THE PETROLEUM LOCAL CONTENT REGIME OF TANZANIA: OPPORTUNITIES AND CHALLENGES Raphael B. Tweve Mgaya* ABSTRACT Tanzania and the East African region at large is endowed with significant hydrocarbon wealth. Currently, the total natural gas discoveries in Tanzania stand at 57.25tcf. There are no oil discoveries at the moment but there are great signs that oil might also be discovered in the country especially along the Lake Eyasi -Wembere basin and Lake Tanganyika area. Following the significant natural gas discoveries in the country, the Government initiated processes for the review of the petroleum industry legal and institutional framework, with the view among others of promoting the participation of Tanzanians and Tanzanian companies in the oil and gas industry. To that end, the Natural Gas Policy and the Petroleum Policy were4 promulgated in 2013 and 2014 respectively. On the basis of the two policies, the Petroleum Act, 2015(“Act” ) and the Petroleum (Local Content) Regulations, 2017 (“Regulations”) wer e made and came in force on 25 th September, 2017 and 5 th may 2017 respectively. The Act and the Regulations require License holder, contractors, subcontractors and licensees to give preference to Tanzanian citizens in employment. They also require that in procuring goods and services, Tanzanian companies must be given preference. Foreign companies wanting to participate in the supply of goods and services in the petroleum industry must ensure that at least 25% of the business is held by Tanzanians or Tanzanian company. With the immense investments being made in the industry, Tanzanians and Tanzanian companies stand to benefit hugely. One of the challenges will be the effective oversight by the regulatory bodies and the availability of qualified local personnel and companies. 1
1. Introduction Tanzania is endowed with significant natural gas resources. Since towards the end of 2010, following a serial natural gas discoveries in the offshore areas in the Indian ocean, Tanzania became one of new frontiers and hotspot for hydrocarbon explorations and development alongside other States in the Eastern African namely Uganda, Kenya and Mozambique 1 The current natural gas initially in place in Tanzania stands at 57.25 TCF, of which 47.08 TCF is located offshore within the Indian Ocean and 10.17 TCF is located onshore particularly in the South-Eastern regions of Mtwara and Lindi. 2 Petroleum industry is arguably among the most lucrative industries in the world with the potential to generate high revenues over long period of in forms of foreign exchange and hence providing a financial leverage to a host country on many fronts including improving its balance of payments. However, unlike other industries such agriculture and manufacturing, petroleum industry is time bound in the sense that the hydrocarbon resources are finite, i.e. are exhaustible. This is a one major reason why there is a need of ensuring that there is a sustainable programme of managing the existing petroleum resources so as to create value not only for the current generation but for future generations as well. * Raphael Bahati Tweve Mgaya is an advocate of superior courts in Tanzania. He holds LLB (Hons) from the University of Dar es Salaam, LLM (International Development Law and Human Rights) from the University of Warwick in the UK, MBA (Corporate Management) from the University of Mzumbe, LLM in Oil and Gas Law with Distinction from Robert Gordon University Aberdeen in the UK, MSc in Finance and Investment from the Institute of Finance Management. He is a Member of the Institute of Chartered Secretaries and Administrators (ICSA). He is also a member of the Bar Association of the Mainland Tanzania and the East African Law Society. He formerly worked as Senior Legal Officer with the Tanzania Petroleum Development Corporation (TPDC) and the Ministry of Energy and Minerals. He currently works as a Legal Manager (East Africa) for Hansa Group. He can be reached through email: raphael.mgaya@gmail.com. 1 See ‘A New Frontier: Oil and Gas in East Africa’ https://www.controlrisks.com/~/media/Public%20Site/Files/Our%20Thinking/east_africa_whitepape r_LR_web.pdf accessed on 7 October, 2017. 2 Irene Florence M. Kasyanju, ‘Tanzania Oil & Gas Sector’ < http://www.diplomatmagazine.nl/2016/07/03/tanzania-oil-gas-sector/ > accessed 23 August, 2017. 2
Various governments of hydrocarbon rich States around the world have tried to develop petroleum policies, laws and regulations to ensure a mechanism is in place for a sustainable exploitation of petroleum resources. In essence sustainable exploitation of petroleum resources entails that exploitation of petroleum resources which generates lasting value to economy of host state and its citizens. In order to achieve this paramount objective, there must be robust legal framework to ensure maximum benefits to the nation and its people from the oil and gas resources through what is technically referred to as “ the local content regimes ” . Tanzania as a newly emerged hydrocarbon province has also developed an oil and gas industry local content policy and legal framework to ensure that the petroleum wealth benefits the nation and its people, including the future generation. In this Article, the authors analyses critically this regimes by focusing on the opportunities and the challenges that are likely or are being encountered in its implementation. 2. Policy and Legal Framework Many countries which are endowed with the petroleum resources are introducing or have put in place the local content regime. 3 Policy makers in petro states are concerned with maximizing the benefits from the non-renewable petroleum resources by developing appropriate instruments to realize the objectives. 4 Local content regime is usually embodied in the policies, legislations and regulations. In the immediate paragraphs below these elements of a local content regime are examined in the context of the Tanzanian oil and gas industry. 2.1 The Oil and Gas Industry Local Content Policy 3 IPIECA, “Local Content Strategy: A guide document to the oil and gas industry”, 2011 , p. 1. < http://www.ipieca.org/resources/good-practice/local-content-strategy-a-guidance-document-for-the- oil-and-gas-industry-1st-edition/ > accessed 14 October, 2017. 4 Tordo, S., Warner, M., Manzano, O.E. and Anouti, Y., “Local Content Policies in the Oil and Gas Sector”, A World Bank Study, The World Bank, Washington, D.C., 2013, p. 1. 3
Generally, the local content policies are one of the instruments adopted in the petroleum industry to maximize the benefits of the local economy from the petroleum development in the country. In the hierarchy of legal instruments, the policies are developed by the particular department of the Government for which the subject matter of the policy relates. On the basis of the policy principles, the parliament makes the legislation in a particular industry in order to realize the policy objectives. In the case of Tanzania, the Local Content Policy for the Oil and Gas Industry ( hereinafter “ the Policy ” ) was promulgated in April 2014. 5 This followed the major discoveries of natural gas in the country particularly from 2010 onwards. The main objectives of the Policy are to build capacity of local manpower, promote transfer of technology and skills to the local economy and promote the participation of local businesses in the petroleum industry. Implicit in the Local Content Policy is to prevent the pitfall the other countries have experienced including the avoidance of the Dutch Disease, hyperinflation and the economic and financial volatility which is usually associated with the petroleum economy. 2.2 Petroleum Act Accordingly, on 18 th September, 2015 the Government published the Petroleum Act, 2015 (hereinafter “the Act”) which among others set out the legal and institutional framework of the local content in the petroleum industry. 6 The main local content requirements are set out in the Act, namely that licence holder, contractor and subcontractors (hereinafter collectively re ferred to as “the participants”) ‘ shall’ give preference to goods produced or available in Tanzania and services rendered by 5 The Local Content Policy for the Oil and Gas Industry 2014 can be freely downloaded at < https://mem.go.tz/wp-content/uploads/2014/05/07.05.2014local-content-policy-of-tanzania-for-oil- gas-industry.pdf > accessed 23 August 2017. 6 The Upstream Regulatory Authority (PURA) was established and empowered to regulate among others, the local content in the upstream. On the other hand, the Energy and Water Utilities Regulatory Authority (EWURA) was empowered to regulate inter alia the local content in the midstream and downstream segment of the petroleum industry. 4
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