A. Legal Foundation & Scope
- The CIP is introduced by The Petroleum Act, 2015, and is enforced across the entire sector (upstream, midstream, and downstream activities).
- PURA and EWURA are the principal regulators tasked with monitoring compliance.
- Firms to whom the CIP applies are legally defined as “Applicable Persons.”
B. Core Obligations & Penalties
- Mandatory Audit: Applicable Persons must appoint an independent auditor within 90 days to confirm compliance. Failure to do so incurs a daily fine of TZS 5 million.
- Compliance Program: Firms must appoint a Chief Compliance Officer (CCO), develop a comprehensive Code of Conduct, engage the board, implement appropriate training, and publish all documents on their website. Failure to meet these requirements incurs a further fine of TZS 5 million per day per breach.
- The magnitude of these fines underscores the critical importance Tanzania places on adherence to the CIP.
C. Consequence & Risk
- Ultimate Sanction: A failure to comply with the Integrity Pledge can ultimately result in the loss of the relevant licence or permit.
- Current Risk: A review of E&P websites suggests poor levels of compliance within the sector, carrying significant consequential commercial risk for non-compliant operators.
The Corporate Integrity Pledge (CIP) is a mandatory requirement for all participants in Tanzania’s Energy and Petroleum (E&P) sector.
The 2015 Petroleum Act introduced, in section 223, a requirement that:
“(1) A licence holder and the contractor who undertakes petroleum or gas activities under this Act shall be required to comply with the integrity pledge”.
This requirement is found in other Mainland subsidiary legislation including in section 15(2) of the Petroleum (Natural Gas) (Transmission and Distribution Activities) Rules 2018; section 9(1)(c) of the the Petroleum (Condensate Operations) Rules 2021; or section 16(2)(a) of the Petroleum (Wholesale, Storage, Retail and Consumer Installation Operations) Rules 2022. It is also mirrored in section 138 of the Zanzibari Oil and Gas (Upstream Regulations) Act 2016.
Section 223(2) of the 2015 Petroleum Act implies assurances into the integrity pledge that a licensee shall conduct regulated activities with the utmost integrity and that it shall not engage in any arrangement that undermines or is in any manner prejudicial to the country’s financial and monetary systems, including its tax system.
Section 223 (3) of the Petroleum Act allowed the Minister for Energy to issue additional regulations, which he did through the Petroleum (Corporate Integrity Pledge) Regulations 2019 (the “Regulations”), published on the 1st of November 2019. They apply to (a) upstream activities (for instance, to any contractor operating a licence on behalf of TPDC under an appropriate Production Sharing Agreement); (b) midstream activities (for instance, to transportation pipelines); and (c) downstream activities (for instance, to owners of CNG or petrol stations) in the United Republic of Tanzania.
The Regulations apply to any contractor, sub-contractor, licensee, or any other person conducting any or all operations and activities in connection with ‘petroleum activities’ –being reconnaissance, exploration, appraisal, development, production, processing or liquefaction, including activities in connection with the decommissioning of petroleum facilities (an “Applicable Person”).
The Applicable Person must, within 90 days of the award of the licence, appoint an Independent Review Organisation (“IRO”) such as accountants, auditors or consultants, to audit its compliance on an annual basis. Failure to appoint an IRO carries a fixed penalty of TZS 5 million per day. The IRO’s report, which is to be presented to the regulator, must include detailed descriptions of all relevant documentation, an assessment of any weaknesses as well as suggestions for improvement, and a list of all people that the IRO interviewed for its audit. Failure to submit any IRO Review Report carries an additional fine of TZS 5 million per day.
Each Applicable Person must appoint a chief compliance officer (“CCO”), who is responsible for the development and implementation of the necessary systems, policies and procedures. The CCO must be a member of the senior management team and report to the CEO, as well as make quarterly reports on compliance to its board of directors. Further reporting obligations are placed upon the board itself.
Each Applicable Person is required to maintain a compliance programme that includes written standards, a Code of Conduct and appropriate policies and procedures. The Code of Conduct is to be distributed to all officers, directors, employees and any owners who are natural persons (other than shareholders that own an equity interest of less than 5% and have bought that interest through public trading) (a “Covered Person”). Each Covered Person has 30 working days to confirm receipt of, and its compliance with, the Code of Conduct. The Integrity Pledge and all relevant supporting documents must also be reflected on the Applicable Person’s website. Failure to establish and implement any of the prescribed obligations in the Regulations carries a fine of TZS 5 million per day per breach.
The magnitude of the fines indicates the importance that Tanzania places on the Integrity Pledge: a failure to do something that carries a daily fine of TZS 5 million would, if it has not been done since the Regulations came into force in 2019, have by now resulted in a potential exposure of TZS 10,950,000,000 (ca. US$5 million).
But the fines are not the biggest stick in the Regulations. Section 223(4) of the Petroleum Act 2015 (wording which is also reflected in Section 25(3) of the Regulations) allows for the termination of the licence:
“Any person who fails to comply with integrity pledge shall breach the conditions of licence or permission to engage in the regulated activity and such licence or permission shall be deemed to have been withdrawn or cancelled and the Government shall exercise the right of takeover facilities provided for under this Act”.
In summary, the Integrity Pledge is designed as an important mechanism to ensure transparent and ethical corporate behaviour, and establishes a series of monitoring, auditing and reporting obligations on certain participants in the oil and gas upstream, midstream and downstream sectors, backed by a system of fines and, ultimately, the risk of forfeiture of the relevant licence or permission.
About the Author
David Mestress is a Consulting Partner with RIVE & Co. He specialises in regulatory compliance and commercial risk within the extractive industries. He can be reached at: david@rive.co.tz
Disclaimer
Please note: This article is intended for general information purposes only and does not constitute legal, tax, or professional advice. While the information is based on public legislation and is believed to be accurate at the time of publication, it is subject to change. Readers should not act upon this information without seeking professional legal counsel tailored to their specific situation. RIVE and the author expressly disclaim any and all liability with respect to any actions taken or not taken based on the contents of this publication.