Kitaifa

Tanzania faces Sh3.2 trillion battle after Orca Energy files breach of contract claim

Dar es Salaam. Orca Energy Group Inc, a Toronto-listed gas development company from the British Virgin Islands, has filed a substantial $1.2 billion (Sh3.2 trillion) claim against the United Republic of Tanzania and the Tanzania Petroleum Development Corporation (TPDC).

This action, initiated by Orca’s wholly-owned subsidiaries PanAfrican Energy Tanzania (PAET) and Pan African Energy Corporation Mauritius (PAEM), highlights growing tensions over alleged breaches of contractual and investment treaty obligations.

According to the statement that The Citizen has seen, Orca Energy’s claim encompasses alleged violations of the Mauritius-Tanzania Bilateral Investment Treaty (BIT), the PSA (Production Sharing Agreement), and the GA (Gas Agreement).

We reached out to the office of the Attorney General, but the Tanzanian government has yet to comment on the initiation of the claims by the company.

The dispute arises from TPDC’s rejection of PAET’s proposed commercial terms for Additional Gas (AG) and a new gas sales agreement, despite the expiration of PG’s entitlements.

PAET contends that these actions breach their contractual rights and expectations and is seeking compensation exceeding $1.2 billion (Sh3.2 trillion).

The Notice of Dispute calls for negotiations with the Tanzanian government and TPDC, with arbitration proceedings looming if a resolution is not achieved within stipulated time frames.

“Under the Notice of Dispute, PAET and PAEM seek further negotiations with the Government of Tanzania and TPDC, provided that if a resolution is not reached: (i) within six months from the date of the Notice of Dispute in respect of the Mauritius-Tanzania BIT (Bilateral Investment Treaty); and (ii) within 45 days of the Notice of Dispute in respect of the PSA (Production Sharing Agreement) and GA, PAEM and PAET, respectively, will commence arbitral proceedings in accordance with the Mauritius-Tanzania BIT PSA and GA,” reads the statement.

According to the statement, tensions escalated when PAET requested that TPDC apply for an extension of the license in April 2023. Despite PAET’s repeated requests, TPDC failed to act, citing flawed legal arguments concerning the continuation of PG. TPDC’s reluctance and unsubstantiated allegations against PAET led to a breakdown in negotiations.

On April 15, 2024, the Tanzanian Ministry of Energy intervened, directing TPDC to continue producing PG beyond the PPA’s end date, contrary to the agreements in place.

“PAET has appealed these decisions to the Ministry of Energy. However, given the position taken to date by the Government of Tanzania, PAET anticipates that the Ministry of Energy will also improperly reject the sale of gas by PAET on commercial terms.”

It adds: On August 5, 2024, this was confirmed by a letter received by PAET from the Ministry of Energy, in which the Ministry of Energy demanded that PAET propose suitable wording for an “interim arrangement” to extend the provision of PG. The letter further states that if PAET fails to do so, the other parties will seek “alternative means” to operate the field.

This directive was interpreted by PAET as an expropriation threat, prompting them to issue a Notice of Dispute on August 7, 2024.

“PAET has interpreted this letter as a clear threat that if PAET does not tolerate TPDC and the Government of Tanzania’s violation of its rights, the Government of Tanzania will expropriate PAET’s rights in relation to the Field,” reads the statement.

PAET has been an investor in Tanzania’s energy sector for over two decades, beginning its operations on October 11, 2001.

During this period, the company claims to have invested over $311 million into the Tanzanian economy, contributing to the country’s GDP by more than $725 million annually and providing over $900 million in cashflows to the Tanzanian government.

Recent developments have strained the relationship between PAET and Tanzanian authorities.

The central issue revolves around the Songo Songo Development License, granted to TPDC in 2001 for the development of the Songo Songo Field.

The agreement, which includes the Production Sharing Agreement (PSA) and the Gas Agreement (GA), was set to deliver Protected Gas (PG) until July 31, 2024, primarily for power generation at the Ubungo complex near Dar es Salaam.

The case highlights the complexities of international agreements and the challenges faced by investors in maintaining compliance and protecting their interests.

Recent cases resolved

On July 29, Tanzania reached a settlement agreement with Indiana Resources Limited, resolving a lengthy dispute over the expropriation of the Ntaka Hills Nickel Project.

As a result, the Tanzania government agreed to pay a total of $90 million (approximately Sh237 billion) to Indiana Resources and its associated entities, marking the end of nearly seven years of arbitration at the International Centre for Settlement of Investment Disputes (ICSID), a World Bank division.

Indiana Resources, which holds a majority stake in Ntaka Nickel Holdings Ltd (NNHL), Nachingwea UK Ltd (NUKL), and Nachingwea Nickel Ltd (NNL), Tanzania is set to make the payment in three installments.

The first installment of $35 million has already been received, with $25 million is due on or before October 25, 2024; and the final $30 million is to be paid by March 30, 2025.

In October 2023, Tanzania settled with Canadian mining company Winshear Gold Corp, paying $30 million (Sh75 billion) following a dispute over the expropriation of its SMP Gold Project in southwest Tanzania, originally seeking over Sh250 billion in compensation.

Recent cases resolved

On July 29, Tanzania reached a settlement agreement with Indiana Resources Limited, resolving a lengthy dispute over the expropriation of the Ntaka Hills Nickel Project.

The first installment of $35 million has already been received, with $25 million is due on or before October 25, 2024; and the final $30 million is to be paid by March 30, 2025.