Tanzania Oil and Gas Revenue Management Act of 2015

The Act, which was signed into law on 4th August 2015, applies to both Tanzania Mainland and Zanzibar as far as the management of oil and gas revenues derived from exploration, development and production of oil and gas activities are concerned.

=What constitute oil and gas revenues?= According to the Act, “oil and gas revenues” include “royalty in cash payable by a licensed producer or its subsidiaries or a company under a Production Sharing Agreement; government profit share; taxes payable by licensed upstream, midstream and downstream operators; government participating interest; additional oil and gas entitlements and additional profit tax; dividends from the National Oil Company for Government’s equity interest; returns on investment income derived from the Fund; signature bonus, training fees and surface rentals paid by licensed producers; or any other revenue determined by the Minister to constitute gas revenue, derived from upstream, midstream and downstream operations.”

=Oil and Gas Fund= The Act establishes the Oil and Gas Fund. The Act notes that the Fund shall consist of two types of accounts, namely the Revenue Holding Account and the Revenue Saving Account. The Fund’s objectives are fourfold:


 * To ensure that fiscal and macroeconomic stability is maintained


 * To ensure that the financing of investment in oil and gas is guaranteed


 * To ensure that socio-economic development is enhanced, and


 * To ensure that inter-generational resource is safeguarded.

The Oil and Gas Fund shall derive its sources of revenues from royalties; government profit share; dividends on government participation in oil and gas operations, corporate income tax on exploration, production and development of oil and gas resources, and revenues accrued from investment of the Fund. To ensure proper use of the Fund’s money, the Act imposes restriction on the use of Fund’s revenues, stipulating as it does that the money deposited in the Fund shall not be used for:


 * Providing credit to the Government, public enterprises, private sector entities or any other person or entity;


 * As collateral or guarantees, commitments or other liabilities of any other entity; and


 * Rent seeking or be the subject of corrupt practices, embezzlement or theft.

=Management of the Oil and Gas Fund= In relation to the management of the Oil and Gas Fund, the Act stipulates that the Bank of Tanzania (BoT) shall open accounts of the Fund, act as an agent of the Tanzania Government in carrying out on daily basis investment strategies and operational guideline, set and implement benchmarks and risk limits for the investment strategies as well as report the Fund’s performance to the Minister.

=Collection and Auditing of Oil and Gas Revenues= Section 6 of the Act empowers the Tanzania Revenue Authority (TRA) and the National Oil Company, TPDC, to collect the oil and gas revenues due to the Tanzania Government. The Act stipulates that TRA will be responsible for collecting oil and gas revenues derived from the “taxes and levies” whereas the TPDC, as the National Oil Company, will be collecting the “non-tax oil and gas revenues.” To enhance the development of the oil and gas sub-sector, the TPDC shall retain “surface rentals or annual block fees, signature bonuses and training fees.”

=Portfolio Investment Advisory Board= A special board “Portfolio Investment Advisory Board” established under this Act is charged with the responsibility of to “advis[ing] the Minister on portfolio investment strategy of the Revenue Saving Account of the Fund and to report periodically to the Minister responsible for finance on the Governance and overall performance of the Revenue Saving Account of the Fund.” The Board shall be constituted by five persons endowed with knowledge, skills and experiences in financial investment, portfolio management or investment law, and shall be appointed by the President. The Bank of Tanzania shall serve as the Secretariat of the Board.

=Fiscal rules= The Act stipulates the fiscal operations whereby all “designated revenue” are deposited into Revenue Holding Account. It notes that in any financial year, at most an amount equal to 3% of the Gross Domestic Product (GDP) is transferred to the Consolidated Fund for budgetary use, and at least 60% of such transfer is dedicated to funding strategic development expenditure including human capital development, particularly in the area of science and technology.” It further states that “any amount of money in Revenue Holding Account which is in excess of 3% of the GDP is automatically transferred to the Revenue Saving Account.” The Act recognises that there are some situations when revenues fall, and when that happens and especially when the designated oil and gas revenue falls short of 3% of the GDP in any fiscal year, “money sufficient to offset the shortfall in the budget should be drawn from the Revenue Saving Account and deposited [in]to the Consolidated Fund, and in the event Revenue Saving Account has no sufficient money to offset the shortfall, [the Tanzania] Government may borrow to offset the shortfall.”

=Revenues to Local Government Authorities (LGAs)= Apart from the revenues accrued to the central government, the Act stipulates that in areas where oil and gas activities are undertaken, the Local Government Authorities (LGAs) shall also receive revenue from service levy of the oil and gas with approval from the National Assembly. Regarding the fiscal rules on expenditure and saving, the Act notes that the rules will be established by the Minister for Finance in consultation with Minister for Local Government.

=Transparency and accountability of revenues= Transparency and accountability is central to the management of oil and gas revenue. In this regard, Section 18 of the Act states that both collection and disbursement of the revenues from the Fund shall be made in a transparent and accountable manner. The Act makes it mandatory for the records of oil and gas revenues and expenditure to be published by the Minister of Finance in the Gazette, adding that the “information required to be made public shall also be published online on the website of the Government and Ministry of Finance.” To ensure proper oversight of the oil and gas revenues and expenditure, the Parliament shall oversee the records of the same. The Bank of Tanzania (BoT) shall “report on the operational performance of the Fund and publish an audited report in the official Gazette and website of the Bank.”

=Stakeholders’ Views= To realise the targets indicated in the Act, it is critical to ensure that the “adopted fiscal rules are implemented such as the recurrent expenditure growth being limited to nominal GDP growth and if revenues from oil and gas are greater than 3% of GDP, the funds should be kept in the Revenue Saving Account (RSA) of the Oil and Gas Fund and if the revenues fall below 3% of GDP the funds should be transferred to the budget (Budget Consolidated Fund).” This was said by Mr. Mark Evans, an Africa Economic Analyst at Natural Resource Governance Institute (NRGI), who was commenting during the Policy Forum breakfast debate entitled “The Oil and Gas Revenue Management Act: What does it mean for government spending?” held on 31 July 2015 held at the British Council Auditorium. Mr. Evans said that the government should ensure cautious spending and saving of oil and gas revenues whereby 60% of spending should be on strategic development expenditure as indicated in the Act, adding that transparency and accountability provisions must be complied with.

Tanzania’s CEOs under the Chief Executive Officers Round Table (CEORT), which brings together over 100 companies doing business in Tanzania, welcomed the Oil and Gas Revenue Management Act of 2015 as a right step to guide the promising industry. The CEORT Chairperson, Mr. Ali Mufuruki, urged stakeholders first to go through the law thoroughly before criticising it. He said that members of the round-table are keen to continue engaging with the government to ensure challenges inherent in the new law are addressed. On his part, BG’s President and Asset General Manager for East Africa, Mr. Derek Hudson, said it was highly significant to adopt the legislation since the oil and gas industry is still new in the country.

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