Whilst parties to agreements will usually do their best to consider how to address potential issues before they arise, there is the unavoidable possibility that disagreements will only be resolved through a dispute resolution mechanism. Given that these disputes may involve confidential materials, or commercial material that the parties would prefer not to address in an open court, the parties tend to agree private dispute resolution: usually starting with an obligation that the senior managers of the parties to the dispute meet to seek to negotiate a resolution; followed, often but not necessarily, by mediation; and going on to arbitration.
Whilst the commercial arrangement between commercial parties is a matter for those parties, any dispute resolution involving the Government or Government entities is governed by the framework of the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, which, at Art. 11 states that;
“(2) For the purpose of subsection (1), disputes arising from extraction, exploitation or acquisition and use of natural wealth and resources shall be adjudicated by judicial bodies or other organs established in the United Republic and in accordance with laws of Tanzania”.
And
“(3) For the purpose of implementation of subsection (2), judicial bodies or other bodies established in the United Republic and application of laws of Tanzania shall be acknowledged and incorporated in any arrangement or agreement”.
This was not necessarily controversial. The 2013 Model Production Sharing Agreement, which is currently being reviewed in the context of the proposed 6th Licencing Round, included, at Article 29, the clarification that
“This Agreement shall be governed by, interpreted and construed in accordance with the Laws of the United Republic of Tanzania”.
And, in respect of dispute resolutions, Article 28 may have referred to the ICC Rules but there is inbuilt protection against bias:
“The arbitrators shall not be of the same nationality as either of the Parties.”
Even when
“The place of arbitration shall be Dar es Salaam, in the United Republic of Tanzania. The Language used shall be English, the applicable law shall be the law of the United Republic of Tanzania and the provisions of this Agreement shall be interpreted in accordance with that law.
The provisions of the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, prohibiting the resolution of disputes in any court outside of Tanzania, was at apparent odds with Tanzania’s commitments under bilateral or multilateral investment protection agreements. It took the Arbitration Act, 2020, to differentiate between domestic and international arbitration:
“3(a). An arbitration agreement shall be deemed to be a domestic arbitration if it provides expressly or by implication for arbitration in Mainland Tanzania…”
Although it seems that the aim of the Arbitration Act 2020 was aimed more at making local arbitration more attractive (with the prohibition in the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017 remaining), practice seems to be to accept the jurisdiction of foreign courts in arbitration cases. Recent examples of natural resources arbitration (Montero Mining and Exploration Ltd v. United Republic of Tanzania (ICSID Case No. ARB/21/6) and Winshear Gold Corp. v. United Republic of Tanzania (ICSID Case No. ARB/20/25)) were discontinued but settled out of court in favour of the claimant in each case.
Into this orderly structure, the Petroleum Act 2015 introduces another mechanism of dispute resolution in Art. 242:
“(1) PURA may inquire and decide all disputes between a person engaged in exploration or development operations, either among themselves or in relation to themselves and third parties other than the Government not so engaged, in connection with (a) the boundaries of any exploration area or development area; (b) any act committed or omitted, or alleged to have been committed or omitted, in the course of, or ancillary to, exploration or development operations; (c) the assessment and payment of compensation pursuant to this Act; or (d) any other matters in relation to exploration and development operations”.
PURA may refuse to decide any dispute (Art. 242(2)) and cannot be forced to do so (Art. 242(3)). Where it agrees to decide on a dispute it can make any decree or order which may be necessary for the purpose of giving effect to its decision and may order the payment, by any party to a dispute, of such compensation as may be reasonable, to any other party to the dispute (Art. 242(4)). A party aggrieved by any decision made by PURA, may appeal to the Fair Competition Tribunal within the period of thirty days after the decision is made. It is unclear whether this implies a further right of appeal to the High Court (Section 61 of the Fair Competition Act 2003, as amended by Section 18 of the Fair Competition (Amendment) Act, 2024).
It seems that Art. 242 of the Petroleum Act 2015 sets up an additional dispute resolution mechanism where PURA may be asked to adjudicate. The scope of this right is significant (‘any act committed or omitted, or alleged to have been committed or omitted, in the course of, or ancillary to, exploration or development activities’ and ‘any other matters in relation to exploration and development operations’). The practical aspects of dispute resolution under Art. 242 are set out in the Petroleum (Settlement of Disputes Arising from Upstream Petroleum Operations) Rules, 2023, which accept that any dispute may only be adjudicated under these Rules (Art. 2(3) of the Rules):
“Where the contract does not provide provisions for the resolution of disputes under these Rules, the parties involved in the dispute may agree that their dispute be settled by the Authority in accordance with the provisions of these Rules”.
It is not clear whether “may inquire” offers PURA the option to assume disputes for resolution on its own volition. Such additional dispute resolution mechanisms are not unique to Tanzania: Sections 9 to 26 of the United Kingdom Energy Act 2016 set out the Oil and Gas Authority’s duties and powers in considering qualifying disputes. In Case INV-2019-00104, the OGA, on its own initiative, opened a non-binding dispute resolution investigation on the question of prioritising access to the gas transportation and processing facilities of the Cygnus field for the export of production from the Pegasus field. Closer to home, the provisions of Art. 242 of the Petroleum Act 2015 are replicated (but with much greater scope) in Articles 147-150 of Zanzibar’s Oil and Gas (Upstream) Regulations 2016.
As this process matures, participants in exploration and development operations may want to engage with PURA at an early stage to ensure that any disputes can be resolved in as straightforward a manner as possible.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any other agency, organization, employer, or company. The information provided is for general informational purposes only and does not constitute legal advice.
Author Information: Dr. David Mestress is a consulting partner at RIVE & Co, where he specializes in the energy sector, with a focus on oil, gas, and renewable energy.