruvuma petroleum sharing agreement.
Bowleven chief executive Kevin Hart said: “The decision to enter into this heads of terms with Aminex follows the extensive screening of a large number of opportunities in Africa.
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“Consistent with the group’s strategy, the deal affords Bowleven the opportunity to participate in highly attractive production and material appraisal/exploration assets without compromising its robust balance sheet and strong capital discipline.”
As at 31 October, the Aim-quoted group had a cash balance of about $120m and no debt
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Solo Oil has agreed to farmout a 12.5% net working interest in the Ruvuma Petroleum Sharing Agreement in Tanzania to Aminex. In what is a back-to back agreement, Bowleven will join the Ruvuma PSA joint venture with a 50% net working interest.
Solo will receive from Aminex a total consideration, in the form of a carried work program contribution and production bonus payments, of USD3.625m.
Note :PSA stands for Production sharing Agreement
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Africa-focused independent explorer Tullow Oil reported Tuesday that the Emesek-1 exploration well in the North Lokichar basin, northern Kenya, has failed to find commercial hydrocarbons. The Emesek-1 well, located on Block 13T, was drilled to a depth of 9,840 feet by the PR Marriott 46 rig.
The well will now be plugged and abandoned. Following the completion of operations the rig will move to the South Lokichar basin to drill the Etom-2 well, which is expected to spud in late November.
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Tullow Exploration Director Angus McCoss commented in a company statement: “The Emesek-1 well was the first well to be drilled in the North Lokichar basin. While this wildcat well did not find commercial hydrocarbons, it provides valuable data as we assess the wider prospectivity of this basin.” Tullow operates Block 13T with a 50-percent equity stake.
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