Zanzibar Oil and Gas (Upstream) Act, 2016

=Introduction= The Act has 11 parts: Part I provides preliminary provisions including the name of the Act, its application and interpretation of words used; Part II proposes for vesting in the Government, the entire property in and control over petroleum in its natural state; Part III establishes the Zanzibar Petroleum (Upstreaming) Regulatory Authority (ZPRA) and the Zanzibar Petroleum Development Company (ZPDC); Part IV establishes rules governing the upstream petroleum operations, including revenue payment mechanisms; Part V provides rules relating to cessation of petroleum operations activities and related issues; Part VI deals with provisions relating to Occupational health and safety and environmental principles; Part VII deals with Local Content, Corporate Social Responsibility and Integrity Pledge; Part VIII provides for offences and penalties; Part IX deals with dispute settlement mechanism; Part X provides for transitional provisions relating to the Government's obligations or responsibilities in connection with prior contracts; and Part XI deals with general provisions such as use of a license as a security, conflict of interest, establishment of petroleum revenue fund and powers of the Minister to make regulations.

=Territory and Petroleum Rights= The Act applies to oil and gas existing in the territorial land, the islets, internal water, territorial sea, contiguous zone, exclusive economic zone and any other area as provided under the Constitution (Constitution of Zanzibar of 1984) and derived from any other law for the time being enforce, and as may be extended and recognized by International law from time to time. Petroleum resource is the public property of the People of Zanzibar and the Government shall hold petroleum rights for the benefit of the People of Zanzibar.

=Minister’s responsibilities= Section 6.(1) lists the responsibilities of the minister responsible for energy as:

a)	“Granting, renewing, suspending and cancelling of petroleum exploration and development licenses after being advised by the Authority;

b)	Formulating and reviewing regulations in the petroleum industry;

c)	Causing inquiries to be conducted into accidents or disasters caused by petroleum activities;

d)	Approve Petroleum Agreement;

e)	Provide pertinent information related to petroleum development before oversight committees of the House of Representatives;

f)	Approve Field Development Plan and Data Management System;

g)	Develop petroleum-related policies; and

h)	Perform any other functions related to petroleum production

=Regulatory Authority= The Act establishes an Authority – the Zanzibar Petroleum (Upstream) Regulatory Authority (ZPRA), whose functions include:

a)	“Monitor and regulate petroleum activities including reserve estimation and measurement of the produced petroleum;

b)	Review and approve any proposed exploration activity contained in the annual work programme, appraisal programme and production forecasts submitted by a Company;

c)	Review and approve budgets submitted by a Company

d)	Assess field development plans and make recommendations to the Minister for approval, amendment or rejection of the plans;

e)	Advise the Minister in the granting and revocation of licenses;

f)	Assess tail-end production, cessation of petroleum activities and decommissioning;

g)	Prepare reference map which may be revised periodically showing areas of possible petroleum exploration and production divide into blocks;

h)	Participate in the measurement of petroleum to allow for estimation and assessment of royalty and profit oil or gas due to the State and be responsible for the approval of the exercise;

i)	Ascertain the cost oil or gas due to Company’s;

j)	Ensure that Company's uphold laws, regulations, rules and contract terms;

k)	Conducting or cause to be conducted reconnaissance surveys and evaluating prospectivity of frontier areas;

l)	Administer petroleum agreements;

m)	Ensure optimal levels of recovery of petroleum resources;

n)	Promote well planned, executed and cost-efficient operations;

o)	Ensure optimal utilization of existing and planned facilities;

p)	Ensure the establishment of a central database of persons involved in petroleum activities, manage petroleum data and provide periodic updates and publication of the status of petroleum activities;

q)	Take such action as is necessary to enforce the requirements in a license or any regulations and to protect the health and safety of workers and the public;

r)	Ensure and facilitate competition, access and utilization of facilities by third parties;

s)	Monitor conditions of operators and their trade practices to ensure that competition and fair practice is maintained;

t)	Ensure compliance by industry players to the provisions of this Act and imposing sanctions for non-compliance or other violation of regulations, orders, rules or contract terms; and

u)	Do all such thing as are necessary, expedient or conducive to the attainment of the purposes of this Act.

Members of the Authority Board
Section 12.(1) highlights the composition of the Board to include “Chairperson who shall be appointed by the President in accordance with the provisions of this Act; the Managing Director of Authority as ex-officio member; one officer from Ministry responsible for environment (appointed by the Minister upon consultation with Minister of respective Ministry); one State Attorney from Attorney General’s Chambers recommended by the Attorney General; one officer from the Ministry responsible for petroleum (appointed by the Minister upon consultation with Minister of respective Ministry); one officer from the Ministry of Finance (appointed by the Minister upon consultation with Minister of respective Ministry); one officer from Ministry responsible for occupational health and safety (appointed by the Minister upon consultation with Minister of respective Ministry); and one officer from private sector with experience on petroleum upstream matters.

Fund of the Authority
Section 23 of the Act provides for the source of funding for the Fund: “monies appropriated by House of Representatives for the purposes of the Authority; such donations, grants, bequests or loans as may be lawfully received from any institution or organization; proceeds derived from disposal of assets and any other sources of income identified by the Authority; any such percentage of revenue collected from other sources; regulatory levy as shall be prescribed in the Regulations; any revenue accruing from any activity undertaken by the Authority; any such money collected as fine paid in accordance with the provision of compounding offences under this Act; and any other money as may be legally acquired by the Authority.”

=National Oil Company= The section 32 establishes a Zanzibar Petroleum Development Company (ZPDC) which shall participate in the upstream activities of the petroleum and gas sector on behalf of the Government.

=Reservation of blocks= Article 50 states that, by notice published in the Official Gazette, declare certain block to be reserved for public interest or to be awarded direct to the Company. The block reserved shall not be subject to the grant of a license unless the declaration is revoked.

=Petroleum Exploration License= Article 51 (1), outlines the conditions for licensee as follows:

a)	The applicant’s proposals for work and minimum expenditure in respect of the block specified in the application;

b)	Particulars of technical and petroleum industry qualifications of the applicant and his employees;

c)	Particulars of technical and petroleum industry resources available to the applicant;

d)	Particulars of kinds of financial resources available to the applicant, including capital, credit facilities and guarantees;

e)	Proposals on the local content plan related to the training and employment of people of Zanzibar; and

f)	Any other matters that the applicant wishes the Minister to consider.

=Petroleum Registry= Section 77 (1), establishes registry of petroleum agreements, licences and authorizations, and that it shall be open for public access, except as otherwise provided by law. Section 77 (3), states that petroleum agreement and license shall be given a separate sheet in the registry.

=Public Access to Information= Section 84 (1), provides access to information about petroleum activities contained in the Authority records to the public in accordance with applicable law. It further states that a person may access public documents for free if made available for examination at the Authority’s premises, or for a fee to recover the cost of copying the applicable document.

=Domestic Supply Obligation= Section 89 (1) states that “the Contractor and the Company shall have obligation to satisfy domestic market in Zanzibar from their proportional share of production.” It states further that “the volume of crude oil or natural gas which is required to be sold shall meet the requirements of domestic market not exceeding share of profit oil or gas of the Contractor and the Company, and that the price of the share for domestic supply obligation, in any calendar quarter, shall be determined in manner prescribed in the Regulations”.

=Revenue=

Royalty on petroleum
Section 101 (1) make it compulsory for a contractor to pay royalty on petroleum as prescribed in the Second Schedule, and that a person who fails to pay any royalty payable under this Act, “the Authority may prohibits the removal of, or any dealings in or with any petroleum activity from the development area concerned, until all outstanding royalty has been paid.” In regard to actual percentage to be paid, the Second Schedule states that, “a licence holder on behalf of itself and the Contractor shall discharge obligation to pay royalty out of gross production under the Act in respect of petroleum produced from the Contract Area, by delivering to the Government 12.5% for onshore/shelf areas and 7.5% for offshore of total crude oil/natural gas production prior to cost oil and or cost gas recovery at such royalty otherwise to be delivered to the Government in such manner as the Government may direct.”

Annual fees
Section 102 (1) provides for the Authority annual fees in respect of a license, and that the annual fees shall include: surface rental; and training and research fees.

Bonus Payment
Section 103 (1), states that The Contractor shall pay to the Authority bonus payment as may be prescribed by the Regulations or Petroleum Agreement as the case may be, and that determination of bonus payment shall be made by the Minister upon the approval of the Revolutionary Council.

Taxes
The law stipulates that a person or contractor conducting petroleum activities shall pay taxes in accordance with the laws enacted by the House of Representatives for that purpose. Specifically, the law provides a breakdown of the Government’s profit share in petroleum produced on shore and off shore as per the tables below:

Rates for the Government Profit Share on Crude Oil:
i. For On shore and Shelf areas:

ii. For Deep Off shore/ deep water areas:

B. Rates for the Government Profit Share on Gas:
i. For On shore and Shelf areas:

ii. For deep offshore:

=Decommissioning Plan and Decommissioning Fund= The law requires that the Company and a contractor to submit a decommissioning plan and its updates to the Authority before a “petroleum production permit or a specific license to install and operate facilities expires or is surrendered; or at least five years before the use of a facility is terminated permanently.” The law further states that the Company and a contractor shall “establish a decommissioning fund for each development area or for other facilities operated in relation to production immediately after production permit is granted for purpose of costs related to implement decommissioning plan.”

=Occupational health and safety= Section 118 (1) recognises the importance of occupational health and safety. It states that “petroleum activities shall be conducted in such a manner to enable a high level of safety to be maintained and further developed in accordance with technological developments, best petroleum industry practices and standards, occupational health and safety and any other relevant laws.”

=Local content Requirement= Section 134, laid down the requirement for the local content. It states that the Company and contractors shall contribute to the development of local content by: “supporting to develop local institutions of higher learning and vocational training centres to enable them participating in petroleum activities through training and recruitments; and adopting measures to guarantee, promote and encourage local investors to invest in petroleum activities.” It states further that the “Company and contractors shall give preference to goods and services available in the local market rendered by Zanzibaris and or local companies, and that “where goods and services required by the petroleum industry are not available in Zanzibar, such goods and services shall be provided by a company which has entered into a joint venture with a local company.”

=Training and Employment= Section 135 mandates companies and contractor to submit a detailed programme for recruitment and training on Zanzibaris within twelve months after the grant of each license, and on each subsequent anniversary of that grant, in accordance with an approved local content plan. The programme shall provide training and recruitment of Zanzibaris in all phases of petroleum operation activities and take into account gender, equity, persons with disabilities, host communities and succession plan in accordance with the Employment and Labour Relation Acts.

=Technology transfer= Section 136, states that the “Authority may make rules and guidelines prescribing requirements for the Company and a contractor to provide technology transfer and skills relating to petroleum industry to Zanzibaris who are employed in that sector, and that the “technology transfer required shall be a shared responsibility between the Government, the Company and contractor.” =Corporate Social Responsibility Plan= Section 137 mandates “the Company and a contractor shall on annual basis, prepare a Corporate Social Responsibility plan jointly agreed by the relevant local government authority based on Zanzibar Corporate Social Responsibilities Strategies Plan.” The prepared pan shall take into account “environmental, social, economical and cultural activities based on local government priorities of host community.”

=Petroleum Revenue Fund= Section 154 establishes a petroleum revenue fund with the purpose of ensuring transparency and accountability on collection, allocation, expenditure and management of petroleum revenues.

=Regulations= Section 155 gives powers to the Minister to make regulations to effect the implementation of this Act. The regulation may cover the following areas:

a)	Exploration for petroleum and the carrying on of operations and the execution of works for that purpose;

b)	Recovery of petroleum and the carrying out operations, and the execution of works for that purpose;

c)	Conserving, and preventing the waste of the natural resources, whether petroleum or otherwise, of the land to which this Act applies;

d)	construction, placement and operation of facilities for the carrying on of the operations, an and execution of works, for any of those purposes;

e)	Control of the flow and the prevention of the escape of petroleum, water, gases other than petroleum or other noxious or deleterious matter;

f)	Prevention of escape of water or drilling fluid or the mixture of water or any other matter;

g)	Removal of structures, equipment and other property brought in Zanzibar in connection with exploration, recovery or conveyance of petroleum that are not used or intended to be used in connection with that exploration, recovery or conveyance;

h)	Pressure maintenance in or the re-pressuring of a petroleum reservoir and the re-cycling of petroleum;

i)	Secondary or tertiary recovery of petroleum from a petroleum reservoir and the methods to be used in such recovery;

j)	Use of wells and the use of the subsurface for the disposal of petroleum, water and other substances produced in;

k)	Association with the exploration for or the recovery of petroleum;

l)	Rates or method of setting rates, at which petroleum and water may be recovered from any well or petroleum reservoir;

m)	Methods to be used for measurement of petroleum, water and other substances from a well;

n)	Safety standards of petroleum, health and safety or persons employed in the exploration for recovery or conveyance of petroleum;

o)	Taking, preserving and furnishing to the Authority cores, cuttings and samples from wells and samples of petroleum and water;

p)	Giving to the Authority reports, returns and other information;

q)	Taking of logs or directional surveys or making other down-hole investigations;

r)	Ring fencing of recoverable cost in relation to exploration and development license;

s)	The manner of payment of any royalty, bonus, profit, fees or any other payments;

t)	The care and custody of records and reports; or

u)	Any other regulation for better carrying out of the provisions and purposes of this Act.

=Historic Signing= The Zanzibar Oil and Gas (Upstream) Bill was signed into law by the Zanzibar President Ali Mohamed Shein publicly on 15th November 2016 in the presence of the Second Vice-President, Ambassador Seif Ali Iddi, Union Minister for Energy and Minerals, Professor Sospeter Muhongo, Union Attorney General, Mr. George Masaju, and Zanzibar Attorney General, Mr Said Hassan Said. =References=