Q&A – 25 April 2016

Exclusivity of the national oil company

I am intending to invest in the oil and gas sector in Tanzania. Am I free to sell the gas I extract to anyone in Tanzania that I wish at whatever price I want?
GO, Dar

Unfortunately if you are a new player, after discovery, you will likely come under the ambit of the Petroleum Act 2015 which has introduced, unlike its predecessor law the Petroleum (Exploration and Production) Act 1980, the concept of an aggregator.

Section 125 states that (1) The National Oil Company shall designate one of its subsidiaries to be the aggregator. (2) The aggregator shall have exclusive right to purchase, collect and sell natural gas from producers: Provided that, the exclusive rights of the aggregator shall not extend to natural gas that is preserved for export purposes in the form of Liquefied Natural Gas. (3) The aggregator shall apply to EWURA for a licence before exercising its right under sub-section (2). (4) Notwithstanding the provisions of sub-section (2), the producers may sell natural gas to any other person after obtaining consent from the aggregator.

You can see that the aggregator has the exclusive right to purchase gas from you and then to sell it in the local market. This is a big problem for many private players since the aggregator needs to have the financial muscle to pay for this gas and at the same time should be able to pay a reasonable price that must be negotiated. Hence if you are unable to negotiate the price, you might never be able to sell.

This is a serious issue that can affect the development of the downstream. We are however informed that the issue is being looked at to remove this exclusivity as it can lead to serious mismanagement and inefficiencies which we have seen in the past.

Mortgage amount increased

I guaranteed an amount of a loan to a friend by pledging my property. Subsequently there are other amounts that have been disbursed. Am I responsible for these additional amounts that the bank lent to the borrower? I am unwilling to bear responsibility for these as he has now defaulted and the bank is after me. I really feel like suing this bank.
YE, Moshi

It all depends on how the mortgage deed has been drafted and whether you signed for the total amount that was being disbursed in traches. If you guranteed for the total amount, then you are responsible.

Mortgage deeds can also be drafted to allow additional amounts to be borrowed, and hence the critical document is the mortgage deed.

Under the Mortgage Financing (Special Provisions) Act where a mortgage provides for the disbursement of a specified principal sum by the mortgagee by way of instalments, whether such disbursements are conditional or unconditional obligations of the mortgagee, the payment of those instalments shall not be taken to be a further advance and such disbursements shall rank in priority to all subsequent mortgages up to the amount stated in the mortgage.
From the above, your liability is to the maximum of what is stated in the mortgage deed. We suggest you check the amounts stated therein before taking any action.

Dispute under TIC certificate

We are having serious issues getting what was promised to us in writing by the Tanzania Investment Centre (TIC). There is absolutely no coordination between the TIC and other government institutions as much as the TIC is trying. We have to run around begging for promises made to us for our investment. Can we sue?
HR, Dar

The current government has promised that it is here to invite and continue working with genuine non tax evading investors as there is no growth without investment. Also section 23 of the Tanzania Investment Act or your performance contract that may you have in place has clear dispute resolution clauses.

Section 23 states that (l) Where a dispute arises between a foreign investor and the Centre or the Government in respect of a business enterprise, all efforts shall be made to settle the dispute through negotiations for an amicable settlement. (2) A dispute between a foreign investor and the Centre or the Government in respect of a business enterprise which is not settled through negotiations may be submitted to arbitration in accordance with any of the following methods as may be mutually agreed by the parties, that is to say- (a) in accordance with arbitration laws of Tanzania for investors; (b) in accordance with the rules of procedure for arbitration of the International Centre for the Settlement of Investment Disputes; (c) within the framework of any bilateral or multilateral agreement on investment protection agreed to by the Government of the United Republic and the Government of the Country the Investor originates.

We suggest you either follow the dispute resolution clause in your contract or the above and proceed to negotiate and if that fails you may decide to refer this to arbitration.

Charged in Court by TRA

I have been charged in Court by TRA for failure to pay certain taxes on certain dates that I had committed to pay and failed because of cashflow. I am now ready to do so but the TRA say this is beyond their control as it is in Court. Is that true? How can I resolve this without going through Court proceedings?
TE, Dar

The Tax Administration Act has a specific section that deals with compoundment of offences ie converting the offence from a criminal offence to a civil one. However you must admit in writing that you have committed the offence so that you can pay fines as provided under the compoundment agreement. This is an option that TRA usually prefer as TRA’s ultimate aim is to collect taxes and not to imprison you.

The problem we see is that TRA are now not allowed under the law to solely enter into this agreement unless they seek consent of the Director for Public Prosecutions. Subject to this consent from the DPP, TRA have all the power to compound this offence and we strongly recommend you do so, especially considering that it seems you are admitting your non compliance. Remember TRA as a tax authority has a lot of power to proceed against you.