Stabilization of petroleum fiscal regime in relation to production sharing agreements in Tanzania : challenges and prospects

This study argues for the need to ensure that host countries derive appropriate benefits from natural resources exploited within their territories. In this regard, the most important return from petroleum extraction, is from the fiscal take. Taxation of the extractive sector is thus a major revenue source. The host country interest from the extractive activities is in parallel to the interest of investor countries to share in the revenues derived from investments in the extractives sector by entities from those countries. Further, the capital exporting countries assert interest in protecting the investors from the risks associate with foreign investments, particularly in developing host countries. Historically, International Oil Companies enjoyed an upper hand in negotiating investment protection and stability terms as a result of information asymmetries. Many agreements concluded between the investor entities with developing host countries have been askew and overly favourable to the investor to the extent of endearing unconscionability. This study reveals that Tanzania's existing Production Sharing Agreements contain fiscal terms which do not allocate an appropriate share of financial benefits to the host country. It also reveals that arrangements to protect and provide investment stability have employed terms which are inimical to the economic and social well-being of the Peoples of Tanzania, for example through the excessive and wasteful grant of tax concessions. It was observed that Tanzania has offered fiscal terms to IOCs that do not allow the country to enjoy appropriate benefits from the exploitation of its natural resources. This project, therefore, establishes the effect of stabilisation terms as embedded in the Tanzanian fiscal regime, what redress measures should be sought to correct the imbalance and inequitableness engraved in the abusive use of stabilization arrangements through the PSAs.