The Contractual Implications of the Tanzania Upstream Petroleum Fiscal Regime

The purpose of this brief is to examine the effectiveness of the current fiscal regime and its contractual implications. The investor and the government may have different objectives in the development of gas fields. With the current fiscal regime, a prospective investor can satisfy the objective of obtaining substantial profits from gas exploitation with an internal rate of return above the market discount rate of 10%. With proper tax administration the government is able to maintain the current tax rates at the same time encourage exploration and development of fields which are commercially viable before and after tax. By analysing the 2013 Model Production Sharing Agreement the author shows that with varying gas prices and costs of investments the current rent collecting system is progressive. Amidst the declining oil prices in the world market a debate has emerged whether the Tanzanian fiscal regime is too tight or not and how it may affect Investments in the sector. The analysis takes into account that before deciding to extract natural gas, a contractor and the government need to make financial analysis to determine if a project is viable. The widely used method in the industry is the Capital Budgeting Method to determine the size of economic rents on any project in the petroleum industry by using practical performance criteria and yardsticks at field development stage of which include the Net Present Value (NPV), rate of return (IRR) and investors weighted cost