* Tanzania outlines payments on signing licences
* Terms also include new royalty structure
* Government under pressure to speed up returns
* Oil and gas firms see region as major new province
By Fumbuka Ng'wanakilala
NAIROBI, Nov 4 Tanzania has introduced new
production sharing agreement (PSA) terms that experts said
toughen some of the conditions for energy firms seeking to
explore and develop the east African nation's big gas prospects.
The "Model Production Sharing Agreement" document, published
on Monday, detailed the bonus to be paid by firms to the state
on signing a contract, specified capital gains tax obligations
and outlined a new royalty structure that one expert said meant
higher fees by contractors in some offshore areas.
East Africa has become one of the world's hottest new oil
and gas provinces after a string of discoveries, and which
producers hope to exploit to supply energy-hungry Asian markets.
In Tanzania, several majors such as BG Group, Ophir
Energy, Exxon Mobil and Statoil are at
Tanzania estimates it has more than 40 trillion cubic feet
of gas and says this could rise five-fold over the next five
years, putting it on a level with some Middle East producers.
But like other east African states, it is under pressure
from its poor population to maximise returns and deliver
benefits fast. It currently produces modest quantities mainly
for use in power generation and industry.
"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 Corporation (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 agreement also sets a royalty rate of 12.5 percent of
total oil or gas production for onshore or shallow operations
and a 7.5 percent royalty rate for offshore production.
An oil and gas expert on Tanzania said previous special
terms for deep water gas set a royalty rate of 5 percent.
On the new royalty terms and how they should be paid, the
expert said: "This reduces the amount available to the
contractor. So that is going to have a significant impact."
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.
"Any assignment or transfer under this Article shall be
subject to the relevant tax law, including capital gain tax,"
the document said.
Although all firms working in Tanzanzia are affected by such
a tax at a rate of 20 percent, experts said this was the first
time it was specifically referred to in a PSA.
The tax would have an impact when an energy firm farms out a
portion of any licence to another company, common in an industry
where one firm may operate a block while others take stakes.
Mozambique, a nearby emerging gas power, imposes such a tax.
The new terms leave open how much oil or gas would be
diverted to domestic use. Like other east African nations, there
has been a debate about how much of the nation's hydrocarbon
reserves should be used locally and how much can be exported.
"TPDC and the contractor shall have the obligation to
satisfy the domestic market in Tanzania from their proportional
share of production," the model PSA said.
It added that the volume "TPDC and the contractor may be
required to supply to meet domestic market obligation shall be
determined by the parties by mutual agreement."
The government said firms would also have to comply with
rules being drawn up on the amount of local content used and
investors would have to pay a training fee of $500,000 per year
to develop local technical skills in the industry.