Contracts in Oil and Gas in Tanzania

=Introduction= The Law of Contract Act, Cap.345 is the law governing contracts in Tanzania. The Contract (informally called agreement in some jurisdictions   ) is enforceable by law, preceded by offer, acceptance and promise. In common legal systems, a contract has elements such as lawful object, competent parties, offer and acceptance, lawful consideration, and mutual obligation. The Act provides the general principles, legal implications for all forms of contracts entered in Tanzania subject to provisions of any written law, usage or custom of trade not inconsistent with the provisions of the Act.

=Mandated organs for entering into Oil and Gas Contracts= The Tanzania Petroleum Development Corporation (TPDC) is mandated to contract, hold equity or participate in oil and gas concessions, franchising and licensing. It enters into contracts with oil and gas companies on behalf of the Government of Tanzania. The contracts/agreements made in the oil and gas sector constitute agreements as enabled by section 14 of the Petroleum (Exploration and Production) Act of 1980. The agreements are also regulated by section 42 of the Petroleum (Exploration and Production) Act whose provisions regulate the terms of any development licence.

=Model of Contracts/Agreements in Oil and Gas= The model Production Sharing Agreement (PSA) in oil and gas was introduced by the TPDC in Tanzania as a contractual arrangement for petroleum exploration and development. In fact, it is a common governing model in the oil and gas sector in many developing countries.

=Optimal Benefits and Challenges inherent in PSAs= According to the International Monetary Fund's (IMF) Country Report No. 14/121 on the United Republic of Tanzania (URT) published in May 2014, the Tanzanian government could be looking at a peak of USD 5-6bn revenue each year between 2029 and 2044 from oil and gas revenue. The report further notes that when such revenue is obtained and used properly, it could transform Tanzania’s economy. Nevertheless, there are challenges associated with the nature of contracts/agreements entered with international oil and gas companies. As a matter of fact, there is a likelihood that if not properly negotiated Tanzanians’ sky-high expectations from the burgeoning gas and oil sector could end up in vain.

Other challenges include lack of transparency, which is vital for the public to have trust and confidence in the fairness of such agreements. Furthermore, there is momentum building towards the immediate disclosure of the already signed PSAs. The push mainly comes from Parliament, where different committees have come up with several declarations demanding the disclosure and review of all contracts which have been entered by the Tanzanian government on behalf of the common good. A primary concern is that such contracts/agreements are likely to avail minor profits to the government after a long-term waiting period for oil and gas companies to recoup costs.

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