Tanzanian gas failure

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Tanzania will probably miss an October 2015 deadline to present gas laws and legislation on a proposed sovereign wealth fund because of a dispute over the constitution and looming elections, Teneo Intelligence said.

Tanzanian President Jakaya Kikwete faces political obstacles in the Constituent Assembly and any other legislation presented may undergo long debates as members of parliament posture for the presidential vote, Ahmed Salim, a senior associate for the New York-based risk adviser, said in a note to clients. The delay is “potentially embarrassing” after Kikwete set the self-imposed deadline, he said.

“It’s basically a ripple effect from the constitutional debate” that will lengthen the process of any legislation getting through, Salim said. “This failure will deal a blow to hopes of increasing external investment, following the lukewarm response to the fourth oil and gas licensing round in May.”

Tanzania is reviewing its constitution in an exercise that risks its political union with the Indian Ocean island of Zanzibar. The draft charter proposes a three-tier government with the introduction of a semi-autonomous authority on the mainland. The current union government will remain the supreme authority. Kikwete has urged the electorate not to vote for a system that will weaken the union government.

The Constituent Assembly adjourned its discussion on the draft constitution in April to prepare budget legislation for the fiscal year that started July 1, according to Kikwete. The debate resumes next month. Tanzania aims to have a new constitution before general elections scheduled for next year.

Most bids in the May licensing round, where five of eight auctioned blocks received bids, weren’t compliant with the fiscal terms and will take longer than the two-month evaluation period cited by the state-owned Tanzanian Petroleum Development Corporation, Teneo said.

“Further delays will have a knock-on effect on the development of the sector and investors may opt to delay investment decisions until after the elections,” Salim wrote.

Tanzania has natural-gas reserves estimated at 50.5 trillion cubic feet discovered by companies including Statoil ASA and its partner Exxon Mobil Corp., and BG Group Plc working with Ophir Energy Plc. The East African nation may levy windfall taxes and royalties in addition to corporate and other income taxes, according to a draft natural gas policy published in November. The state also plans to take an unspecified share in gas production projects, according to the policy.

The country plans to use some of the proceeds from the gas industry to create a sovereign wealth fund, which will partly finance the national budget.

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