and valuable resources including forestry, minerals, and hydrocarbons
like crude oil and natural gas. However, the country is also among the
poorest in the world with two-thirds of the population living in
extreme poverty (less than $1.25 in purchasing power parity terms).[1]
Extractive industries, in particular the gas and petroleum sector, are
known to be highly profitable as world market prices have raised
sharply during the recent years due to strong growth of global demand
for commodities. Recent exploration activities offshore of Tanzania
revealed considerable deposits of natural gas and, possibly, oil.
The government of Tanzania, through the Tanzania Petroleum Development
Corporation (TPDC), has announced a fourth bidding round for licensing
its nine oil and gas deep offshore blocks before developing sector
policies and laws that govern the extraction process. Our neighbour
countries have also made big discoveries of oil and gas and some
people are afraid that Tanzania fails to keep pace.
While this process has been temporarily stopped recently, we
HakiElimu, Legal and Human Rights Centre (LHRC) and Sikika call for
the suspension of the bidding process until the sector laws and
policies are updated and clear development strategies and sound
revenue management frameworks are in place. Sustainable development
begins with the end in mind!
Therefore, we should get started by putting our house in order first –
instead of the initiating a licensing process. Tanzania will only
benefit from these valuable commodities in the long run if the
government formulates clear and transparent sector laws and policies
that are implemented by strong and effective regulatory institutions.
Prospective windfall revenues need to be administered by a sound
financial management framework and integrated into a comprehensive and
a development strategy that is compatible with the nation's macro-
economic perspective.
Therefore, reviewing of the whole value chain of gas and oil
exploitation – from the awarding contracts and licenses, the
regulation and monitoring of operations, the collections of taxes and
royalties and the implementation of sustainable development policies
and projects – must be supported by transparent and participatory
processes. Wide and meaningful consultations among the government,
Parliament, the private sector and civil society are necessary to
avoid poor policy choices, grand corruption and possibility of
societal conflicts. Together, we need to ensure that linkages with
other elements of the value chain are in place with a comprehensive
country development strategy that guides how the new windfall revenues
will ensure sustainable and equitable economic growth and development.
HakiElimu, Legal and Human Rights Centre (LHRC) and Sikika therefore
propose that the following basic questions (compare E. Alba 2009)
[2]need to be answered and addressed before the Tanzanian Petroleum
Development Corporation initiates the 4th Offshore Licensing Round
2012.
LINK 1: AWARD OF CONTRACTS AND LICENSES
The sector law and regulations should define the legal and
institutional framework for the exploration and exploitation of a
country's hydrocarbon resources.
The role of every local actor should be defined in the sector law,
ideally separating commercial activities from the state regulatory
functions.
Licensing procedures and contract terms should take into account
the geological, financial, and country risks. Country, sector, and
market knowledge is needed to define appropriate licensing and
contractual terms.
The fiscal terms that determine the sharing of benefits between
the government and the investors should be progressive and preferably
linked to project profitability to cope with changes in prices and
different site conditions throughout the project life.
The development of "local content"–including local consultations
and the use of local labour, goods and services–are key aspects of
hydrocarbon projects. When properly defined, local content obligations
improve projects' economic and social benefits, and help minimize
their long-term risk.
Licensing procedures, contractual arrangements and signed contracts
should be open/Transparent to improve citizens' understanding on the
expected benefits from Gas and Oil in terms of revenue and other
social corporate responsibilities to be performed by the investor.
LINK 2: REGULATION AND MONITORING OF OPERATIONS
The responsibilities of the various government entities tasked
with gas and oil operations regulation and compliance monitoring
should be clearly defined, and their authority and resources should be
commensurate with their responsibilities.
Gas and oil regulations should incorporate internationally
recognized technical, environmental, accounting, and auditing
standards.
Adequate environmental regulations should be in place, as should a
competent authority with the capacity to approve and monitor
environmental impact assessments and management plans and enforce
compliance
Regular audits should be carried out to assess production and
export volumes, valuation of hydrocarbons, and the cost of operations.
The development of a national cadastre and a national data bank is
key to improving transparency, certainty of rights, the knowledge of
the resource base, and the quality and reliability of government
revenue estimates.
Coordinated procedures among different government entities should
be in place to avoid regulatory gaps.
The technical capacity of the government agencies entrusted with
the regulation and monitoring of compliance is critical for the
effective, efficient, and sustainable implementation of the
government's policies.
LINK 3: COLLECTION OF TAXES AND ROYALTIES
The choice of fiscal regime should take into consideration the
administrative and audit capacity of the relevant government entities.
Inter-affiliate transactions regarding product sales, charges for
goods and services and provision of inter-affiliate loans should be
subject to verification and audit that arms lengths prices are used
All revenue streams should be properly accounted for.
The sale of crude oil, gas, and products should follow transparent
and arms-length procedures as specified in the sector law and the
relevant contract or license. To ensure compliance, it is essential to
collect data on the volumes produced, consumed, and exported, and on
the prices actually realized by the seller.
All transactions should be clearly traceable and accounted for in
the state budget. All payments to the government by private companies
and by the state enterprises should be made to a treasury account at
the central bank.
Audits and reconciliations of the treasury's accounts and of the
companies' accounts should be performed regularly.
It is important to carry out efforts to build capacity and
coordinate procedures among the sector and financial authorities
involved in the collection of hydrocarbon revenue.
Revenue generated by gas and oil activities should be regularly
published by the government. Disclosure mechanisms like the EITI
involving civil society organizations are useful to improve citizens'
understanding of hydrocarbon activities and their financial impact.
LINK 4: REVENUE MANAGEMENT AND ALLOCATION
Gas and oil resources and revenue should be administered in the
context of an overarching macro-fiscal framework that recognizes the
volatility, uncertainty, and cyclical nature of their prices and, over
time, the exhaustibility of oil, gas, and mining resources. Policies
should aim to enforce mechanisms to smooth spending flows. Due
attention should be given to long-term fiscal sustainability and to
policy measures to mitigate Dutch disease. In particular, consistent
links should be established to annual budgets and the medium-term
macro-fiscal framework, based on realistic and transparent prices and
volumes assumptions.
Transparent decisions should be made based on (1) how much revenue
is used for current and capital spending priorities or debt reduction
and how much is set aside for stabilization, expenditure smoothing,
saving for future generations or other precautionary needs, and (2)
how to design revenue saving mechanisms–including institutional
arrangements–to foster their transparency and sound governance.
The operation of oil and gas funds and of any other saving
arrangement should have transparent procedures and an adequate
governance structure. Direct spending authority should be avoided and
savings should be invested prudently. Regular, independent audits and
performance assessments are essential.
Revenue sharing between the central government and the sub-
national governments should be established by laws. The use of rule-
based, transparent, simple, and equitable allocation criteria is
recommended.
Earmarking revenue for specific social needs usually results in a
suboptimal allocation of resources.
Effective revenue management mechanisms need to be supported by
complementary public finance reforms and institutional capacity
building efforts, including at the sub-national level.
LINK 5: IMPLEMENTATION OF SUSTAINABLE DEVELOPMENT POLICIES AND
PROJECTS
Public expenditure plans should take into account the non-
renewable and volatile nature of gas and oil revenues, the overall
fiscal sustainability, the priorities expressed in the MKUKUTA, and
the importance of diversifying the economy.
Decisions on spending choices (for example, social infrastructure
versus physical infrastructure) often need political consensus.
Partnerships involving government, industry, parliament and civil
society, especially in the producing region and at sub-national
levels, play a key role in forging sustainable action-oriented
organizations. These can be very effective in formulating and
implementing programs designed to mitigate the social and
environmental effects of gas and oil projects and share the projects'
benefits.
The evaluation of gas and oil projects should include an estimate
of environmental and social impacts, and expected socioeconomic
benefits and their long-term sustainability. Issues related to the
decommissioning of old oil and gas fields and mines deserve careful
attention, including post-closure monitoring.
Attention should also be paid to utilizing existing government and
nongovernment project implementation capacity and particular attention
given to strengthening this capacity where needed.
Coordination among government, regional authorities, and gas and
oil companies is important for the design and implementation of
sustainable projects.
This joint statement was issued by:
HakiElimu,Legal and Human Rights Centre(LHRC) and Sikika
--
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