In April 2014, the Ministry of Energy and Minerals issued a second draft National Petroleum Policy of Tanzania. As natural resources stakeholders, we, the undersigned, appreciate the opportunity to comment on the draft with the aim of providing inputs for improvement of the draft with national interests at the fore.

We, COMMEND the government for its efforts and determination to manage the resource effectively and strategically for public good;

UNDERSCORE the fact that, in the overall, the National Petroleum Policy has many positive aspects to ensure national interests are being pursued.

CONCERNED about:

General Issues:

Process:

It is not clear whether there was an official call for input from the public to comment on this draft. The Tanzania Petroleum Development Corporation (TPDC) posted the draft policy document on its website, most likely for its industry partners to comment, but the regulatory body has no mandate to collect inputs from civil society organisations. The Ministry of Energy and Minerals (MEM) has this mandate.

We also hope that civil society organisations will get an opportunity to comment on proposals to reform the Petroleum (Exploration and Production) Act 1980, as well as any future Natural Gas Bill and proposals for revenue management.

Recommendation:

The Ministry of Energy and Minerals should begin a consultation process with domestic stakeholders and the public. A formal stakeholder and public consultation plan prepared and shared with the public in advance is advisable. This should take account of parallel legislative reform processes as well as development of the National Petroleum Policy.

1.2 Challenges

Country operational ownership

The issue of country operational ownership and control of petroleum exploitation is not captured as a challenge.

Recommendation:

Add challenge (viii) to read:

Ensuring the progressive realization of state ownership and control of hydrocarbons exploitation and production in Tanzania, including increased state participation and control of upstream operational activities.

Meeting energy demands

The country’s power industry is under tremendous pressure to meet the growing consumer demand for energy. Frequent blackouts are a manifestation of this challenge. The policy should capture this challenge.

Recommendation:

Add challenge (ix) to read:

Meeting increased energy demand as the country’s needs increase.

Oil import substitution

Tanzania spends enormous foreign currency to import oil. Policy should acknowledge this under the challenges section.

Recommendation:

Add challenge (x) to read:

Ensuring reduction of Tanzania’s petroleum import bill.

Maximising opportunities for poverty reduction

The country’s hydrocarbons present a transformational opportunity for Tanzania to reduce poverty, bring social-economic benefits. Petroleum operations also offer opportunities for both forward and backward linkages in Tanzania’s industrialisation drive. How to maximize this opportunity will be a challenge in the near future and should be captured.

Recommendation:

Add challenge (xi) to read:

Ensuring the country has capacity to maximize the opportunities that present themselves for fueling Tanzania’s industrialisation and poverty reduction efforts.

Refinery

Petroleum subsector offers opportunities to advance the petrochemical industry including oil refining. Refinery by-products can be processed to produce inputs for soap, plastics, pesticides, paints and medicine.

Recommendation:

Add challenge (xii) to read:

Developing the country’s mid and downstream infrastructures.

Capitalisation of the national oil company

The policy envisages an active national oil company that will be involved in petroleum exploration and development as well as mid and down stream activities. This will require a clear plan for capitalizing the company.

Recommendation:

Add challenge (xiii) to read:

The need to capitalize the national oil company.

Separation of powers and clarification of roles

The policy proposes a considerable reform agenda needed for the sector. At all stages it will be critical to have clear separation of powers between different institutions involved at each stage of the petroleum value chain and a widely understood role for different public institutions. This particularly applies to the licensing process, monitoring of production and revenue management.

There is no clear statement of which institutions are in charge of the most critical element of process, negotiation Production Sharing Agreements.

Recommendation:

Add challenge (xiv) to read:

The need to have a clear separation of powers at all stages of the petroleum value chain and clear and distinct powers for different institutions.

Add challenge (xv) to read:

The need to clearly identify intra-government structures responsible for negotiating agreements.

2.2.1 Main Objective

To manage petroleum resources in an effective and efficient manner, there has to be a clear statement of commitment on transparency and accountability at the outset. The petroleum contracts signed by the government on behalf of citizens with industry offering exploration, extraction and export rights should be made public and industry should publish all their payments to government.The main objective of this petroleum policy section is not anchored in this core principle.

Recommendation:

The text should read:

To explore, produce and utilize the country’s petroleum resources in an efficient, transparent and accountable manner that ensures lasting benefit to the nation as well as mitigating negative impacts to the society and environment.

2.2.2 Specific Objectives

Similar to the main objective, although there are 10 different specific stated objectives ranging from optimal exploration to care of the environment, the principles of transparency and accountability have not been emphasized as a standalone objective. We note, however, that specific objective ix (To ensure mutually beneficial relationships between all stakeholders in the development of a desirable petroleum sub-sector for the country) has elements of transparency and accountability reading the elaborations under Chapter Three, but these are two crucial issues that require a specific objective with specific policy statements.

Recommendation:

Add a specific objective on transparency and accountability:

xii) To ensure transparent and accountable management of Tanzania’s natural resource wealth throughout the petroleum extraction value chain, safeguarding against the incentives for corruption.

There is growing consensus on the importance of public participation in the efficient management of extractive resources and its long-term contribution towards poverty reduction efforts. For Tanzanians to benefit from petroleum resources, governance in this sub-sector must ensure that people who own the hydrocarbons are involved in the decision-making processes. In the specific objectives section of the draft petroleum policy, this crucial principle is only implied under ix (To ensure mutually beneficial relationships between all stakeholders in the development of a desirable petroleum sub-sector for the country) hence too broad, denoting citizens as passive beneficiaries of the recourse. The policy needs to emphasize the proactive capabilities of citizens and we would hence suggest rewording of specific objective ix.

Recommendation:

Reword specific objective ix to emphasize public participation:

ix) To ensure a mutually beneficial relationship with all stakeholdersand to promote public participation in decision making in the petroleum sub-sector throughout the value chain of its extraction.

3.1.1 Upstream

Section 3.1.1 has the following policy statement:

Ensure that any gains obtained from transfers or sales of assets in the contract are taxed appropriately

This is appropriate but should sit in section 3.2.3, Fiscal Framework with the following policy statements:

Ensure that an appropriate and predictable fiscal framework for the petroleum upstream subsector is established

Ensure that fiscal terms are included in the legislation except for those terms which need to be negotiated in the contract.

3.1.1.1 Pre licensing, Licensing and Exploration Issues

The policy statements under this section, to mention several, include the desires to undertake resource potential assessment and evaluation before bidding rounds; allow for Tanzania to cooperate with neighbours for joint development when necessary; ensure a transparent competitive bidding process and appropriate capital taxes imposed when transfers or sales of assets occurs.

Experience shows, however, that to be efficient and effective in petroleum extraction, it is also important to put in place mechanisms for consultation with a wide array of stakeholders from the very early stages including the exploration phase. Given that petroleum exploration and extraction is financially a high risk undertaking, whether or not the state should take on this risk, with or without foreign companies, is an important strategic question for discussion with domestic stakeholders.

Recommendation:

Add a Policy Statement: The Government shall:

vii) Ensure stakeholder consultations are undertakenwith parties potentially directly affected with petroleum extraction and Civil Society Organisationsinterested in Environmental Impact Assessments (EIA) and Social Impact Assessment (SIA) during the exploration phase.

3.2.2 Petroleum Revenue Management

Sit is laudable that the government acknowledges that successful petroleum revenue management requires mechanisms to mitigate pressures for rapid spending of revenues as well as prohibit rent-seeking enticements. It is also admirable that government notes the need to mitigate against the risks of revenue volatility that could potentially arise due major oscillations in global oil prices. This will require sound budgeting, necessitating sound estimates that are free of political influences. An independent Petroleum Revenue Fund will help alleviate some of these risks but more needs to be done, for example, strengthening public financial management as it is critical to the fiscal discipline. We therefore propose increased cross-departmental institution building in anticipation of these revenues.

Recommendation:

Add a 4^th policy statement which reads: Government shall:

iv) Ensure the central bank and the ministries responsible for finance and planning, as instruments for annual and medium term expenditure ceilings and budgets for different MDAs, obtain the appropriate technical assistance to enable effective spending of resource revenues.

3.2.3 Fiscal Framework

We note with much satisfaction that government proposes to put in place mechanisms that will contribute the maximization of the economic rent from the petroleum sector and have included the curtailing of tax abuse through transfer pricing. This, however, is only one form of abuse that limits revenue, foregoes economic growth and causes greater inequality. We propose a host of other measures in addition to this.

Recommendation:

Add more policy statement which read: Government shall:

v) Put in place mechanisms to prevent regulatory abuse that enables the use of anonymity to hide political conflicts of interest by publishing beneficial ownership registers.

vi) Work with law enforcement agencies to curb abuse of power, including the theft of petroleum funds and related assets, the bribery of public officials and the laundering of the proceeds of these abuses.

vii) Work with the African Tax Administration Forum (ATAF) and the EAC to speed up Tanzania’s adoption of the automatic exchange of tax information and country-by-country reporting.

3.2.5 Good Governance and Management of Expectations

Commitments in this area are extremely weak. It’s fair to say that there aren’t any. Government has already committed to publishing PSAs entered into after 2014 under its second phase Open Government Partnership programme. This is a weak commitment but should have been reflected here. It is unfortunate that it hasn’t.

The category of “Good Governance and Management of Expectations” is too broad, given that it covers transparency, references to EITI and the 3Ts as well as Corporate Social Responsibility.

Recommendations:

We suggest that the objective under this section be reworded from ‘To ensure mutually beneficial relationships between all stakeholders in the development of a desirable petroleum sub-sector for the country,’ to ‘To ensure and mutually beneficial relationship with all stakeholders and to promote public participation in decision making in the petroleum sub-sector throughout the value chain of its extraction.

Recommendations

Under this reworded objective, the Policy Statements would hence read:

The Government shall:

i) Ensure that general principles of good governance are highly emphasized and applied in the petroleum sub-sector for the benefit of the nation as a whole.

ii) Ensure that the public and key stakeholders are regularly provided with accurate and timely information about key developments and consulted on major decisions in the sector by authoritative sources.

iii) Ensure that gender equality is observed as far as possible for all levels of appointments and participation in the sector.

Beyond this, there should be a strong and unambiguous statement committing to transparency, accountability and integrity and a stand-alone section on transparency and accountability.

As appropriate, other recommendations can be included in this section or in other relevant sections of the policy document as follows:

• Criteria for judging bids in licencing rounds will be published [this already takes place] as well as lists of bidders [taking place].
• All Production Sharing Agreements, including those already entered into, will be made easily available to the public through an online platform [this is taking place effectively through DSE rules, leaks, SEC requirements, etc].
• Production figures will be released by the PUR on a regular basis to allow for verification and reconciliation of IOC and state shares.
• Oversight institutions such as the CAG, parliamentary committees and LGAs affected by investments will be supported to become technically proficient and capable of providing meaningful oversight.

And finally, we propose that the following statement be removed from this section and taken to 3.1.2.4 Local Content and Capacity Building as one of the policy statements where itmore appropriately fits as a capacity building issue:

iii) Establish a petroleum centre of excellence and strengthen capacity of the training institutions to impart requisite knowledge skills and innovation to Tanzanians.

3.2.6 Environment, Health, Safety and Security

We commendthe government for recognizing that petroleum operations may have adverse social and environmental impacts at different stages of the extractive value chain and hence put in placeDisaster Prevention and Response Plans (DRPs). While this may help mitigate disasters and reduce impacts of calamities, it does not go far enough to address compensation issues for those affected.

Recommendation:

Add a 5^th policy statement which reads: Government shall:

vi) Ensure that a petroleum disaster compensation fund is established (financed by a levy on the extraction oil) to compensate communities affected after causal link between the damage and extraction is established.

5.0 Institutional Framework

Although generally the draft policy is a progressive document that has some features to support collaboration with stakeholders, we are of the opinion that this issue could be more pronounced under this section.

Recommendation:

Include an additional bullet point which reads:  The role of the Government shall therefore include:-

j) Collaborating with all stakeholders towards realization of the country’s development goals using petroleum resources as catalyst.

It is good that the policy seeks to clarify the roles of the relevant ministry, National Oil Company and the regulator. However there is still clear overlap, and lack of clarity in functions.  By inference, considerable powers remain with the minister. This leaves open the possibility of interference in decision making Consider two key issues for example – licencing and contract negotiation. The granting of licences remains the responsibility of the minister, as is usually the case but nowhere is it stated how contract negotiations should be handled or by who. The PUR is charged with advising government on this, but without knowing how it will be structured or where those giving advice will be drawn from, there is the potential for most power to remain in the ministry.

Another issue is how state investment in the sector is managed. Currently both “government” and the NOC are charged with investment in the sector (see 5.0.1, f and 5.0.2, b). If the NOC is to be operational in the sector, then it should be the vehicle for state investment. By retaining that in government, there is the risk of political calculations determining investment decisions.

It is not clear how the National Oil Company will be financed. Loans are unwise – exploration is a risky business usually financed by equity not loans. An obvious source of finance is from future revenue streams, but this needs to be balanced against other development outcomes to which the revenues could be directed.

Recommendations:

State clearly where the responsibility for contract negotiation will lie. Currently, the document is silent on this. For instance, the membership of the Government Negotiation Team could be clarified.

Have clear statement in section 5.0.3 that expresses more strongly the PUR’s independence, for instance that it will be established in such a way as to minimise government or political interference.

The advisory function should sit clearly with the PUR, and not shared with the NOC. Public investment should be the mandate of the NOC and its subsidiaries, or other relevant public corporations – not ‘government’, broadly defined.

5.0.5 Academic and Research Institutions

Academic and Research Institutions are important not only for skills development in Tanzania but also as bodies that can provide government, industry and civil society organisations with much needed independent analysis to play their facilitative, productive and watchdog roles respectively. We therefore propose to include this analysis role in this section.

Signed:

1. Interfaith Standing Committee on Economic Justice and the Integrity of Creation
2. HakiMadini
3. Policy Forum
4. Oil and Natural Gas Environment Alliance (ONGEA)