Govt to retain up to 65% of oil revenues By ThisDay Reporter 3rd August 2010 THE government has insisted that up to 65 percent of future oil revenues will be retained in Tanzania, as the country hopes to fuel its economic growth in the next two decades with petrodollars. The state-run Tanzania Petroleum Development Corporation (TPDC) has dismissed concerns that the country's potential oil reserves could result into the so-called "resource curse." "...on a net cash flow basis, over a twenty-year period of production and sale of petroleum, the state's take of revenues ... will amount to between 55 to 65 percent of net (oil) revenues," said Yona Killagane, TPDC's Managing Director, in a written explanation to THISDAY on the expected benefits of oil drilling projects. He noted that Tanzania's take from future oil revenues would include royalties paid by oil drilling companies, TPDC's share of cost and profit petroleum and taxes due to the government. Killaghane said the government's 12 percent participating interest in a major oil drilling project by a London-headquartered company, Ophir Energy, as reported by THISDAY by was an additional share that TPDC would acquire in the event of a commercial discovery. The TPDC boss outlined Tanzania's Petroleum Sharing Agreements (PSA) with oil companies as follows: "The initial investment is made by the contractor on the understanding that the contractor will recover their costs out of eventual revenue from the sale of petroleum once a discovery is made and developed. If no discovery is made, the full investment will be lost by the contractor." "The PSA by design does not provide for TPDC to invest in the exploration part of the project. However, once a discovery is made and development is initiated, the TPDC will have the option to back-in by contributing up to 12 percent (or 15 percent depending on the PSA)," he said. According to Killaghane, the back-in right will give TPDC additional revenues over and above its share of profit revenue and enable the state corporation to also claim a share of cost petroleum. He said under normal circumstances, TPDC would have been required to pay for its participation in the oil drilling projects. "The PSA also provides for TPDC and the contractor to pay government taxes as per the Income Tax Act out of each revenue stream. The contractor also has to pay licence fees to the government and training fees to TPDC on an annual basis," he said. "From the above, it is clear that saying that the government will get only 12 percent of the revenues is, to say the least, seriously uninformed." Ophir Energy recently signed a $50 million contract for the first-ever deepwater drilling project in Tanzania. The company will this month deploy a specially-built offshore rig to start drilling for oil in the country. The project involves drilling two firm wells with provisions for a third in the first such campaign offshore Tanzania. The "Deepsea Stavanger" rig will be delivered in Tanzania this month from South Korea's Daewoo Shipbuilding & Marine Engineering. Ophir Energy, which has operational offices in Mtwara, is hiring the rig on behalf of the blocks 1, 3 and 4 joint ventures where the company partners with BG Group. Apart from the potential of striking substantial oil reserves, the company said its Tanzanian assets also have natural gas reserves. "The Group is optimistic that the petroleum system in the deepwater areas may be oil-prone but is also considering whether a gas-prone system may be commercially attractive as the structures mapped are substantial," said Ophir Energy on its website. "The potential size of the accumulations means that, in the event of gas being discovered, a viable LNG (liquefied natural gas) programme is likely to exist." Tanzania has been the focus of substantial gas and oil exploration activities in recent years. Australias Beach Energy Limited recently agreed to invest at least $46 million in Tanzania searching for oil and gas in the unexplored western Lake Tanganyika area. The company has already signed a Production Sharing Agreement (PSA) with the government.