Tanzania 2017 Validation

Introduction

Tanzania's Validation commenced on 1 January 2017

On 25 October 2017, Tanzania was validated against the 2016 Standard. 

Validation is the EITI's quality assurance mechanism and measures the progress countries have made in meeting the requirements of the EITI Standard. For more information about the country, visit the country page on eiti.org.

The Board's decision

On 25 October 2017, the EITI Board came to the following decision on Tanzania’s status: 

Following the conclusion of Tanzania’s Validation, the EITI Board concludes that Tanzania has made meaningful progress overall in implementing the EITI Standard. The Board recognises Tanzania’s efforts to institutionalise extractive sector transparency by adopting the Tanzania Extractive Industries Transparency Act (TEITA) 2015, mandating revenue and contract disclosures. The Validation has demonstrated that the EITI process has provided useful information to the public domain, and that there are further opportunities for the EITI to contribute to the government’s reform agenda.

The Board recognises Tanzania’s achievement of satisfactory progress on requirements of the EITI Standard regarding the engagement of industry and civil society (1.2 and 1.3), legal and fiscal framework (2.1), exploration data (3.1), disaggregation, timeliness (4.7, 4.8 and 4.9) and documenting outcomes and impact of implementation (7.4).

In making its decision, the Board takes special note of evidence provided by the multi-stakeholder group of efforts made by the government to strengthen the EITI, such as developing the regulations of the TEITA 2015, and recognises the importance of making further progress on these moving forward. The Validation has further highlighted the potential for the EITI to contribute to informing and communicating the outcomes of sector reforms Tanzania. The Board sees government engagement and improved MSG governance as particularly necessary to improve the impact of the EITI process. There government is therefore encouraged to demonstrate its commitment to the EITI by appointing a government lead to chair the process, publicly restate its commitment to extractives transparency, and ensure that senior government officials are represented and engaged in the multi-stakeholder group.

The Board expressed concern that the fraud related to TEITI funds in the Ministry has not been resolved.

Validation has shone the light on the need for more comprehensive disclosures on production and export data and the management of revenues from the extractive industries. It has identified gaps in available information on some of the state-owned enterprises in the petroleum and mining sectors and the revenues that accrue from those activities to the state budget. Opportunities to bring more transparency in contract awards and license allocations, as well as active contracts and licenses in the petroleum sector, were also identified. These are all areas that would complement the government’s ongoing sector reforms and allow stakeholders to contribute meaningfully to policy discussions. Progress in these areas will require sustained high-level government commitment.

Validation has also demonstrated that there are opportunities for stakeholders, in particular government and industry, to further use the EITI to address what they have identified as key challenges in the extractive sector. The Board therefore encourages Tanzania EITI and the government to follow up consistently on recommendations from the report to improve extractive sector governance. 

The Board has determined that Tanzania will have 18 months to carry out corrective actions regarding the requirements relating to government engagement (requirements 1.1), MSG governance (1.4), EITI work plan (1.5), license allocations and register (2.2 and 2.3), the government’s policy on contract disclosure (2.4), state participation (2.6), production and export data (3.2 and 3.3), comprehensiveness of revenue disclosures (4.1), transportation revenues (4.4), state-owned enterprises transactions (4.5), direct subnational payments (4.6), revenue management and expenditures (5.1), quasi-fiscal expenditures by state-owned enterprises (6.2) economic contribution of the extractive sector (6.3), public debate (7.1) and follow-up on recommendations (7.3). The Board believes that this will help build trust in the sector and the wider economy, demonstrate the commitment of all stakeholder groups to transparency and accountable management of the country’s natural resources, and ensure that there is reliable information available to help inform public debate and policy discussions related to the extractive sector.

Tanzania progress by requirement

Recommendations

The EITI Board agreed the following corrective actions to be undertaken by Tanzania. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 25 April 2019.

  1. In accordance with requirement 1.1, the government should demonstrate that it is fully, actively and effectively engaged in the EITI process. The government should demonstrate its commitment to the EITI by appointing a government lead to chair the process, publicly restate its commitment to extractives transparency, and ensure that senior government officials are represented and engaged in the multi-stakeholder group. The government should also ensure that links are made between Tanzania EITI’s objectives and ongoing work within their respective agencies. In accordance with requirement 8.3.c.i, the government is requested to develop and disclose an action plan for addressing the deficiencies in government engagement documented in the initial assessment and validator’s report within three months of the Board’s decision, i.e. by 25 January 2018. It is recommended that the regulations supporting the TEITA Act are developed and promulgated to demonstrate government commitment and ensure clarification of the terms of engagement for government and other key stakeholders in the EITI process.
     
  2. In accordance with requirement 1.4.a.ii, the MSG should ensure that its procedures for nominating and changing multi-stakeholder group representatives are public and confirm the right of each stakeholder group to appoint its own representatives. In accordance with requirement 1.4.b.ii and 1.4.b.iii, the MSG should ensure that stakeholders are adequately represented. In accordance with requirement 1.4.b.vi, the MSG should ensure an inclusive decision-making process throughout implementation, particularly as concerns industry and civil society. The MSG should develop TORs for its work, with input from all constituencies represented on the MSG, which clearly outline the role and responsibilities of the MSG in their oversight of the EITI process. Each constituency should ensure that their representatives’ attendance at MSG meetings is consistent and at sufficiently high level to allow the MSG to take decisions and follow up on agreed matters. 
     
  3. In accordance with requirement 1.5, the MSG should adopt a regular cycle of operational workplans and, with input from stakeholders, ensure that their work plans include objectives and outcomes that are clearly linked to the national priorities for the extractive sector.
     
  4. In accordance with requirement 2.2, Tanzania should disclose a description of the process for awarding licenses, including an overview of petroleum or mining licences awarded or transferred during the reporting period, information on the technical and financial criteria for awarding licenses, and any non-trivial deviations from the applicable legal and regulatory framework for awarding licenses. Should any of this information already be available, the MSG should consider providing direct references to the relevant sources. The MSG may also wish to include commentary on the efficiency and effectiveness of licensing procedures, and could consider tasking the Independent Administrator to provide an evaluation of the licensing process and make recommendations for its improvement.
     
  5. In accordance with requirement 2.3, Tanzania should further ensure that information on awarded oil and gas licenses is disclosed, including name of license holder(s), date of application, date of award and duration of the license, and the commodity being produced. The MSG should also ensure that license coordinates are included in the mining license cadastre, if collated. If coordinates are not collated, the government should ensure that the size and location of the license area are disclosed. The government could consider establishing a public petroleum cadastre.
     
  6. In accordance with requirement 2.4, the government should ensure that its policy on contract disclosure is clearly disclosed, as well as actual practice. This should include reference to the relevant provisions in the TEITA Act and progress made in implementing these.
     
  7. In accordance with requirement 2.6.a, Tanzania should provide an explanation of the prevailing rules and practices regarding the financial relationship between the government and state-owned enterprises (SOEs) in both the petroleum and the mining sector. This should include an explanation of the rules and practices governing transfers of funds between the SOEs Tanzania Petroleum Development Corporation (TPDC) and State Mining Corporation (STAMICO) and the state, retained earnings, reinvestment and third-party financing. The rules and practices governing TPDC’s role as conduit of company payments to government should be disclosed and supported by payment figures where applicable. Tanzania should also confirm whether any loans or loan guarantees have been granted from the government/SOEs to companies operating in the country during the fiscal year covered by the EITI Report, and make information on this publicly available.
     
  8. The government should also, in accordance with requirement 2.6.b, ensure annual disclosure on the level of ownership held by the government and SOEs in mining, oil and gas companies operating within the country’s oil, gas and mining sector, including those held by SOE subsidiaries and joint ventures, and any changes in the level of ownership. This information should include details regarding the terms attached to their equity stake, including their level of responsibility to cover expenses at various phases of the project cycle, e.g., full-paid equity, free equity, carried interest. The government should also provide a comprehensive account of any loans or loan guarantees extended by the state or SOEs to mining, oil, and gas companies operating in the country.
     
  9. In accordance with requirements 3.2 and 3.3, Tanzania must disclose production and export data for the period covered in by the EITI Report. The MSG should seek to improve the consistency and comprehensiveness of production and export data in volume and value terms across the extractive sector, and to ensure that the value of gas production as well as data on export values are disclosed.
     
  10. To ensure that the revenue and payment disclosures are comprehensive in accordance with requirement 4.1, Tanzania and the MSG should ensure that EITI reporting covers material payments from the sector including revenues collected by SOEs, revenues from transportation of oil, gas and minerals, and direct sub-national payments from oil, gas and mining companies.
     
  11. In accordance with requirement 4.4, the government should ensure that material revenues collected by the government and SOEs from the transportation of oil, gas and minerals are disclosed. The MSG should investigate and document in the EITI Reports whether the government or SOEs receive revenues from the transportation of oil, gas and minerals, and if this is the case, determine whether these are deemed material.
     
  12. In accordance with requirement 4.5, the MSG must ensure that the reporting process comprehensively addresses the role of SOEs, including material payments to SOEs from extractives companies, and transfers between SOEs and other government agencies. The MSG should ensure that transactions related to SOEs operating in the oil, gas and mining sector, in particular TPDC, are adequately disclosed. This should include revenues that TPDC pass on to the Ministry of Energy and Minerals after deducting its costs.
     
  13. In accordance with requirement 5.1.a, the MSG should ensure that the EITI Report adequately explains how extractive sector revenue is distributed beyond the first receiving government entity. The MSG could also consider to initiate a discussion of extractive sector revenue in a broader budgetary context, including requesting more detailed information on the management of extractive sector revenue and related expenditures to be included in the EITI Reports. The MSG may further wish to refer to revenue classification systems in the reports.
     
  14. In accordance with requirement 6.2, the MSG should consider the existence and materiality of any quasi-fiscal expenditures undertaken by extractives SOEs and their subsidiaries, ensuring that all material quasi-fiscal expenditures are disclosed in future EITI reporting. The MSG should in particular seek to shed more light on the operations of TPDC, distinguishing clearly between its public functions and its operations on own account. This should include considering whether there are any material quasi-fiscal expenditures by TPDC in accordance with provision 6.2, and develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams.
     
  15. In accordance with requirements 6.3, the MSG should expand on the contribution of the extractive sector to the economy and ensure that contribution of the extractive sector to GDP in absolute terms (6.3.a), and the percentage share of total government revenue (6.3.b), exports (6.3.c) and employment (6.3.d) is disclosed for the year(s) under review. This could also include providing direct links to further data on extractive sector contribution to the economy.
     
  16. In accordance with requirement 7.1, the MSG should seek to raise greater public awareness of the EITI and understanding of what the data disclosed under EITI reporting mean, to create public debate about how resource revenues can be used effectively. This could be done through more strategic engagement with the media, concerted efforts to disseminate information to affected communities, and wider outreach efforts beyond the EITI launch of the EITI Report. The government and the MSG should discuss the role the EITI could play in achieving national priorities and how it can generate public debate around natural resource use.
     
  17. In accordance with requirement 7.3, the MSG is required to take steps to act upon lessons learnt; to identify, investigate and address the causes of any discrepancies; and to consider the recommendations resulting from EITI reporting. The MSG could consider a more systematic follow-up by the MSG on the EITI Report recommendations and ensuring that these highlight gaps identified through the reporting process to help ensure that the EITI could serve as a tool for improved extractive sector governance.

The MSG is encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

Next Validation date

A second Validation will commence on 25 April 2019.

Impact of the EITI in Tanzania

Documentation of progress

Eight years of implementing EITI in Tanzania (2009-2017) have brought important benefits to the country. The disclosure of extractive industries payments and government revenues through EITI has helped to improve revenue collection and accountability. One example is the improvement of revenue collection at the local level, exemplified by the case of payments to the Kilwa district council highlights the importance of this work. The 2009/10 TEITI Report revealed that the 0.3 percent Service Levy paid by PanAfrican Energy Tanzania Limited from Songo Songo gas field in Kilwa region were wrongly paid to Ilala Municipality in Dar es Salaam where the company’s main office was located, as opposed to paying the levy to Kilwa district council which hosts extraction of the gas. Since that revelation, the Kilwa district council receives around TzS 110,000 million (USD 61,000) every quarter of the year (MEM booklet).

The experience in the Lindi district triggered TEITI to initiate a dialogue with the Prime Minister’s Office Regional Administration & Local Government (PMORALG) in August 2014 regarding benefits of mandatory disclosure of expenditures of extractive industries local levy receipts and CSR contributions for 17 district councils which host mining, oil and gas operations in Tanzania. This practice will help to disclose not only the amount of money which these councils collect, but also to account for the expenditures of such receipts. This effort will help to inform the public as to what extent service levy receipts are allocated for development expenditures.

In addition, the disclosure through EITI Reports has informed minerals and revenue policy and assisted in giving the government leverage to renegotiate the service levy threshold. Prior to 2014, the holders of MDAs were paying a fixed levy of USD200,000 regardless of the amount of sales turnover. Today all companies with MDAs are paying a 0.3 percent Service Levy in accordance with the mining law (2014 APR, p.3).

The EITI Implementation in Tanzania has also informed the following legal reforms:

• In July 2015, the Parliament of Tanzania adopted the Tanzania Extractive Industries (Transparency and Accountability) Act 2015, with the objective of making mandatory disclosure of extractive industries data.

• Amendment of Section 25 of the Mining Act 2010 to enable TEITI to acquire and publish information from mining companies. See TEITA Act 2015, Part VII Consequential Amendments, Section 36.

• Amendment of Section 140(1) of the Income Tax Act (Cap. 332) which enables TEITI Committee to publish tax information from extractive Industries Companies, see TEITA Act, 2015, Part VII Consequential Amendments, Section 58.

• Amendment of Section 25 of the Mining Act 2010 to enable TEITI to acquire and publish information from mining companies. See TEITA Act 2015, Part VII Consequential Amendments, Section 36.

• Amendment of Section 140(1) of the Income Tax Act (Cap. 332) which enables TEITI Committee to publish tax information from extractive Industries Companies, see TEITA Act 2015, Part VII Consequential Amendments, Section 58.

Industry representatives on the MSG noted that EITI helped build trust and led to less conflict between companies and local communities. EITI had also, according to industry representatives, promoted dialogue at the local level, in particular regarding the payments collected by local authorities.

The disclosure of company payments and government receipts has also contributed to public debate and discussions within government. In 2016, the debates and discussions focused on payment of corporate income tax by companies which have been operating in Tanzania for a long time. These discussions led the government and Acacia to review payment of corporate income tax. Through a dialogue between the government and Acacia, the company agreed to pay a corporate income tax of USD 14 million.

MSG members explained that EITI had brought openness and awareness about sector management. One journalist highlighted the usefulness of having EITI Reports and having extractive sector information accessible in one place. He said, “before we had to run from one government agency to another, now all information can be found in one place”. He added that there is still not enough openness in government, and that journalists still have only limited access to information and knowledge.

Representatives on the MSG highlighted the need for more efforts to create public debate and improve the capacity of stakeholders to understand and advocate for more transparent and accountable management of the extractive sector.

There have been a number of discussions in recent months about the governance of the sector which led to the dismissal of Stephen Muhongo, the Minister of Energy and Mines. This included an audit of the sector. In addition, there is an on-going dispute between the Government and Acacia Mining over tax payments. It does not appear that the TEITI has been called upon to inform either of these discussions as might be expected of a quasi-government that monitors the governance of the sector.