Legal framework of the energy industry in Tanzania
Angela Mndolwa, Lotus Menezes and Peter Gray
Ako Law
Dar es Salaam
Angela Mndolwa (Bio)
Lotus Menezes (Bio)
Peter Gray (Bio)
The recent gas finds in Tanzania are said (by the Permanent Secretary of the Ministry of Energy and Minerals (MEM) in January 2011) to have raised the country's natural gas reserves to 7.5 trillion cubic feet, supposedly enough to supply east and central Africa's current requirements. The Tanzanian legislative landscape is currently composed of the Petroleum (Exploration and Production) Act 1980, which governs the exploitation of natural gas, and the Energy Water Utilities Regulatory Authority Act 2003 (the EWURA Act), both of which are 'umbrella' legislations prescribing for regulatory duties and functions for the upstream and downstream industry, respectively).
This article will explore the implications and application of these two important pieces of legislation from the viewpoint of an investor, and will also review draft legislation, in the form of the not yet enacted Gas Supply Bill 2009 (the Gas Bill), which is designed to modernise the legislative framework and bring clarity and transparency to the gas sector. It is hoped that this legislative reform will encourage investment and stimulate economic growth in the sector; however, its success in this respect will depend upon its implementation and administration by the relevant Tanzanian governmental bodies.
The Petroleum Act
The Petroleum (Exploration and Production) Act (the Petroleum Act) was designed to create a favourable legal environment for exploration by oil and gas companies. This legislation vests title to all petroleum and natural gas deposits within Tanzania and its territorial waters in the Government of Tanzania. It also allows the grant of exploration, development, and production licences in relation to petroleum and natural gas, and importantly, it expressly permits the holder of a development licence to sell natural gas.
Governmental authorities
There are two authorities involved in the upstream and downstream gas industry; namely the Tanzania Petroleum Development Corporation (TPDC) and the Energy and Water Utilities Regulatory Authority (EWURA). These two bodies (and others) are coordinated by MEM.
The TPDC is the governmental body responsible for exploration, promotion and development of oil and gas resources in Tanzania. It is the entity through which MEM implements its petroleum exploration and development policies, and it is responsible for supervising the development of petroleum exploration and production activities in Tanzania on behalf of the Government. The role of the TPDC is, among other things, to explore for and produce petroleum, and to hold exploration and production rights. The TPDC is also the governmental agency through which the Tanzanian government participates in production sharing agreements and joint ventures.
The other main governmental authority is EWURA, which regulates the downstream industry, including power generation, transmission and distribution and issuing licences. Future projects are developed in consultation with EWURA which, together with MEM, will liaise with other governmental entities. In the exercise of its functions, the EWURA is required to consult the MEM Minister, who has wide powers which includes the power to develop and review government policies in the electricity supply industry, and to take all measures necessary to reorganise and restructure the electricity supply industry. EWURA also deals with the Ministry of Water and the Dar Water and Sewage Company (DAWASCO), a public corporation as regards its water responsibilities, but that is outside the scope of this article.
MEM also coordinates the roles of the Tanzania Electricity Supply Company (Tanesco) and Tanzania Petroleum Development Corporation (TPDC) on any power generation transaction; as well as requiring any such project is beneficial for Tanzania as a whole. It is therefore crucial that the MEM is consulted and kept informed throughout the life of a project. In turn, the Ministry of Finance will participate in the evaluation and negotiation of the project terms.
Although currently there is only one independent gas supplier, the EWURA is mandated to foster competition. To this end, the EWURA will not restrict the right to purchase gas from the TPDC or any other third party. However the ability of an investor to purchase gas from the TPDC is subject to any purchasing restrictions contained in the particular gas sales agreement.
Gas sales agreements
TPDC is always the initial applicant for all exploration and development licences. Following licences issue TPDC can either explore and develop the field itself, and then sell on the gas or, more likely, enter into a production sharing agreement with a third party. Production sharing agreements require a licence to be granted by the TPDC for the exploration and development of the field. Should commercial quantities of natural gas be found then it can either be divided (and then sold to the investor) or sold, pursuant to the terms of the production sharing agreement.
The TPDC can retain the rights to the gas, or transfer them to a third party. In both cases a gas sales agreement is required to regulate the purchase, and it will specify the terms on which the gas is bought by the investor. The title to the gas passes to the investor at the delivery point. This may either be at the point of entry into the pipeline, if the investor constructs and owns the pipeline to transport the gas from the well-head to the power plant; or if the pipeline is owned by a third party, at the burner-tip (being the end point of the pipeline at which delivery of the gas occurs).
Future legislation
The Gas Bill is awaiting parliamentary approval and Presidential assent. Once passed, the Gas Bill will provide for the regulation of transportation, liquefaction, re-gasification, storage, distribution, supply, import, export and trade in natural gas.
The Gas Bill is intended comprehensively to redefine the regulation of the Tanzanian natural gas sector. It specifically states that the EWURA will, in consultation with the Tanzania Bureau of Standards, the Occupational Safety and Health Authority and the National Environmental Management Council, develop and carry out a programme of gradual adoption and adaptation of prevailing international standards of the petroleum industry. This suggests that there will be new sector-specific regulations made, which may create new requirements in the fields of public health, safety and the environment.
Summary
The current Tanzanian legal framework presents no legal restrictions on the terms of gas sales agreements, other than the tariffs imposed by the EWURA. However, this may change once the Gas Bill has passed into law, depending upon the powers which the EWURA is granted, and any regulations which are subsequently adopted.