Model Production Sharing Agreement

=Background= Tanzania has been involved in the extractive industry explorations, development and production of natural resources for years. The Petroleum (Exploration and Production) Act of 1980 vests ownership of petroleum resources and control of these resources in the Tanzanian government and the  Tanzania Petroleum Development Corporation (TPDC). The Act permits the TPDC, on behalf of the Tanzanian government, to enter into a Production Sharing Agreement (PSA) with an exploration and production company. =Model PSA 2013= Previous explorations were carried out either through concessions or service agreements with the government. Tanzania’s PSA serves as the basic document for negotiations between foreign oil companies, the government and TPDC. It details terms under which exploration and production can take place. Each PSA can cover more than one exploration licence. Meanwhile exploration is meant to take place up to 11 years during which the licensed company may freely assign its rights and obligations to an affiliate. The current MPSA of 2013 has been amended from the MPSA of 2004 and MPSA of 2008. The government of Tanzania and the TPDC has to-date concluded around 25 PSAs with 18 companies seeking to carry out exploration both offshore and onshore.

Highlights of MPSA (2013)
Under a Production Sharing Agreement, a provision is made for the Exploration and Production Company to recover its costs and then share ‘profit oil’ and ‘profit gas’ with TPDC, but the MPSA of 2013 seeks to secure greater short and long-term fiscal benefits for the state. The Model PSA of 2013 retained much of the provisions contained in the MPSA of 2008, such as minimum state participation of 25 percent, additional profits tax, and government royalty. It offers incentives for deep water exploration whilst increasing revenue from oil and gas activities by tightening the fiscal terms present in the MPSA of 2008. In fact, the MPSA of 2013 strengthens the influence of TPDC in oil and gas activities. The MPSA of 2013 enhances the obligations in respect to training and development of local staff, including increasing the annual training expenditure requirement from $150,000 under the MPSA of 2008 to a minimum of $500,000. The MPSA of 2013 stipulates that the Contractor will be subject to taxes on income in accordance with the Law. The new levy applies to capital gains on a transfer of interest. The agreement also sets a royalty rate of 12.5 percent of the total oil or gas production for onshore or shallow operations and a 7.5 percent royalty rate for offshore production. It is allocated out of production before the application of the production sharing formula. The MPSA of 2013 leaves open how much oil or gas would be diverted to domestic use, and there has been a debate on how much of the nation’s hydrocarbon reserves should be used locally and how much can be exported.

Statoil 2012 Addendum of its 2007 PSA
There has been continued secrecy around PSAs signed between Exploration and Production Companies and the government through TPDC. As a result, there have been calls from the public, Members of Parliament, civil societies, the mass media, etc., to disclose oil and gas contracts between TPDC and foreign investors. Recent debates have raised fears that the government either lacks the capacity or will to negotiate deals with investors that protect the interests of the Tanzanian public. PSA between TPDC and Statoil revealed contract terms that are significantly less favourable to the government than had been expected in comparison to the MPSA of 2013 and an IMF analysis. Potentially at stake is lots of potential revenue that can boost development in Tanzania. Efforts to disclose petroleum contracts systematically are needed for companies to commit to transparency, manage expectations and guard against uncalled for assumptions.

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