Q&A – 29 July 2013

Oil and gas company land ownership

We are a large oil and gas company in Tanzania and looking at investing in a plant that is going to cost us tens of billions of dollars. We have a number of questions. First can an oil and gas company own land in Tanzania? Can any other type of investor own land in Tanzania? We are not comfortable with entering into a long lease with the landowner as the long lease can be terminated? Please guide.
WE, Dar

The Land Act of Tanzania specifically disallows foreign companies from owning land (leasehold ownership) unless they have a certificate of incentives under the Tanzania Investment Act. Hence a foreign company who has a certificate of incentives can own land.

The catch here is that this Act only applies to oil and gas and mining companies to the extent of guaranteeing transfer of capital, profits and dividends and guaranteeing against expropriation. Other than this, the Act does not apply to oil and gas and mining companies, meaning that such companies cannot qualify to apply for a certificate of incentives within the meaning of this Act and hence cannot own land.

Your concerns about investing billions on a piece of land and not owning it need to be raised with your sector ministry and Tanzania Petroleum Development Corporation (TPDC). Unless the legislation is specifically changed to allow such large investors and investments to own land, the current law as it stands disallows you from owning land.

If you decide to go by way of a long lease, you must make sure the lease is long enough and that the termination clause in there is very tightly worded in your favour. You may also want to make sure that you ensure that your landlord is not in breach of the covenants under the right of occupancy otherwise should the right of occupancy be revoked, your lease will automatically terminate as it will have no legs to stand on. Your lawyers can guide you further.

Joint venture with Government agency

We have entered into a joint venture with a government agency, whose CEO is under a certain Ministry. The JV has had some financial challenges with the influx of foreign players in addition to a depressed price of the commodity we deal in. Our projections on profitability have not been met and the Minister made a remark that he intended to terminate the JV. We have invested millions of dollars into the project and are quite surprised with such a threat. Even the agencies CEO is sympathetic to the project but says the Minister has wide powers under the law to terminate us even though there is a mechanism under the JV agreement where a dispute has to be referred to arbitration. Kindly guide if there is any law that gives the Minister such blanket powers.
ER, Dar

To begin with, it is very hard for us to answer this question without knowing what agency you are referring to and what ministry such agency is under. All government agencies are established under a certain law whereby the powers of the agency and sometimes the Ministry responsible for the agency are stipulated. We hence answer this question in general terms and suggest you seek specific legal advice.

To begin with, the JV agreement will have provided for the rights and obligations of the parties including a termination clause. Depending on the type of default, there will be stated various options to terminate, rectify, cure et al. Hence the Minister is bound by the JV agreement and has no right to issue these threats unless of course the law establishing the agency or any other law provides for such blanket powers (we doubt it). The Minister might have been carried away in his remarks and you should draw his attention to the JV agreement.

If the price of the commodity you are mentioning has declined resulting in this loss-making state, and that decline is not due to your negligence, then we do not see why you would be in breach. When projections are made, they are made on the basis of certain assumptions, which change over time.

If the JV agreement has an arbitration clause and the Minister threatens to terminate it, we recommend that you immediately refer this as a dispute and refer the matter to arbitration. If you require an order from Court whilst the matter is in arbitration, you can make an appropriate application in Court for necessary injunctive relief pending final determination of arbitration.

It might be worth to notify the Minister and his legal advisors in the Ministry that due process must be followed and that termination would be illegal. The government has taken a number of high ranking officials to task for failing to comply with the terms of agreements that these officials illegally terminated, allegedly in the name of the government and where the government lost billions and trillions in arbitration. A contract that parties enter into must be respected within the four corners of the contract read in conjunction with the laws of the land.

Unregistered sale of Sim Cards

I found some sim cards abandoned which I started selling at Kariakoo market before being arrested on the grounds that I am an illegal dealer and have no proper authorization. I am surprised because these sim cards are sold everywhere and don’t understand why I am the only one being prosecuted. This seems to be another way of making sure that poor people like me are marginalized.
YT, Dar

The Electronic and Postal Communications Act of 2010 states that, any dealer or person who sells or distributes any sim cards without authorization of the appropriate Network Service Licensee shall be guilty of an offence and be liable on conviction to a fine of seven million Tanzanian shillings or to imprisonment for a term of two years or to both. As per the said provision, the act of selling sim cards without proper authorization from the registered licencee is illegal under the Act and it can lead to imprisonment. The registration of sim cards is done in many countries for security and other reasons and we don’t believe it is a “way” of marginalizing you.

We advise you to seek the services of an attorney for further guidance.