The Oil and Mining Tax Review Is Back Off Again Here

If you're doing resource business in one spot on the planet this week, you can rest a little easier.

Tanzania.

The sector here had been thrown into uncertainty last week. After the tax department, Tanzania Revenue Authority, said it would conduct a review of mining and oil and gas contracts. Aimed at potentially grabbing a higher share of project revenues.

The announcement from the Authority had indeed been unsettling. Suggesting that the Tanzanian government might look to "renegotiate" resource contracts. Raising the possibility of some unfavourable shifts in fiscal terms, in order to "secure for the country an enhanced and fair share from the extraction of non-renewable natural resource."

But the Authority said this week that it has now changed its mind. Finding that the tax review is unnecessary--and could duplicate work being done by the Energy and Minerals Ministry in changing fiscal terms for mining and petroleum.

This relaxation from the taxman is obviously a relief. Especially for developers in Tanzania's high-growth natural gas sector. Where plans for multi-billion dollar liquefied natural gas development fed from offshore fields have recently attracted billions in investment from places like Asia.

But, as mentioned above, the resource sector here is not out of the woods yet. With the Energy and Minerals Ministry review of contracts still apparently going ahead.

This raises the possibility that terms for agreements like petroleum production sharing contracts could be revised. With all reports suggesting that the government will look for ways to take a bigger stake of the wealth generated from these projects.

Given the potentially-large scale of a sector like LNG here, such changes might be bearable. But it's going to be a balancing act. In May, for example, a Tanzanian oil and gas licensing round drew bids for only four of the eight blocks offered. Suggesting that investors may be getting skittish over the fiscal uncertainty here.

We'll see what eventually gets decided on this key fiscal regime. And who's interested in projects afterward.

Here's to the right balance,

Dave Forest