Published 10 January 2023
Using its sovereign power, the Government of the United Republic of Tanzania signed various Production Sharing Agreements (PSA) to govern the exploitation of petroleum. The power emanates from the principle of Permanent Sovereignty over Natural Resources (PSNR) promulgated in the United Nations General Assembly Resolution 1803 (XVII) which recognises, among others, the right of States to enter into agreements with foreign investors. The PSNR further requires the Government to observe the freely signed agreements in good faith. In almost all signed PSAs, the Government agreed with the foreign international dispute settlement mechanism and committed itself not to unilateral change the terms of the PSAs using its legislative powers.
In 2017, the Government domesticated the principle of PSNR in the two natural resources laws; the Natural Wealth and Resources (Permanent Sovereignty) Act and the Natural Wealth and Resources Contract (Review and Re-negotiation of Unconscionable Terms) Act. This article argues that domestication ignores the duty of honouring in good faith the already signed PSAs. The two laws mandate all disputes in the petroleum industry to be settled in Tanzania using the laws of Tanzania and empower the Government to amend the PSAs unilaterally. Implementing the dispute settlement mechanisms provided in the law may lead to unnecessary disputes considering the existing PSAs have different dispute mechanisms. Also, the re-negotiation mechanism of the so-called unconscionable terms provided in the law, which leads to unilateral amendment of PSAs, is against the requirement of mutual consent agreed in PSAs. Further, the reforms undertaken affect future investment in Tanzania’s petroleum industry by creating an uncertain legal regime and removing the stability of investment contracts.