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Tanzania may renegotiate gas contracts it deems unfavorable

February 07, 2019/ 10:09

Dodoma. Tanzania said it might renegotiate natural gas contracts if its review finds terms agreed as far back as two decades unfavorable to the East African nation.

The assessment of 11 agreements started two months ago and is the latest in a series of measures by President John Magufuli’s government to secure more revenue from the country’s resources. Tanzania has 58 trillion cubic feet of natural gas reserves, some of which is being developed by companies including Royal Dutch Shell Plc and Equinor ASA.

In 2017, Magufuli assented to legislation, including the Natural Wealth and Resources Contracts law, that allows the government to renegotiate or remove terms from agreements deemed by it to be “unconscionable.”

“Should we find they have questionable terms then we will ask the investors to renegotiate them,” Energy Permanent Secretary Hamisi Mwinyimvua said in an interview on Monday.

Equinor, which has invested more than $2 billion developing Block 2, said its Production Sharing Agreement with the government is still valid, according to spokesman Erik Haaland. It operates and holds the majority of the working interest in the block. Shell and Ophir Energy Plc have interests in Blocks 1 and 4.

The contracts review comes even as companies including Equinor continue separate government talks to build a $30 billion liquefied natural gas plant in Lindi, about 450 kilometers (280 miles) south of the commercial capital, Dar es Salaam.

Haaland said Equinor agreed with Tanzania to start negotiating a so-called host government agreement for the project that’s been under planning since 2014, told Bloomberg.

“An LNG development is a large project that requires large upfront investments,” he said. “To ensure that all parties benefit from such a project, stable and predictable framework conditions for the more than 30-year lifetime of the plant is essential. We trust that the government of Tanzania has a long-term view on this major industrial investment.”

The new laws include the Permanent Sovereignty Act that requires parliamentary approval for future agreements, which must “fully secure” the interests of Tanzanians. It also restricts exports of raw minerals, repatriation of funds and access to an international dispute resolution mechanism.

Changes in the Mining Act established a commission to regulate the industry, overhauled the requirements for the storage, transportation and processing of raw minerals. It also increased royalty rates and government shareholding in mineral right.

In July 2017, the government handed Acacia Mining Plc a $190 billion tax bill, saying the gold producer had falsely declared bullion exports since 2000, a claim the producer denied. The state later settled for a $300 million tentative payment after a meeting between Magufuli and the president of parent Barrick Gold Corp.

The resurgent resource nationalism in Tanzania mirrors that of Latin America in the 2000s and is part of a broader shift in the ruling Chama cha Mapinduzi party toward a bigger role for the state in the country’s economic development, according to political commentator Thabit Jacob.

“It reflects impatience, spurred by increasing electoral competition starting around 2010, with the development model driven by foreign direct investment,” Jacob said.

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