Inside Africa blog

Legal developments around Africa

Zanzibar and Tanzania vie over oil reserves

Shah Jahan Khandokar

 

The most recent involves the United Republic of Tanzania and the semi-autonomous region of Zanzibar.

Despite a strong desire to reap the rewards from oil and gas within its boundaries, investors in the region are hoping that the two governments will realise that it is better to share revenue than risk deterring investment.

Against a backdrop of recent disputed matters involving Kenya and Somalia, and Ghana and Ivory Coast, which some speculate will start a plethora of maritime boundary disputes in Africa, hopes for Tanzania rest on a referendum for a new constitution.

Under the current constitution, formulated following the union between Tanganyika (mainland) and Zanzibar in 1964, the government of Tanzania has control over “Union matters” while the government of Zanzibar is left to control matters which solely affect Zanzibar.

Crucially, petroleum exploration is deemed to be a Union matter and, as a result of the potential volumes of hydrocarbons in and around Zanzibar, this matter has added impetus to calls for a greater level of autonomy for Zanzibar.

The principle reason for this has been Zanzibar’s dissatisfaction with the production sharing arrangements administered and negotiated by the state-owned Tanzania Petroleum Development Corporation (TPDC), particularly regarding the revenue sharing mechanism.

In response, the government of Zanzibar has formed its own national oil company, the Directorate of Petroleum, through which it seeks to negotiate its own terms and collect its own revenue. Though not officially recognised by the government of Tanzania, the Directorate of Petroleum has created uncertainty in the minds of exploration companies, resulting in a halt of exploration activity since 2004.

This has led the government of Zanzibar to demand that petroleum resources should not be classified as a Union matter within the constitution, but rather that Zanzibar’s resources  should be under the jurisdiction of the government of Zanzibar.

The proposal sets out that the regulation of oil and gas exploration (and the negotiation of any production sharing arrangements) should be carried out by either of the two proposed regional governments – potentially paving the way for the recognition of two separate national oil companies. The referendum on the new proposed constitution, which was scheduled for April 2015, did not take place and has been put on hold indefinitely.

The situation in relation to offshore blocks is even less clear cut. Given most of the probable oil reserves are offshore, maritime boundary disputes may arise if further clarification is not provided..

The need to establish a maritime boundary
If Tanzania does eventually approve a new constitution, it is quite conceivable that the mainland and Zanzibar have to debate the need for a maritime boundary. If they fail to reach an agreement, there may be a formal adjudication of the maritime boundary in accordance with the UN Convention on the Laws of the Sea.

Given the slowdown in exploration work in Zanzibar due to unresolved issues, an agreement on a maritime boundary would be beneficial for Tanzania as a whole.

The way forward
It is expected that the mainland and Zanzibar will agree a boundary treaty. However Tanzania is already engaged in a similar debate with Malawi, where gas fields lying under Lake Malawi have led to tensions between the government of Tanzania and the government of Malawi.

At a time when East Africa’s prospects of becoming a major participant in the global gas industry are being threatened by falling oil prices and legislative deficiencies, a new constitution in Tanzania to settle the matter would offer positive signals to the oil and gas industry. However constitutional reform is only the first step in clarifying Zanzibar’s hydrocarbon regime.

 

The Inside Africa team would like to thank Seyavash Rahnema, Trainee Solicitor, for his contribution to this blog post.

 

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