New Tanzanian laws could affect power projects

12 July 2017, Week 27, Issue 112

Tanzania’s parliament has approved two key draft laws which, if enacted, will have far-reaching ramifications on the ownership structure of coal mining and power generation project. The moves come as President John Magufuli tightens his grip on policymaking across the East African country’s economy.

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Currently, subsidiaries of Ireland-based Kibo Mining and UK-based Edenville Energy are pursuing the building of separate coal-fired thermal power plants (TPPs), as the country attempts to combat crippling power outages. The International Monetary Fund (IMF) has already warned that electricity shortages are eroding previous economic gains.

Last week, Tanzanian MPs approved a new law that denies foreign firms operating in the country the right to seek international arbitration should a dispute arise between them and the government over mining and power generation agreements. According to the Natural Wealth and Resources (Permanent Sovereignty) Act, which is expected to be accented by President Magufuli any time, all disputes will henceforth be resolved through existing local dispute resolution mechanisms or courts within Tanzania.

A similar decision to reject international arbitration scuttled Egypt’s photovoltaic (PV) solar development programme made. In May 2016 the decision taken by the Egyptian Electricity Transmission Company (EETC) led to an exodus of international developers and lenders who insisted on a neutral arbitration venue outside Egypt. The government finally gave in to pressure in the last quarter of 2016 and amended the terms of future rounds. Yet final project agreements were delayed for months, and many foreign developers opted to abandon their projects altogether, as the regulations were not captured under the initial Feed-in-Tariff (FiT) scheme.

Tanzanian MPs have also passed the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act which allows the government to tear up and renegotiate existing mining contracts considered prejudicial to the interest of Tanzania. However, no clear parameters have been issued on how such existing mining contracts will be judged.

The draft laws also promote local banking of the proceeds in addition to the beneficiation of the mineral products. 

The laws could have profound implications for projects already in development. Before Magufuli came into office in October 2015, Tanzania had already signed around US$9 billion worth of agreements with Chinese firms to construct railway lines linking the country’s Central Corridor to the port hub of Dar es Salaam, with a view to better enabling the transport of coal and other minerals to the export market. 

Recently Kibo Mining CEO Louis Coetzee said that its subsidiary Mbeya Power had signed an EPC contract with China’s SEPCO III for the construction of the 300-MW Mbeya coal-to-power project(MCPP). The mouth-of-mine thermal power station, located 70km north of the regional town of Mbeya in southern Tanzania, will get feedstock directly from Mbeya coal mine.

“The process of negotiating and agreeing a final power purchase agreement should now progress at a considerably faster pace than over preceding months, as this remains the key to completing development of the MCPP,” said Coetzee after the signing of the contract between Mbeya Power Ltd and SEPCO III.

However, it is not clear what impact the new proposed regulations will have on the final PPA for the MCPP – especially after Coetzee announced recently Tanzania’s Ministry of Energy and Minerals had acknowledged the “very advanced development status of the MCPP.”

 

Edited by

Richard Lockhart

Editor

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