Background
Tanzania's press on Sunday, 16 September reported that the country's Minister for Energy and Minerals, Professor Sospeter Muhongo, had ordered a review of all of the 26 production sharing agreements (PSAs) currently entered into by the Government of Tanzania (GoT).
The order was said to have been issued to the new board of the Tanzania Petroleum Development Corporation (TPDC) and would include an audit of costs incurred by exploration companies to date "to ensure that the country gets a fair share of its resources".
The Minister's reported pronouncement came against the backdrop of the development of specific legislation intended to regulate the gas industry in Tanzania (specifically, a Gas Policy; Natural Gas Utilization Master Plan and Natural Gas Act).
Latest Position
Just two days after the above statements were reported, Professor Muhongo told Reuters that he had been "misquoted" by local media and clarified that all existing contracts would be respected. He explained that the proposed review was "procedural" in nature and would be conducted for the purpose of informing the development of the imminent Gas Policy rather than with a view to renegotiating contracts or threatening revocation.
Though the Minister's clarification should allay immediate investor fears regarding the status of their agreements with GoT, general investor confidence cannot have been helped by the reports and international oil and gas companies will be aware that circumstances can change quickly. GoT has in the past successfully renegotiated contracts in the mining sector that were seen to be unfavourable to GoT including agreements with African Barrick Gold and Resolute Mining.
There has already been a limited audit of costs incurred by investing oil and gas companies to date. The GoT has alleged that one company's costs have been inflated and negotiations are ongoing regarding amendments to its PSA.
Contract Renegotiation and Investor Protection
The Gas Policy is expected to bring greater clarity to the sector and reduce contractual uncertainty and taxation risk going forward. Until that point however, there does remain a heightened risk of renegotiation and retrospective tax demands.
In addition to whatever protection can be sought under the PSA, investors need to consider whether they have Biateral Investment Treaty protection and look to the terms of any political risk and other insurance that has been taken out.
Bilateral Investment Treaties are in place between Tanzania and countries including India, Norway and the United Kingdom and Tanzania is also a signatory to the New York Convention on the Recognition and Enforcement of Arbitration Awards. Tanzania is a signatory to the ICSID Convention and recourse to arbitration under the Rules of the Convention for Settlement of Investment Disputes may be available if provided for.
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