TPDC CHALLENGED TO CLARIFY ON STATOIL DEAL

Public Accounts Committee (PAC) chairman Zitto Kabwe has asked Tanzania Petroleum Development Corporation (TPDC) to issue a statement on the controversy surrounding the alleged leak of a contract between the government and Norwegian company, StatOil.

The PAC chairman argues that the explanation given by outgoing TPDC director general Yona Killagane is confusing Tanzanians, stressing that all contracts should be made public to end the confusion.

Mr Kabwe’s call comes few days after TPDC came out categorically and unequivocally to rebuff reports on the alleged contract that continues to circulate online in the social media.

In an early analysis of the StatOil deal, Dar Blogger Ben Taylor argues that if the contract is fully implemented, the government could lose between $400 million (Sh672 billion) and a whopping $1 billion (Sh1.68 trillion) yearly. This amount is equivalent to 10 per cent of the 2014/15 budget, or what the country needs to supply all major cities and towns with clean water.

In an email communication to The Citizen on Saturday, the PAC chairman, who doubles as Kigoma North MP, insists that the government through Production Sharing Agreement (PSA) stated clearly how the profit accrued from oil and gas deals should be shared between the government and investors.

“According to this agreement, when gas production is at lower rate (0–249.999 MMscf per day) profit, distribution stands at 50/50 percent between the government and an investor minus production cost, and at higher rate (1500 MMscf and above), the government takes 80 per cent and the remaining 20 per cent goes to an investor,’’ he explained.

In the leaked contract between the government and the Norwegian company, Tanzania gets 30 per cent and 70 per cent goes to StatOil. This did not impress Mr Kabwe who insisted that the explanation by TPDC focusing on all applicable taxes including 30 per cent corporate tax and five per cent royalty was not enough.

TPDC moved to refute reports of the leaked contract by sending a statement to the newsrooms and published an advertisement in newspapers before giving further clarification at a press conference.

“Oil and gas companies ought to use tax planning measures through tax havens and double taxation treaties, therefore an explanation by TPDC that we should expect income tax does not hold water. In fact our earnings are purely obtained from gas production where we have a big stake according to an agreement,’’ he argued.

According to leaked details, the contract ignored the proposed profit sharing agreement, which would have benefited the nation.

Those who oppose the agreement say the proposed profit-sharing model suggested the sharing of profit between the government and investors at ratios of 50:50, 55:45, 60:40, 65:35, 70:30, 75:25 and finally 80:20, when production reaches its peak.

To interpret these figures, it simply means that the government’s share of net profit in natural gas would grow annually by five per cent until it reaches a stage where the State takes 80 per cent of the net revenues, leaving investors with 20 per cent. The net profit is shared after the deduction of investment costs plus all applicable taxes as stipulated in the fiscal regime agreed during the signing of the contract.

But the leaked contract seen by The Citizen on Saturday is opposite of what was suggested earlier.

It states that the sharing of profit between the government and investors would be as follows: 30:70, 35:65, 37.5:62.5, 40:60, 45:55 and, finally at the peak of production, 50:50.

At a press conference in Dar es Salaam on Wednesday, Outgoing TPDC managing director Yona Killagane strongly refuted the claims that the country would incur a loss of $1 billion annually if the pact is fully implemented as agreed. Instead, he insisted that the government was likely to earn more money and that it stood a higher chance to benefit from the contract.

However, according to Mr Kabwe, a comprehensive analysis of the deal between the government and StatOil indicates that in the earnings accrued from gas production, the government end up pocketing peanuts.

“In an event where 1000 units of gas are produced per day, 700 units go to an investor to cater for production cost and the remaining 300 units are distributed by 150/150 ratio as profit gas. With 150 units, Tanzania receives only 15 percent of the entire natural gas produced on that day,’’ explained the Kigoma North MP adding that if PSA was abided by, it means the government would remain with 240 units equal to 24 percent.

He called for openness in contracts sealed between the government and investors in order to ensure that the country benefits from natural resources.