Tanzania: Tanzania Petroleum Act 2015

Last Updated: 9 November 2015
Article by Peter Kasanda and Kumara Mallikaaratchi

Highlighted in this month's energy briefing is the new Petroleum Act 2015 (PA 2015) related to upstream, midstream and downstream petroleum activities.

This briefing does not include a detailed analysis of the fiscal provisions of PA 2015. Our tax team will provide a further briefing on tax aspects in due course.

BACKGROUND

The energy sector in Tanzania has historically had two key items of legislation, namely:

  1. The Petroleum Exploration and Production Act 1980 (PEPA)
  2. The Petroleum Act 2008 (PA 2008)

PEPA dealt with upstream petroleum matters, specifically as they relate to 'petroleum' including oil and gas. PA 2008 dealt with downstream petroleum matters.

The Government of Tanzania (GoT) has long intended to update both items of legislation. There was also recognition of a lack of legislation regulating anticipated midstream activities.

The market has been eagerly anticipating the publication of a 'Gas Act' which would regulate midstream activities. Rather than publish a stand-alone Gas Act, GoT has opted to amalgamate updates to PEPA, PA 2008 and the introduction of a Gas Act into one item of new legislation contained in PA 2015.

We include at the schedule to this briefing a table of key changes between PEPA and PA 2015 and PA 2008 and PA 2015.

Update

We prepared an energy briefing in July 2015 focused on The Petroleum Act 2015 Bill Supplement (the Bill) which was placed on the Parliament of Tanzania website on 19th June 2015. That energy briefing was prepared at a time when the Bill was still being debated by Parliament and our comments were subject to further revision of the Bill.

PA 2015 has now been assented to by the President of Tanzania, although the commencement date has to yet be determined. There have been several important changes to the legislation between the Bill and PA 2015. The aim of this briefing is to highlight the important changes made and to provide an overview of the legislation as it now stands.

What are the key changes between the Bill and PA 2015?

Clarification on administration of petroleum activities in Tanzania Mainland and Tanzania Zanzibar

Part I of the Preliminary Provisions of PA 2015 has been amended to provide certain important clarifications related to the administration of petroleum activities in Tanzania Mainland and Tanzania Zanzibar including:

  1. Where upstream, midstream and downstream operations are undertaken in Tanzania Mainland, then such operations shall be governed by the institutions established under PA 2015
  2. Where upstream, midstream and downstream operations are undertaken in Tanzania Zanzibar, then such operations shall be governed by the institutions in accordance with the laws of Tanzania Zanzibar
  3. The Governments of The United Republic and the Revolutionary Government of Zanzibar may enter into arrangements to undertake joint petroleum operations in specific areas or overlapping blocks
  4. Revenues derived from petroleum activities undertaken in Tanzania Mainland shall be for the account and use of the Government of The United Republic of Tanzania
  5. Revenues derived from petroleum activities undertaken in Tanzania Zanzibar shall be for the account and use of the Government of Revolutionary Zanzibar
  6. The Governments of The United Republic and the Revolutionary Government of Zanzibar shall have discretion to enter into arrangements regarding the financial administration of resources which are different to those mentioned above

The definition of 'Minister' has also been clarified to mean the Minister for petroleum affairs in Mainland Tanzania and now also the Minister for petroleum affairs in Tanzania Zanzibar. An equivalent change to the definition of 'Government' now includes the Governments for both regions.

A clear distinction is therefore being made between the administration of activities in the two regions. It should be noted that responsibility for petroleum affairs is still a 'Union' matter under the current constitution, meaning that the Government of the United Republic has the responsibility for such matters in both regions. It should also be noted however, that the proposed new constitution envisages that Tanzania Zanzibar will achieve autonomy for petroleum affairs in that region should the proposed new constitution pass in a forthcoming referendum.

Given that the new proposed constitution is not yet in place, a question arises as to the manner in which the above provisions have been put in place. Do they cut across an existing constitutional framework?

Role of the Minister in signing agreements

Section 5(c) of PA 2015 has been clarified to confirm that the Minister shall 'enter into petroleum agreements on behalf of the Government'. This right to enter into agreements was already present at section 48 of the Bill but having taken advice from the Petroleum Upstream Regulatory Authority (PURA) and on the authorisation of the Cabinet. The distinction between section 14 of PEPA and section 47 of PA 2015 is still relevant. See additional comments below.

Participating interest of the NOC on projects

Under section 8 of the Bill, the Tanzania Petroleum Development Corporation (TPDC) was mandated as the official National Oil Company (NOC).

Furthermore, the NOC was required to maintain a participating interest of no less than 25% on projects. PA 2015 has revised the drafting stating that the NOC shall indeed maintain a 25% participating interest 'unless the National Oil Company decides otherwise'.

The change may stem from private sector participants concern that legislation is interfering with the commercial dynamics of projects from the outset by setting this threshold. It is yet to be seen what comfort providing discretion to the NOC in respect of the 25% will provide.

Changes to term and application period for development licences

Under the Bill, a holder of an exploration licence in respect of blocks which constitute a location was able, within three (3) years for crude oil and two (2) years for natural gas, to apply for a development licence. This timing has now switched around so that the two (2) year limit applies to crude oil whereas the three (3) year limit applies to natural gas.

Furthermore, and of significance, the initial term of a development licence under the Bill was for a period of twenty (20) years followed by a renewal of fifteen (15) years. This meant that the renewal term had been shortened by five (5) years from the twenty (20) year period under PEPA. The longer PEPA timeframes have now been reinstated.

Fiscal terms

As mentioned above, this update does not include a detailed appraisal of the fiscal terms. Our tax team will provide a comprehensive update in due course. It is nevertheless worth briefly noting some important changes between the Bill and PA 2015.

A new section 117(3) of PA 2015 makes it clear that where the licence holder and the contractor undertake an integrated project, all costs incurred by the parties for the construction and operation of the midstream facilities including processing, liquefaction, storage and loading facilities shall not form part of recoverable costs under the relevant production sharing agreements. This closes the door on any potential argument that the build for such facilities may be an accrued and recoverable cost under the upstream regime.

Furthermore, a new section 117(4) confirms that the prudent cost and fair return on investment under sub-section (3) shall be determined by PURA and recovered through 'mechanisms to be stipulated in regulations made by the Minister'.

Rights of the aggregator

Under the Bill, the NOC had a role as aggregator with exclusive rights to purchase, collect and sell natural gas from producers. From the perspective of International Oil Companies (IoCs) this is clearly not an ideal position as it appeared that the NOC might need to be factored into their corporate structure in terms of exported LNG. The position has now been updated in PA 2015 which reiterates the NOCs role but makes clear that the 'exclusive right of the aggregator shall not extend to natural gas that is preserved for export purposes in the form of Liquefied Natural Gas'.

Extended licensing role for PURA

Under the Bill, the Energy and Water Utilities Regulatory Authority (EWURA) was the institution to which contractors submitted documents in advance of licencing for liquefaction, shipping and re-gasification of LNG. This position has been changed to PURA making such assessments rather than EWURA.

NEW INSTITUTIONS

Oil and gas bureau

Section 7 of PA 2015 establishes an Oil and Gas Bureau within the Office of the President in order to advise the Cabinet on strategic matters relating to the oil and gas economy. The market is likely to be encouraged by this move in the hope that specialists in the field of oil and gas will be able to guide GoT institutions on the commercial aspects of their interaction with the private sector.

National oil company

PEPA was occasionally silent on the role of TPDC who in practice were involved in fairly extensive activities. For example, TPDC would essentially hold a licence on behalf of IoCs and had an integral role at all levels and interface with GoT.

PA 2015 is more explicit about the role of TPDC and sets out several functions at section 9 of PA 2015. Of note, the NOC will participate in petroleum reconnaissance and the development of projects. This is a more involved role than previously undertaken and impacts from project inception onwards. Furthermore, the NOC will 'aggregate natural gas, own and operate major gas infrastructure on its own or through its subsidiaries'.

Section 8(3) of PA 2015 states that the NOC may form a number of subsidiaries to carry out specific petroleum operations or related activities. We are therefore likely to see several NOC project companies on specific projects.

In summary, the NOC is designed to deal with GoT commercial participation on projects.

Petroleum upstream regulatory authority

Section 11 of PA 2015 establishes a Petroleum Upstream Regulatory Authority. PURA will be a body corporate with its own legal personality. It has several functions, however of note, it will advise the Minister of Energy and Minerals (the Minister) on negotiations of production sharing agreements (PSA) and other contracts with IoCs. PURA will also be responsible for implementing local content in the petroleum sector. PURA will be responsible for processing, granting, renewing, suspending and cancelling exploration, development and production licences. In the nature of a regulator, PURA will also be responsible for facilitating resolution of complaints and disputes.

PURA will have a Board consisting of five (5) Tanzanian citizens from relevant fields. Two key members of the Board are appointed by the President on the recommendation of the Minister, the Chairman and the Director General, the latter shall also be the Secretary to the Board. The Director General has a term of office of five (5) years which may be renewed for a further five (5) years.

The other members of the Board are appointed by the Minister on the recommendation of a Nominations Committee, which will consist of representatives of various ministries (see section 27).

It should be noted that PURA only regulates activities in Mainland Tanzania.

New role for EWURA

EWURA shall be the regulator of midstream and downstream activities. EWURA has a wide ranging role. Notable functions include the issue, renewal, suspension and cancellation of construction approvals and operational licences, the collection of fees and levies for the petroleum sector in accordance with the EWURA Act. Finally, EWURA will approve applications for tariffs and prices.

Further functions of interest are the emphasis on local content. EWURA will promote the use of local goods and services produced and provided in Tanzania. It will also promote the 'maximum participation of Tanzanians in every part of the petroleum value chain'. Local content will clearly be an important issue in the coming years. A local content policy was issued some months ago which was to be followed by a Local Content Act of Parliament. We are yet to see a draft of this legislation and examine how it will interact with the provisions of PA 2015.

To read this article in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions