Governing Petroleum Resources Prospects and Challenges for Tanzania Edited by Odd-Helge Fjeldstad • Donald Mmari • Kendra Dupuy Governing Petroleum Resources: Prospects and Challenges for Tanzania Edited by Odd-Helge Fjeldstad, Donald Mmari and Kendra Dupuy Content Editors iv Acknowledgements v Contributors vi Forewords xi Abbreviations xiv Part I: Becoming a petro-state: An overview of the petroleum sector in Tanzania 1 Governing Petroleum Resources: 1. Petroleum resources, institutions and politics: An introduction to the book Prospects and Challenges for Tanzania Odd-Helge Fjeldstad, Donald Mmari and Kendra Dupuy 4 2. The evolution and current status of the petroleum sector in Tanzania Donald Mmari, James Andilile and Odd-Helge Fjeldstad 13 PART II: The legislative framework and fiscal management of the petroleum sector 23 3. The legislative landscape of the petroleum sector in Tanzania James Andilile, Odd-Helge Fjeldstad and Donald Mmari 26 4. An overview of the fiscal systems for the petroleum sector in Tanzania Donald Mmari, James Andilile, Odd-Helge Fjeldstad and Aslak Orre 35 5. Is the current fiscal regime suitable for the development of Tanzania’s offshore gas reserves? Copyright © Chr. Michelsen Institute 2019 James Andilile, Odd-Helge Fjeldstad, Donald Mmari and Aslak Orre 42 Copyright © Repoa 2019 6. Negotiating Tanzania’s gas future: What matters for investment and government revenues? Thomas Scurfield and David Manley 49 CMI 7. Uncertain potential: Managing Tanzania’s gas revenues P. O. Box 6033 Thomas Scurfield and David Mihalyi 59 N-5892 Bergen 8. Non-resource taxation in a resource-rich setting Norway Odd-Helge Fjeldstad, Cornel Jahari, Donald Mmari and Ingrid Hoem Sjursen 66 [email protected] 9. Should Tanzania establish a petroleum fund? Ragnar Torvik 72 REPOA 157 Mgombani /REPOA Street PART III: Ensuring economic benefits from the petroleum sector: Regent Estate Perspectives on local content policies, practices and sector linkages 77 P. O. Box 33223 10. Local content in Tanzania’s gas and minerals sectors: Who regulates? Dar es Salaam Jesse Salah Ovadia 81 Tanzania 11. Stakeholders’ perspectives on local content policies in Tanzania [email protected] Abel Kinyondo and Espen Villanger 90 12. Resource nationalism and local content in Tanzania: Experiences from the mining sector Layout and design: Kristin Skeie Antoine, KSA_design and consequences for the petroleum sector Siri Lange and Abel Kinyondo 96 Print: Jamana Printers Limited, Tanzania ISBN 978-82-8062-740-7 13. Resource nationalism in Tanzania: The implications for artisanal and small-scale mining Abel Kinyondo and Christopher Huggins 100 14. Linking agriculture with the extractive sector through food value chains Sosina Bezu, Espen Villanger and Abel Kinyondo 105 TANZANIA I PART IV: The politics of petroleum policies in Tanzania 111 Figure 2.1 Crude oil (Newmex) and natural gas (Henry Hub) spot prices, 2000 – 2015 15 15. Shaping petroleum policies in Tanzania: The role of lobbyists Figure 4.1 Illustration of sharing mechanism under MPSA 2013 between the GoT and IOCs 40 Odd-Helge Fjeldstad and Jesper Johnsøn 114 Figure 6.1 LNG price forecast and estimated break-even price 53 16. Civil society’s role in petroleum governance: The case of Tanzania Figure 6.2 Estimated tax take with the current PSAs and with the 2013 MPSA and recent legislation 54 Kendra Dupuy, Lise Rakner and Lucas Katera 122 Figure 6.3 Estimated after-tax internal rate of return with the current PSAs, and with the 2013 17. Making sense of CSOs (in)action in Tanzania’s petroleum sector: Where is gender? MPSA and recent legislation 55 Victoria Wyndham and Siri Lange 128 Figure 6.4 Estimated impact of LNG plant returns on project returns and tax take (at LNG price of USD 11 MMBtu) 56 18. Natural resource revenues and corruption: An experimental study of citizens’ expectations Ingrid Hoem Sjursen, Odd-Helge Fjeldstad and Donald Mmari 132 Figure 7.1 Estimated gas revenues with LNG price of USD 11/MMBtu 61 19. Natural resources, political discourse and citizen mobilization Figure 7.2 Projected funds in the Oil and Gas Fund Revenue Saving Account across different LNG price scenarios 63 Lars Ivar Oppedal Berge, Vincent Somville and Kendra Dupuy 139 Figure 8.1 Taxpayers’ attitudes to level of tax burden 68 Figure 10.1 Agencies involved in policy and regulation of resource extraction in Tanzania 83 PART V: Conclusion – Prospects and challenges for the development Figure 10.2 National and international agencies involved in training and skills development 85 of Tanzania as a future petro-state 145 Figure 10.3 National and international agencies involved in small and medium enterprises 86 20. Lessons learned and policy implications Figure 18.1 Distribution of answers to the question “In the years to come, I expect the extent of corrupt activities to...” 135 Odd-Helge Fjeldstad, Donald Mmari and Kendra Dupuy 147 Figure 18.2 Distribution of statistical and actual distribution of share tails reported 136 Annexes 164 Figure 19.1 Should people participate in protests against government? 142 Glossary 165 Figure 19.2 Is violence justified in support of good cause? 143 Organizations working on resource governance 168 International oil and gas companies operating in Tanzania 171 List of Boxes Key institutions for petroleum data generation and management Box 4.1 The fiscal regime for the petroleum sector in Tanzania as per the Petroleum Act, 2015 and MPSA 2013 39 Lulu Olan’g, Blandina Kilama, Jan Isaksen and Fred Matola 172 Box 15.1 Local content in the petroleum legislation 116 Useful international databases 177 Box 19.1 Text of scripts used 141 Index 182 List of Tables Table 2.1 Power generation mix in Tanzania, 2018 17 Table 3.1 Evolution of the legal landscape in Tanzania 26 Table 5.1 Licensing rounds, blocks auctioned and the resulting PSAs 45 Table 6.1 Baseline assumptions (values in present value terms, 2018 USD) 51 Table 6.2 Main components of baseline fiscal regimes for the upstream and midstream 52 Table 7.1 Baseline assumptions about the economy and public finances (in 2018 USD) 60 Table 7.2 Estimated government revenues from the LNG project across different price scenarios (USD/MMBtu) 62 Table 16.1 List of prominent CSOs working on petroleum governance in Tanzania 124 Table 19.1 Script exposure by participant group 141 List of Figures Figure 1.1 Map of southern coast of Tanzania showing natural gas fields in commercial production and associated gas infrastructure 7 II GOVERNING PETROLEUM RESOURCES TANZANIA III Editors Acknowledgements Odd-Helge Fjeldstad (MPhil University of Bergen; PhD Norwegian School of This book is a product of the research and capacity building programme titled Economics) is an economist and Research Professor at Chr. Michelsen Institute. He Tanzania as a Future Petro-State: Prospects and Challenges. Commenced in 2014, is Extraordinary Professor at the African Tax Institute (ATI), University of Pretoria, the programme aimed to enhance the empirical understanding of the key prospects and Senior Fellow at the International Centre for Tax and Development (ICTD). He for and challenges facing Tanzania as an emerging petro-state, and to provide has more than 30 years of experience from research and policy analysis in East and contextualized and evidence-based policy analysis for the oil and gas sector. Southern Africa and the Middle East. He has published widely, both scholarly and policy-oriented, on tax reform, revenue administration, tax compliance and evasion, The programme was jointly developed and implemented by REPOA and Chr. fiscal corruption, capital flight, local government taxation and intergovernmental Michelsen Institute (CMI), in collaboration with the National Bureau of Statistics fiscal relations. He has extensive experience in research management and has served as (NBS) in Dar es Salaam. The Norwegian Ministry of Foreign Affairs has been the director of major multidisciplinary research and capacity building programmes. He principal source of financial support, based on a grant agreement between the has been advisor for African governments on public financial management and has Royal Norwegian Embassy (RNE) in Dar es Salaam and REPOA. From within worked as consultant for bilateral and multilateral development organizations. the Embassy, ambassadors Ingunn Klepsvik, Hanne-Marie Kaarstad and Elisabeth Jacobsen have strongly supported the programme and encouraged the research Donald Mmari (MA Economics University of Dar es Salaam; MBA University team to generate and disseminate research that would contribute to informed of Oregon; PhD Erasmus University Rotterdam) is a Principal Researcher and policy making and public debate in Tanzania on issues related to natural resource Executive Director of REPOA. He is an economist with vast experience in areas management for inclusive growth. Other Embassy officials, both present and those of policy analysis, socio-economic research and institutional development. He has reassigned to other stations, have provided valuable support during implementation published extensively on the extractives sector, manufacturing, governance, social of the programme. These include Trygve Bendiksby, Priva Clemence, Britt Hilde protection and competitiveness. He is actively engaged in policy dialogue on social Kjølås, Trine Lunde, Olav Lundstøl and Svein Olav Svoldal. We extend our thanks to economic transformation for inclusive growth in Tanzania, and in the development Åse Roti Dahl, Ingvild Hestad, Tineke Lohne, Godfrey Kalagho, Aksel Mjeldheim,