Tanzania: Flurry Of New Energy Legislation Proposed In Tanzania

- By Peter Kasanda and Tom Chapple of Clyde & Co

Clyde & Co recently published an energy briefing exploring the new Petroleum Act 2015 Bill supplement related to upstream, midstream and downstream petroleum activities. However, that is not the only piece of legislation which is proposed to be enacted by the Tanzanian Government and which is relevant to those involved in the extractive and energy sectors.

Continuing on from our previous briefing, in this update we will outline the Tanzania Extractive Industries (Transparency and Accountability) Act 2015, the Oil and Gas Revenues Act 2015 and the Finance Act 2015 (which proposes amendments to the Tanzania Investment Act).

Background

With the upcoming referendum on a new constitution for Tanzania and the spate of proposed legislation, it is clear that the Government is in the process of a radical overhaul of the regulatory and statutory regime governing the energy and extractive sectors in Tanzania. Alongside the proposed Petroleum Act 2015, the Government is proposing to enact the:

• Tanzania Extractive Industries (Transparency and Accountability) Act 2015
• Oil and Gas Revenues Act 2015, and
• Finance Act 2015

These Acts all remain in draft form so they may be amended before being passed and coming into force. We are reporting on the contents of the Acts, as published on 25 June 2015.

Tanzania Extractive Industries (Transparency and Accountability) Act 2015

The Tanzania Extractive Industries (Transparency and Accountability) Act 2015 (TEI Act) covers those industries dealing with Tanzania's natural resources. We believe that the Act will apply to mining as well as to the oil and gas industries in Mainland Tanzania. The main purpose of the legislation is to enact a statutory regulatory framework, in which payments between private companies and Government entities can be tracked and reconciled with the hope of combatting bribery and corruption.

The TEI Act provides for the founding of the Tanzania Extractive Industries (Transparency and Accountability) Committee (the Committee), which shall be an independent government body with oversight responsibilities for promoting and enhancing transparency and accountability. The Committee shall be comprised of no more than sixteen members, with the Chairman appointed by the President. Of the remaining potential members: five are to be from the Government (one of whom shall be the Attorney General, or his representative), five from the private industry sectors and the final five from civil society organisations.

The overarching purpose of the Committee is to ensure that the "benefits of the extractive industry are verified, duly accounted for and prudently utilised for the benefit of the citizens of Tanzania". In order to achieve this, the Committee shall, amongst other things:

1. Develop a framework for transparency in the reporting and disclosure by all extractive industry companies on revenues due or paid to the Government
2. Require from any company an accurate account of the money paid by and received from the company
3. Require companies to disclose accurate records of the cost of production, capital expenditures at every stage of investment, volumes of production and export data, and
4. Conduct investigations on material discrepancies between revenue payments and receipts

Every year the Committee will publish a threshold where every company which exceeds it shall be required to reconcile payments made to the Government against receipts held by the Government and provide a report (aReconciliation Report) detailing this reconciliation to the Committee. Where a Reconciliation Report identifies a material discrepancy, the Committee shall within fourteen working days submit the report to the Controller and the Auditor General, who shall produce an audit report which shall in turn be provided to the Committee. Having received the report from the Controller and the Auditor General, the Committee shall discuss the matter with the Government before following the recommendations of the Controller and the Auditor General.

All companies working in extractive industries shall also be required to provide the Committee with an annual report detailing their corporate social responsibility and also submit to the Committee their capital expenditures at every stage of investment. Failure to do so will be a criminal offence.

Also as part of the transparency regime, the Committee shall require the publication of the following information:

1. All concessions, contracts and licenses relating to the extractive industries
2. The names of shareholders who own interests in the extractive industries, and
3. Reports into the implementation of Environmental Management Plans

Failure to comply with the provisions of the TEI Act and to fail to provide the Committee with the documents as requested is to be a criminal offence, with the punishment, upon conviction being either a fine of not less than ten million shillings in the case of an individual, or a fine of not less than one hundred and fifty million shillings in the case of corporate entity. This is a big point for all companies in the extractive and energy sectors. Will all Production Sharing Agreements and Mineral Development Agreements need to be published for example? How does this sit with the confidentiality provisions in these agreements? We are monitoring the application of these provisions.

The Oil and Gas Revenues Management Act, 2015

The Oil and Gas Revenues Management Act, 2015 (OGRM Act) shall apply in both Mainland Tanzania and Zanzibar and intends to govern the management of revenues derived from the exploration, development and production of oil and gas activities.

The OGRM Act provides that taxes and levies shall continue to be assessed, collected and accounted for by the Tanzania Revenue Authority (TRA), whereas non-tax oil and gas revenues shall be collected and accounted for by the National Oil Company – this includes surface rentals and block fees. The Petroleum Upstream Regulatory Authority (if formed when the Petroleum Act 2015 is finalised) shall be responsible for auditing the cost recovery on the exploration, development, production and sale of oil and gas to determine government profit share and royalties.

Another significant development is the forming of the Oil and Gas Fund (the Fund), whose objectives shall be to ensure that:

1. Fiscal and macroeconomic stability is maintained
2. The financing of investment in oil and gas is guaranteed
3. Social and economic development is enhanced, and
4. Resources for future generations are safeguarded

The Fund shall receive its capital from Government royalties, Government profit share, the dividends on Government participation in oil and gas operations, corporate income tax on exploration, production and development of oil and gas resources, and the return on investments of the Fund.

The Fund's strategy shall be decided by the Minister of Finance, advised by a Board consisting of five individuals appointed by the President. Where the Minister of Finance declines to follow the advice of the Board, the matter shall be determined by the President.

Management of the Fund shall be in accordance with the statutory fiscal rules, which are:

1. The financing of the Government budget
2. The financing of the Fund's investments
3. Fiscal stabilisation, and
4. Saving for future generations

Amongst other reasons, these fiscal rules have been based upon the recognition that it is important to protect the Tanzanian economy against the inherent volatility of oil and gas revenue and the presence of uncertainty over the timing and size of that revenue.

The Finance Act, 2015

The Finance Act, 2015 (Finance Act) proposes to make an important amendment to the Tanzania Investment Act, 1997 (Investment Act) changing the thresholds for when a project may be granted special strategic investment status.

Under the existing Investment Act, a business shall be regarded as a strategic or major investment if:

1. Where the company is locally owned, the investment capital is not less than the Tanzanian equivalent of USD 20,000,000, or
2. Where the company is wholly owned by a foreign investor, or is a joint venture, the minimum investment capital is not less than the Tanzanian equivalent of USD 50,000,000

However, the proposed Finance Act would amend this meaning that special strategic investment status may only be granted to projects if:

1. The project has a minimum investment capital of not less than the Tanzanian equivalent of USD 300,000,000
2. The investment capital transaction is undertaken through a registered Tanzanian financial or insurance institution
3. At least 1,500 'direct' local jobs are created, with a 'satisfactory' number of senior positions, and
4. The project has the capability to significantly generate foreign exchange earnings, to produce significant import substitution goods or to supply important facilities necessary for the development of the social, economic or financial sectors

Where a project is granted special strategic investment status, the Minister of Finance should propose to the National Investment Steering Committee 'additional specific fiscal incentives' for the project, which, if ordered, would be published in the Gazette.

It is clear therefore that the Government is wishing to limit those projects which could be granted special economic status to those projects which have the capability of generating substantial local direct economic development, rather than using a relatively arbitrary capital threshold. However, where such status is granted, the project may well be able to take advantage of unspecified fiscal incentives, although these could become public knowledge through the publication of the order in the Gazette.

Tanzanian Explorers Club

The Tanzanian Explorers Club (TEC) is for people working in, or affiliated with, Tanzania's energy industry, specifically the mineral exploration sector. TEC provides an informal environment to facilitate networking and information sharing between key participants of the industry. If you are interested in joining the next TEC meeting, please email Clyde & Co's energy team to find out further details.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Nigeria Amends Local Content Law

By Harrison Declan. Harrison is a local content law expert and the author of the book 'Local Content in Africa's Petroleum States: Law and Policy'

The Nigerian legislature has passed into law a Bill which amends the country's local content law. The Bill titled Nigerian Oil and Gas Industry Content Development (Amendment) Bill, 2015 by its explanatory memorandum seeks to "Amend the Nigerian Oil and Gas Development Act by Extending the Waiver Window, Removing Difficulties of Access to Funds and correcting an obvious heading error". The Bill was passed into law on the 2nd of June, 2015 and currently awaits presidential assent. We would take a look at the sections of the Act that was amended and its implications for operators in the Nigerian oil and gas industry. 

The Amended Sections
1. Section 11(4)Section 11 of the Nigerian Content Act establishes the minimum Nigerian content for any project to be executed in the Nigerian oil and gas industry. This is as contained in the Schedule to the Act. However, where there is inadequate capacity to meet the local content targets as contained in the Schedule, section 11(4) of the Act gives the Minister of Petroleum Resources the power to waive the local content obligations and authorize the continued importation of the relevant items for a period not exceeding three years from the commencement of the Act. This particular provision has been criticised for granting discretionary powers to the Minister which could be subject to abuse. According to Hon. Asita Honourable, the sponsor of the Amendment Bill, “continuing to allow the Minister to grant waivers is discretionary and it is wrong”.[1]


Expectedly, this section was elaborately amended to remove the discretionary power of the Minister and gives a more detailed procedure for the granting of such waivers. Vide section 11(4) of the Amendment Bill, where there is inadequate capacity to meet any of the local content targets as contained in the Schedule, the Nigerian Content Development and Monitoring Board may recommend to the Minister for approval the importation of the relevant items. Thus, an entity seeking waivers under section 11(4) would have to make the application to the Board, and the Board would recommend to the Minister. Before such application can be made, the applicant must have satisfied the following conditions:

a. Such entity must have advertised the need for the goods and services on the Joint Qualification Scheme for a period not less than thirty days before submitting the application to the Board.[2]
b. The advert must, as a minimum requirement, indicate the description of the goods and services required, the category in the Schedule to the Act under which the good or service falls, the quantity required and when it is required.
c. The application for importation shall include the quantity and description of the goods and service to be imported and sufficient evidence of lack of capacity in-country within the duration of the project or operation when the goods or service is required.
d. The applicant shall submit a detailed Capacity Development Initiative (CDI) or collaboration plan with an existing CDI which is related to the item to be imported. 
e. Any other conditions as may be prescribed in the guidelines to be issued by the Board.
f. Where a Nigerian company is able to demonstrate ability to provide the relevant goods or service, then no application for authorization to import can be made, as the entity must utilize the services of such Nigerian company.

The Capacity Development Initiative (CDI)
The amended section 11(4) introduces a Capacity Development Initiative which every applicant for waiver under the section must submit, and which must be approved before an authorization to import an item can be granted. The CDI is an initiative to develop the relevant capacity sought to be imported, and such CDI or collaboration plan (as the case may be) shall indicate the CDI sponsors, existing in-country capacity, list of stakeholders including technical partners and their roles, expected outcomes, timing of the project, indicative cost, and other relevant information as may be required by the Board. Section 11(5) which is a new section inserted by the amendment requires the Board to convene a stakeholders meeting before January 31^st of each year to determine areas of inadequate capacity, and agree on CDIs to upgrade existing capacity or develop new capacity in specific demand areas for the industry.It should be noted that an approval of a CDI does not automatically mean the granting of a waiver. On the contrary, the approval of a CDI is one of the condition precedents to being granted waiver. Also, the power to grant waiver is still discretional, but is no longer the absolute prerogative of the Minister.

2. Section 48[3]
This section in the original Act contains provisions on fiscal incentives. It requires the Minister to consult with the relevant arms of Government on the appropriate fiscal framework and tax incentives for companies that comply with the provisions of the Act in relation to in-country manufacturing and production. The Bill creates a new subsection 2 to the section. Accordingly, section 48(2) empowers the Minister, on the recommendation of the Board to approve incentives to encourage the elimination of impediments and aid investment where it is established that there are contractual and procedural impediments to local capacity development.One wonders how incentives would encourage an investor to eliminate procedural impediments to local capacity development where procedural impediments are primarily creations of laws and government bureaucracy. It is tantamount to incentivising investors to breach the procedures laid down by the government for doing business in Nigeria. The section would have been properly couched if it had provided that where such contractual and procedural impediments are established, the Minister on the recommendation of the Board should take steps to ensure that such impediments are eliminated. 

Beyond these, the amended section also fails to state whose duty it is to establish what exactly amounts to contractual and procedural impediments. Is it the duty of the investor or that of the Minister or the Board? This is important because if the impediments are to be determined by the Minister, then the Minister should be given powers to remove such impediments. In view of the absence of such provision, can it be safe to conclude that the impediments are as identified by the investor?

3. Section 56
Section 56(a) –(e) of the original Act enumerates what the Joint Qualification Scheme (JQS) established in section 55 should be used for. The amended Bill deletes paragraphs (b) and paragraphs (d)[4].

4. Section 57
This section as per the original Act establishes the Nigerian Content Consultative Forum (NCCF) which is expected to provide a platform for information sharing and collaboration in the Nigerian oil and gas industry. The body is given an additional responsibility in the amendment Bill. This is contained in the newly introduced paragraph (c) of the section. By this new paragraph, the Forum is to screen and rank qualifying CDIs from indigenous Nigerian companies for financing support by the Nigerian Content Development Fund.[5]

Beyond the foregoing amendment, two new sections are added to section 57. The new section 57(2) provided in the amendment Bill establishes the Nigerian Content Consultative Forum (NCCF) Standing Committee. The members of the Standing Committee would be comprised of:

a. One member representing the Nigerian Content Development and Monitoring Board, who shall serve as the Chairman of the Committee.
b. Two members nominated by the Petroleum Technology Association of Nigeria (PETAN);
c. Two members nominated by the International Operators;
d. One member nominated by Nigerian Independent Operators; and
e. One member nominated by the Board to represent the other NCCF sectorial groups.

The function of the Standing Committee is provided in sub-section 3. It is to evaluate all proposals for capacity development funding support from Nigerian Indigenous Companies based on established selection and ranking criteria and recommend qualifying CDI application for funding on a quarterly basis.[6] In view of the function of the Committee, one might be tempted to ask why its composition is comprised of members nominated by the International Operators. As would be seen infra, the contributions to be made to the fund from which qualifying CDIs of Nigerian Indigenous Companies would be funded, is partly funded by the International Operators. Thus, in order to ensure transparency and prudence in the utilisation of the funds, and to ensure that the contributors to the funds are in the know of how the funds are utilised, it is only just and proper for the International  Operators to be included in the Standing Committee.

It is also important to note that the Standing Committee is a statutory replacement of the Advisory Committee which was set up by the Board to create a structured and transparent process for accessing the fund. The Advisory Committee, like the Standing Committee, also comprises of representatives of international oil companies.

5. Section 104
Section 104 contains one of the most elaborate amendments to the Act. This was in response to the issues that had surrounded the Nigerian Content Development Fund (NCDF). One of such issues was the purpose of the fund. In an interview, the erstwhile Executive Secretary of the Board, Ernest Nwapa had stated that the fund is not meant to be disbursed, but to serve as a guarantee to indigenous operators who seek to take loans from banks to execute projects that advance local content.[7] He had also stated that the 30% of the fund would be used as intervention funds by the Board in critical infrastructure development and training programs, and the other 70% kept as guarantee for single digit and longer tenure lending by banks and funding institutions.[8]

Section 104(1) of the original Act establishes the Nigerian Content Development Fund (NCDF) for the purpose of funding the implementation of Nigerian content development in the Nigerian oil and gas industry. Vide section 104(2) of the original Act, the sum of one percent of every contract awarded to any operator, contractor, subcontractor, alliance partner or any other entity involved in any project, operation, activity or transaction in the upstream sector of the Nigeria oil and gas industry shall be deducted at source and paid into the Fund. Section 104(3) was amended. Under the original Act, the section provided that the Fund shall be managed by the Board and employed for projects, programmes, and activities directed at increasing Nigerian content in the oil and gas industry. The amended version makes the section subject to section 104(4) and also creates a proviso. The effect of this amendment is that the power of the Board to manage the fund is subject to the following:

a. The power of the Standing Committee[9] to evaluate proposals for capacity development funding from Nigerian indigenous companies, and forward the qualifying CDIs to the Executive Secretary of the Board for processing and disbursement of funds on a quarterly basis.
b. Publishing of a report of a half-yearly disbursement in respect of the funds in the JQS and in at least two (2) national newspapers, specifying beneficiary companies, amounts disbursed, recovery-to-date, assets acquired and infrastructure/facility developed.
c. The allocating and disbursing of unspent funds in any one year in the succeeding years.[10]The amended section 104(3) also provides modalities on how the fund is to be expended. It provides that not more than 10% of the monies accruing to the Fund in any year shall be spent by the Board on its operations including General and Administrative expenses, whether as operating or capital expenditure. 

This is a departure from the current state of affairs were no percentage of the fund is expended by the Board on its operations. It also provides that at least 70% of the monies accruing to the Fund shall be disbursed to qualified Nigerian Indigenous Companies for in-country capacity development by way of long-term, low cost asset acquisition loans and infrastructure or facilities development support, equity investment, direct grants for in-country Research and Development, technology acquisition and in-country manufacturing.This is a clear departure from the current situation where the funds merely act as a guarantee for loans taken by indigenous companies. As would be noticed, provisions were not made for how the remaining 20% would be expended. The 20% is to be employed by the Board for projects, programmes, and activities directed at increasing Nigerian Content in the oil and gas industry.    

6. Section 106
Section 106 is the interpretation section. Amendments were made in this section to the meanings ascribed to some of the terms and expressions defined under the section. The amendments are in relation to the following:

a.     Nigerian Indigenous Company
This expression gained a lot of prominence in the original Act as the Act contained provisions which gave protection and special considerations to ‘Nigerian Indigenous Companies’.[11] The meaning of this expression was not given in the original Act, and doubts arise as to whether the expression also incorporates ‘Nigerian companies’ which was defined in the Act. The uncertainty also extends to the expression ‘Nigerian indigenous service companies’ which are entitled to exclusive consideration under section 3(2) of the original Act. Commenting on this, I had written elsewhere:

It is not clear if the inclusion of the word ‘indigenous’ in ‘Nigerian indigenous service companies’ operates to significantly give a different meaning to the expression ‘Nigerian service companies’. While the latter would seem to refer to service companies which are Nigerian companies as defined in the Act, irrespective of the country of origin, the former would seem to refer to not only service companies which are Nigerian companies but which also must have originated in Nigeria, that is, companies registered in Nigeria and solely by Nigerians. This is the impression the inclusion of the word ‘indigenous’ in the expression ‘Nigerian indigenous service companies’ seem to convey.[12]

However, the uncertainties created by the expressions ‘Nigerian indigenous company’ and ‘Nigerian indigenous service company’ under the Act has finally been resolved in the amendment Bill. Section 106 of the Bill provides as follows:“Nigerian Indigenous Company means a company which:
(a)   Entire issued share capital is owned by Nigerians;
(b)    Board of directors comprises only Nigerians;
(c)    Owns all its assets”.


From this definition, it is clear that a Nigerian indigenous service company as referred to in section 3(2) of the Act would mean a Nigerian service company whose entire issued share capital is owned by Nigerians, whose Board of directors comprises only Nigerians, and whose assets are wholly owned by Nigerians. 

b.      Operator
While there didn’t seem to be much controversy as to who an operator is as the term was clearly defined in the original Act,[13] the amendment further broadens the meaning of the term to include a company using “…any hydrocarbon as main input…”[14] This inclusion would surely lay to rest any dispute as to whether a company not carrying out operations in the oil and gas industry but whose primary feedstock is a petroleum product would be bound by the provisions of the Act. One of such disputes involved the Indorama Group, investors in Indorama Eleme Petrochemicals Limited. The Indian investors who own the fertilizer plant were alleged to have violated the provisions of the Act as they and their contractors had brought in foreigners to work on the plants in contravention of the Act. The Indian company took over Eleme Petrochemicals from the Nigerian National Petroleum Corporation and is working on expanding the plants. The company also has a fertiliser plant which when completed would have the capacity to produce 1.4 million tonnes of fertiliser annually. The company had argued that its operation is manufacturing and therefore outside the petroleum industry. The position of the Board however was that since the company’s feedstock is gas, its operation is within the oil and gas industry, especially as it was formerly managed by the NNPC.[15]

By this definition of an operator, it is sure settled beyond dispute that the provisions of the Act would be binding on such companies as the Indorama Group.

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[1]   Quoted in ‘Measurement and Implementation of Local Content in Nigeria – A Framework for Working with Stakeholders to Increase the Effectiveness of Local Content Monitoring and Development’ , Facility for Oil Sector Transparency in Nigeria, January 2013.

[2]   The Joint Qualification Scheme (JQS) is established by section 55 of the Act. It is principally an industry database of available capabilities.

[3]  In view of the amendment as contained in the Bill, section 48 now has section 48(1) and section 48(2).

[4]  Section 56 of the original Act provides: “The Joint Qualification Scheme shall constitute an industry databank of available capabilities and shall be used for –

(b) verification of contractor’s capacities and capabilities;

(d) data base for national skills development pool”

[5]   The Nigerian Content Development Fund is discussed elsewhere in this work as it was one of the sections that benefitted from the amendments.

[6]   This function is as provided in section 104(4)(a) of the amended Bill.

[7]  See ‘Ernest Nwapa: $350m Nigerian Content Fund is Not a Grant’, Tuesday, 26 August, 2014: http://www.ncdmb.gov.ng/index.php/news-update/114-nwapa-350m-nigerian-content-fund-is-not-a-grant. Last visited 11 March, 2015.

[8]   See NCDMB Press Release of 25 November, 2013: ‘PRESS RELEASE: Nigerian Content Fund hits $350m’ : http://www.ncdmb.gov.ng/index.php/news-update/73-press-release-nigerian-content-fund-hits-350m. Last accessed 11 March, 2015.

[9]   Created in section 57(2).

[10]   Section 104(4) of the amended Bill.

[11]   See for instance sections 15 and 16 of the Act.

[12]  See H. Declan, ‘Local Content in Africa’s Petroleum States: Law and Policy’, pg. 123. Hybrid Consult, Lagos, 2014.

[13]  Although it has been argued that the expression is too broad. See H. Declan, n. 14. pg

[14]   “Operator” is defined in section 106 of the Bill to mean “the Nigeria National Petroleum Company (NNPC), its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and gas company operating in the Nigerian Oil and Gas Industry or using any hydrocarbon as main input under any petroleum arrangement, contract or business venture”.

[15]   See ThisDay Live ‘Challenges of Enforcing the Nigerian Content Act’, 29 April, 2014. http://www.thisdaylive.com/articles/challenges-of-enforcing-the-nigerian-content-act/177281/. Last visited 7 April, 2015.