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Wednesday, November 6, 2013
Companies operating in Tanzania and those looking to operate in the East African country should be aware that the government has changed its terms in its production sharing agreements (PSAs). The government has toughened some of the terms and conditions for those companies that seek to cash in on the bonanza of gas that has been discovered off its shores.
Tanzania’s new “Model Production Sharing Agreement” has detailed the bonus to be paid by firms to the government upon the signing of a contract, specified capital gains tax obligations, and outlined a new royalty structure. According to some experts, the new PSA means higher fees for some companies in offshore areas.
“It’s a significant toughening of the fiscal terms,” Bill Page, energy and resources leader at Deloitte Consulting Tanzania, told Reuters of the new model agreement. “They have also indicated that they will expect to see more extensive exploration work obligations in the initial periods of the PSA,” he said.
The model agreement for 2013, released by the state-run Tanzania Petroleum Development Corp. (TPDC), introduces a minimum signature bonus payment of $2.5 million and a production bonus of at least $5 million payable when production starts. The new PSA also calls for a new royalty rate of 12.5% of total oil or gas production for onshore or shallow operations and a 7.5% royalty rate for offshore production.
Previously, special terms for deep water gas set at a royalty rate of 5%.
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