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Experts Urge Caution As Tanzania Prepares Project-Specific Law on LNG

A project-specific law gives investors preferential legal protections, boosting their confidence to invest in a given country.

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Dar es Salaam. Energy Minister January Makamba said Wednesday that the government is preparing a project-specific law on the Liquefied Natural Gas (LNG) project a few days after it closed a deal with energy companies Equinor, Shell, and ExxonMobil to develop the US$42-billion project.

Mr Makamba, who doubles as Bumbuli MP (Chama cha Mapinduzi – CCM), revealed the plan in the parliament while presenting his ministry’s budget for the 2023/2024 financial year.

Mr Makamba said that on top of the special project law, the government also plans to establish a special office for the highly-anticipated project authorities expect to unlock Tanzania’s vast offshore gas resources.

“Madam Speaker, this law will be brought to the parliament for the first reading anytime from now,” Mr Makamba said, who called the finalisation of talks with the energy companies on the project “a historic milestone.”

READ MORE: Tanzania, Oman Ink Deal on Oil, Gas

Mr Makamba said reached agreements on the project, whose talks have been going on for seven years, will be presented to the cabinet sometime in June this year for approval before being signed.

Tanzania has a 810 km natural gas network planned for construction. Of its 57.54 trillion cubic feet of natural gas reserves, only 650 million standard cubic feet per day are produced.

A project-specific law gives investors preferential legal protections, boosting their confidence to invest in a given country.

Experts told The Chanzo that Tanzania would not be the first country to develop such an arrangement, citing Nigeria and Mozambique as some resource-rich countries with such laws.

A project-specific law gives investors long-term protection, sometimes throughout the project implementation.

Dastan Kweka, who has written extensively on the LNG issue, told The Chanzo that the development was expected considering Tanzania’s recent relations with investors.

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“During the previous administration, Tanzania enacted several laws described as unfriendly to investors. There are also risks emanating from the change of administrations because every administration comes with its philosophy and priorities,” Kweka noted.

“The project-specific law helps investors avoid these risks,” he added. “It gives them more certainty and protection. They most likely demanded the legislation as part of the conditions to invest in the [LNG] project.”

In 2017, Tanzania passed laws allowing it to force mining and energy companies to renegotiate their contracts, which observers predicted would complicate its gas exploration plans.

The laws include the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 (No. 6 of 2017), which gives power to the parliament to review any arrangements or agreement made by the government relating to natural wealth and resources and which contain ‘unconscionable terms.’

Kweka said the project-specific law is a “big deal” to investors. Whether or not Tanzania will benefit from it will depend on how authorities handle it, urging caution while developing the legislation.

“For example, the government can limit the scope of the legislation and ensure that it does not give discriminatory preferences to these companies,” said Kweka, meaning preferences not currently enjoyed by investors.

“It is a law that if we had options as a nation, we would not accept,” he added. “But because we have no option, whether Tanzania benefits or not will depend on how our government negotiates the terms with the investors.”

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But an expert working with one of the three companies that will invest in the LNG project told The Chanzo that there is no cause for concern as the law is specific to the project concerned.

“No one would invest US$43 billion without protective measures that the parliament supports,” said the expert who preferred anonymity. “Project law is a mechanism that protects the investment, including the government through [the] TPDC.”

TPDC stands for Tanzania Petroleum Development Corporation, the national oil company. In his speech in the parliament on Wednesday, Mr Makamba said TPDC would also be a shareholder in the project, which he described as “unprecedented.”

Mr Makamba, however, fell short of explaining under which arrangement TPDC would own shares in the project if it is through the not less than 16 per cent non-dilutable free carried interest shares in the capital of a mining company the government is entitled to or through other arrangements.

Lukelo Francis is The Chanzo’s journalist from Dar es Salaam. He is available at lukelo@thechanzo.com

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