Oil And Gas Investment Contracts In Tanzania: Critical Review

Following vast discoveries of oil and gas in 2000’s,the government of Tanzania reformed laws and institutions to keep pace with the discoveries.Despite the reforms,instability in investment is depicted,and government reported to receive less share of revenue in oil and gas investment.Instability and less revenue capture are due to among others poor negotiated,drafted and managed oil and gas investment contracts.Despite the depicted challenges,none of the study focused on Tanzania.Against this backdrop,this study analyses oil and gas investment contracts in Tanzania with aim to identify existing gaps and its effect in investment undertakings.The study relies upon contract and investment laws in order to put the analysis into context.Relevant contractual issues such as,how government experience negotiations,drafting and management of oil and gas are analyzed.The study goes further by analyzing concept of ownership and disposal or transfer of property to bring up the challenges of instability and less revenue capture in investment contract in Tanzania.In context of investment,the study brings up the analysis of relevant investment laws in order to ascertain the gap.Legislative provisions related to oil and gas investment provides relevant insights on issues that act as impediment to stability and more revenue capture.The study explores challenges for productive negotiation and roles of government in the oil and gas investment in general.The study further analyzes practical aspect of some institutions that play significant role in implementation of investment contracts.The analysis is based on existing legislations,books,articles,online sources and periodical indexes and model production sharing contract for review of oil and gas investment contracts.The study applies constitution trusteeship theory and Austin ownership theory.The Constitution trusteeship theory brings up the concept of government being a trustee in natural resources on behalf of public,that is,public are the owner of natural resources.Austin theory brings up connection to qualifications of public as owner has a right to dispose property(ie.,sale,lease or transfer).The study shows that,negotiation is primary factor in contract formation;therefore need to be taken with great care to bring productive investment contract.The study identifies challenges of productive investment in oil and gas industry including lack of experience negotiators capable to sit with counterpart investors in negotiation deals,lack of public participation during the formation of investment contract,taking into consideration public are owner of the natural resources need to get involved into contractual deals.The study further revealed that,if the government equipped with number of roles(such as trustee in natural resources,managing natural resources,policy maker an participant in oil and gas activities direct or indirect)may create conflict of interest and abuse of power,as there will be no check and balance of government’ action.Within the same line the study provides example where government may find itself in conflict of interest and abuse of power.The result further reveled that,multiple roles which government plays contributes negatively to stability of contracts.Furthermore,the study shows how legal and political dealings threaten oil and gas investment contract in Tanzania.Exploring the facts on how the legal and political can influence investment contract,the study bring up number of issues as case study among others,regular review of laws,unilateral reviews of production sharing contract and change of president that entails change of investment policies.The study reveals that,despite implementation of oil,gas institutional reforms,the institutions lack inter coordinated mechanism to make the oil,and gas sector smoothly function and reduce administrative costs.Finally,the study provides hints,which will be used as guidelines for foreign investors,wish to invest in oil and gas activities in Tanzania.The guidelines aim to bring general picture to foreign investors on some issues,which need to be taken into consideration before and after making contractual deal with the government.In order to minimize the depicted stability and less revenue capture,and creates conducive environment for investment in area of oil and gas in Tanzania,number of recommendations have been provided.The recommendations include legal,contractual and administrative interventions.Legal intervention not limited to amendments or inclusion of some provisions in oil and gas investment laws.Contractual intervention not limited to review of the provision and inclusion of political risks guarantee,guarantee of security of tenure,negotiation guidelines,and clarifications of some contractual provisions such as Article 9(ix)(h)of Model Production Sharing Agreement 2013.Administrative intervention not limited to capacity building to local staffs to be capable to give good deal to the government in negotiations.The study also recommend on involvement of public at initial making of contract in order to reduce complaints against government,creating conducive investment condition and stability in investment.The government should establish one stop center or inter electronic coordinated mechanism to cater for proper management of oil and gas sector.The roles of government in investment dealings should be restructured to minimize the effect of conflict of interest and cater for proper administration of oil and gas sector.The study suggests that,legal,contractual and administrative interventions can minimize the effect of instability and less revenue capture in investment Tanzania.