Extractive Industries Related Bills: The Tanzania CSO Extractive Industries Working Group Position

On June 16th, 2015, the Government of Tanzania tabled in parliament three bills related to extractive industries under Certificates of Urgency. The bills are The Tanzania Extractive Industries (Transparency and Accountability) Act 2015, The Oil and Gas Revenue Management Act 2015 and The Petroleum Act 2015.

To this effect, we the undersigned Civil Society Organizations convened and deliberated on the bills in Dares Salaam from the 21st to 23rd of June, 2015 aiming at providing inputs for improvement of the proposed legislations with national interests at the fore.

We highly COMMEND the government for its efforts and determination to manage this national wealth effectively and strategically for the benefit of the current and future generations of this country. We UNDERSCORE the fact that, in the overall, the three bills have many positive aspects to safeguard national interests in tandem with encouraging investments in the sector, as well as ensuring transparency and maintaining macro-economic stability.

Despite this, we are CONCERNED about the rushed process to pass these important pieces of legislation and with apprehension, we note that this is becoming the norm as in 2010 with the Mining Act, similar haste was observed. More important, nevertheless, it is critical that the government gets the legislations right.

We APPEAL to members of Parliament to diligently scrutinize the bills even though there is much attention being afforded to the general election and other priorities are being overridden.

While the bill sets up a sophisticated institutional structure for managing the petroleum sector, designed potentially to promote checks and balances and specialization among the different functions necessary in order to manage the sector effectively, there are several sections that risk creating administrative overlap, confusion, or distorting the incentives of these public institutions to optimally manage the sector.

Most importantly, the unclear use of the word “exclusive” in relation to National Oil Company’s powers in Sections 10(2) and 45 creates a risk of conflicting interpretations and accountability challenges. While such a system can confer certain advantages in terms of empowering the NOC to learn the business and chart its own partnership strategies, it also carries the risk that the selection of partners will be driven more by the NOC’s commercial interest than the overall national interest. This is inconsistent with the spirit of the National Gas Policy and the 2014 draft Petroleum Policy.

Section 6: “The Commissioner for Petroleum Affairs shall be the advisor of the Minister on policy, plans and regulations as well as the day to day administrative matters in the oil and gas subsector.”

Concern: creating the position of petroleum commissioner who will be at the same level as the commissioner for Energy could possibly create functions overlap and conflict, but also technically petroleum falls under Energy sector.

 Recommend: To create Deputy Commissioners with specific functions on Petroleum and/or Energy since It may be appropriate to retain and strengthen office of the Commissioner for Energy to avoid overlap

Section 45: “The National Oil Company shall have exclusive right over all petroleum rights granted under this Part.”

Concern: These two sections are conflicting  S.45 (40 specifies the NOC share and S. 219 (1) which gives the government discretion to decide the share also this section raises accountability challenges as well as creating institutional monopoly.

Recommend: The exclusive rights for NOC should be subjected to parliamentary scrutiny

Section 101 (3): “The license holder and contractor shall not flare or vent petroleum without prior consent from PURA.”

Concern; the law makes PURA the final decision maker without concerting environmental management agencies.

Recommend:  The Minister to issue permission to flare upon written advice from PURA and NEMC

Furthermore, it is critically important that the bill makes provisions that require publication of key information to enhance transparency of the petroleum sector. These may include but not limited to: bidding documents- pre-qualification criteria, a list of pre-qualified companies, bid criteria, list of bidders, the winning bid, a bid evaluation report justifying the winning bid based on the criteria. Full text contracts, along with their amendments and annexes, and beneficial ownership of license holders, Environmental impact assessments, environmental management plans and annual reports and local content plans and reports.

The proposed legislation contains very important provisions to ensure prudent management of revenues accruing from oil and gas extraction; maintain fiscal and macroeconomic stability and aligning strategic investment with medium to long term development priorities, hence, sustainable development. However, the proposed fiscal rules do not guarantee intergenerational equity in terms of saving a proportion of the revenues for future generation as provided in the Natural Gas Policy 2013.

Limiting the funding for strategic development expenditure to 60% of funds transferred to consolidated account may undermine requirements for such investments when the absorption capacity warrants spending 100% or more of the transfer to consolidated account from the Fund. Further, the proposed law lacks clarity on the maintenance of fiscal deficit (Section 17. (1)(b). For more clarity, the provision ought to be improved to ensure that maintenance of fiscal deficit takes into consideration the timing of revenue flow (excluding designated oil and gas revenues) from such a time when revenues attain a level of atleast the set cap of 3% of GDP when revenues fall permanently bellow the cap.

While the proposed law intends to ensure availability of funds for investment by the National Oil Company (NOC), tying funds of the NOC to 0.1% of GDP  does not necessarily guarantee a share of revenues that is appropriate given its objectives and or its capacity to spend. To avoid potential challenge of either underfunding or overfunding of NOC, the government may consider funding through Consolidated Account based on the NOC’s medium to long term investment plan.

We believe that the proposed law will strengthen Tanzania’s commitments to revenue transparency started by joining EITI global movement in 2009.We note that since then TEITI Multi stakeholder Group (Operations) has been done through a Memorandum of Understanding, without any legislation. The proposed law will provide legal basis for the enforcement of commitments as underpinned by the EITI standards and in line with government commitments to openness and accountability in oil, gas and mining sectors.

However we need to raise some obvious weaknesses in this proposed law including making the committee a government entity thereby lacking independence. We call upon the government to ensure that the governing body (TEITI MSG) retains its autonomy and independence in electing its own members, raising its own material and human  resources as well as ensure protection from political interference.

Furthermore the minimum penalties suggested for not disclosing the information as required does not reflect the value of the extractive sector and needs to be reversed.

Signed:

(1) Policy Forum

(2) Oil, Natural Gas & Environmental Alliance (ONGEA)

(3) HakiMadini

(4) Interfaith Standing Committee on Economic Justice

(5) Governance and Economic Policy Center

(6) International Alliance of Natural Resources in Africa (IANRA)

(7) Governance Links