TANZANIA is losing billions of shillings in reported bad Production Sharing Agreements (PSAs), sabotage and outright fraud in oil and gas sub sector, the Parliamentary Select Committee has pointed out.In fact,
the government has been advised to re-draft oil and gas contracts and not to renew the contract with Songas Company, which will expire in 2024, for what the committee has described as an 'unfair deal.' Submitting the Committee's findings to the Speaker of the National Assembly,
Mr Job Ndugai, Chairman of the Select Committee formed to investigate how Tanzania benefits from gas and oil extraction, Dustan Kitandula (Mkinga--CCM) said renegotiating of contracts with all companies engaged in oil and gas sector in the country was inevitable because under the existing PSAs,
Tanzania will not benefit from its natural resources. He said his committee had reviewed contracts of 11 companies engaged in oil and gas sector, out of which three companies were fully operational, while eight others were still in exploration process.
He mentioned the three companies that were fully operational as Pan African Energy, Mnazi Bay and Kili One North. He said the committee has discovered that most of the PSAs entered between the government and the offshore companies provide a loophole for the companies to evade taxes,
levies and royalties payable to the government. Mr Kitandula further said that under the existing PSA, the Tanzania Petroleum Development Corporation (TPDC) and power utility company TANESCO have in years shouldered the burden that was otherwise, supposed to be borne by investors in the sector.
"This is unacceptable because under the PSA, the government has lost over 136bn/- in tax from Pan African Energy Company, which would have been enough to finance the purchase of medicines for our people," lamented Mr Kitandula.
He said the agreement also approves for the investor to gain a recoverable loss through shifting the costs of exploration to another exploration well, citing the PSA of Songo Songo which hiked profit to the investor, while at the same time, lowering the same to the government.
He said through Songo Songo PSA agreement alone, the government has lost over 21.95bn/-. "Honourable Speaker, such agreement can only be found in Tanzania,
he said, adding that the most offshore oil and gas companies have foreign accounts, hence denying the country from benefiting from its natural resources. He also mentioned another PSA agreement, which he said was unfriendly to the country as necessity to resolve contractual dispute matters outside the country.
He said the government has also not been receiving its rightful offshore royalties which is 7 per cent jointly payable to it by TPDC and investors, and instead it has only been receiving 5 per cent of the royalties.
He also said that involvement of TPDC in carrying out various projects in the sector is being limited by the offshore companies to only 5 per cent to 20 per cent instead of 25 per cent as required by the law.
The team has also discovered that top foreign manager in one of the offshore companies is paid a whopping salary of 96m/-, four times higher than a Tanzanian who holds a similar post at the same company.
The committee has come up with various recommendations, which include to review the PSA, government meet with investors to re-draft contracts, recheck bilateral investment treaties because, he said, they are being misused.
It was also recommended that the government should empower its institutions that are engaged in the sector to ensure they make close follow-ups as well as to review the capacity of local expatriates in the sector.
He said the Attorney General’s office should also be empowered to have capable lawyers. He further said that the government should invest in TPDC to make sure that it fully participates in oil and gas investments.
The team also proposed action taken to all government officials involved in entering the nation in shoddy contracts. Receiving the report, before handing it over to the government, Mr Ndugai said the report once acountry has big problems in entering into contracts to explore its resources.
Songas is an enemy of this nation; they have been collaborating with Pan African Energy to shift their burden of operation to TPDC and TANESCO,” he said.
He added that the Parliament Select Committee was similar to the ones that investigated Diamond and Tanzanite mining and it was tasked to review gas and oil development agreements with investors in the sector.
Speaker Ndugai said the special committee led the investigation whose mandate was to recommend to the government changes to make in the sector to boost the country’s earnings.
Receiving the report on behalf of the Prime Minister Kassim Majaliwa, Minister for Works, Transport and Communication, Prof Makame Mbarawa lauded the Speaker for forming the select committee, while also praising the chairman of the committee and its members for the job well done.
We will diligently work on the recommendations contained in the report...we will thoroughly go through all details and implement its recommendations,” he said, while also warning that the government will investigate and take appropriate actions with all those involved in entering into such bad contracts.
Those who led the Ministry at different times include Mr Daniel Yona, Mr William Ngeleja, the late Dr Abdallah Kigoda and Mr Nazir Karamagi while at TDPC Mr Yona Kilagane was its Director General.