Oil ang Gas Politics: Key factors influencing oil and gas negotiation processes in Tanzania

Meneja Wa Makampuni

JF-Expert Member
Jul 7, 2020
One of the biggest problem decelerating development of oil and gas sector in Tanzania is negotiation with investors who have willing to make an investiment.

In reality negotiation processes are not only about distributing rents, but also about distributing risk.

Decisions to invest are made in environments of uncertainty.

This implies that actors use judgment and make trade-offs and that no single model result can be achieved.

There are three factors influencing negotiation processes: 1. GEOLOGICAL FACTORS, 2. POLITICAL RISKS and 3. MARKET CONTEXT.

In reality, contracts are formulated on the basis of actors’ relative bargaining strengths, influenced by these three factors.

GEOLOGICAL FEATURES include both risks and expenses related to geology. Often, there is limited knowledge about the geology of the area that is the subject of negotiations. Even if deposits are found, the costs of exploiting them vary and may be higher than what world market prices can justify.

POLITICAL RISKS include the fiscal regime, contract stability and access to finance. These may change over time and affect profitability. Developing countries are perceived to be particularly risky because of their lack of experience and volatile
political cultures. These risks also affect access to finance.

THE MARKET CONTEXT may cover a range of factors. Though investors are likely to make decisions based on long-term expectations, fluctuations in global oil prices matter. Distance to markets is an issue, since developing countries’ domestic markets are relatively small.
Because of transportation costs, governments compete for investments regionally; Forexample a country like Tanzania competes more with neighboring Mozambique than with Norway.

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