Tanzania says to demand $258 mln tax on Ophir gas deal

Fri Dec 20, 2013 7:01am EST

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By Fumbuka Ng'wanakilala

DAR ES SALAAM, Dec 20 (Reuters) - Tanzania will levy a capital gains tax of at least $258 million on the proposed $1.3 billion asset sale of Ophir Energy's natural gas fields in the east African nation to a unit of Singapore's Temasek Holdings, its energy minister said.

Ophir said last month it would sell a 20 percent shareholding in Tanzanian Blocks 1, 3 and 4 to Pavilion Energy, owned by Singapore state investor Temasek, for an initial $1.25 billion plus a further contingent consideration of $38 million.

The Tanzanian fields that Ophir discovered with its partner BG Group are its prize assets, estimated to hold 15 trillion cubic feet of gas.

"Ophir is selling its shares to Pavilion of Singapore and for the first time in the history of this country, we will start getting gains tax," Energy and Minerals Minister Sospeter Muhongo announced in parliament late on Thursday.

"We will get at least $258 million from that share sale in terms of capital gains tax."

Ophir retains a 20 percent stake in the three blocks following the deal with Pavilion. It also has majority stakes in two other exploration areas in Tanzania and exploration assets elsewhere in Africa, in Kenya and Equatorial Guinea.

Muhongo said funds from the expected tax windfall would be used to reform the state-run energy regulator, TPDC, and the country's cash-strapped power utility.

Tanzania is pushing to start natural gas exports to its energy-hungry east African neighbours by 2015 before selling its gas on global energy markets by 2020.

It is also looking at building a facility to export liquefied natural gas (LNG), similar to those developed by the world's biggest gas exporter Qatar, and may locate it in the southern Lindi region by 2020.

Tanzania passed a finance law last year to include capital gains tax on the sale of shares or securities in companies operating in the country.

The government unveiled new production sharing agreement (PSA) terms last month that specified for the first time a requirement for energy companies operating in the country to pay 20 percent tax on any capital gain resulting from an asset sale.

The new terms replace the previous model 2008 PSA and have been introduced after Tanzania launched its fourth licence bidding round for eight oil and gas blocks. The government said it would take a stake of up to 75 percent in those blocks.

Tanzanian president Jakaya Kikwete assured Ophir Energy this month the deal will proceed smoothly and get timely approval.

Tanzania is estimated to have more than 40 trillion cubic feet (TCF) of gas, which it said could rise five-fold over the next five years, putting it on par with some Middle East producers.

Muhongo said the government had reserved two gas-rich blocks near the border with Mozambique in the offshore region for the state-run Tanzania Petroleum Development Corporation (TPDC).

"After the reform of TPDC, the government will offer shares in this company for sale to Tanzanians in a transparent manner to enhance the people's participation in the gas sector," he said.

The minister said TPDC would form a string of separate subsidiary companies to run its oil, gas, pipeline divisions.

Tanzania has so far signed 25 PSAs with some 17 international energy companies, including BG Group, Statoil , Brazil's Petrobras, Royal Dutch Shell , Exxon Mobil and Mubadala Petroleum. (Editing by George Obulutsa and David Evans)

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