Revealed: New terms for oil, gas investors

Gas Plant, A Mzumbe University economics lecturer, Dr Honest Ngowi, said the new regime implies that the country stands to get substantial revenues from the gas and oil. PHOTO|FILE

Dar es Salaam. Oil and gas royalties will be higher than those on gold. This is aimed at avoiding mistakes that cost Tanzania dearly when awarding gold mining licences.

The government has also introduced new charges for companies seeking to invest in the multibillion shillings sector.

However, the bid to accrue more revenue from the two resources is going to further sideline the participation of local firms in the lucrative business.

Most local companies have already cried foul over the organisation and management of the sector’s investment regime.

Whereas local analysts have positively received the new model production sharing agreement (PSA), their foreign counterparts regard its conditions as tough. According to them, the new charges and rates have been introduced following growing pressure on the government to deliver tangible benefits to the people in the shortest time possible.

Apart from increasing the royalty for deep offshore operations from five to 7.5 per cent, the government has also introduced two bonuses worth $7.5 million (about Sh12 billion) in the 2013 PSA. In the fourth licensing round for eight gas blocks last month, local companies found it expensive to buy bid documents at $750,000 (about Sh1.2 billion).

“Local businesspeople had problems with buying tender documents…What about paying something like Sh4 billion for just winning a bid for a gas block…that would be too expensive for most of them,” noted an expert with one of the companies that have already discovered huge amounts of gas in the country.

Speaking on condition of anonymity, he said the government had guts to introduce the new charges following positive exploration results in the last four years.

He said discoveries made by Statoil and BG Group had elevated the rating of Tanzania and greatly reduced the dimension of risk in the exploration of oil and gas in the country.

One of the bonuses is the signature bonus, which will cost investors $2.5 million and this is a payment made by the winner of any tendered block. Under this arrangement, the government will generate $20 million (about Sh32 billion) when the fourth licensing round is concluded in May next year.

The other is the production bonus that is charged at not less than $5 million and this becomes effective when real operations to produce oil or process gas start. The new model PSA was introduced following the launch of Tanzania’s new licensing round for seven deep sea offshore blocks and the North Lake Tanganyika block on October 25 in Dar es Salaam.

“The two bonuses are new charges introduced by the government in the 2013 PSA as part of its efforts to accrue more revenue from oil and gas,” the spokesman of the Tanzania Petroleum Development Corporation (TPDC), Mr Sebastian Shana, said yesterday.