Orca Energy Group announces that its 100% wholly-owned subsidiaries, PanAfrican Energy (Tanzania) ("PAET") and Pan African Energy Corporation (Mauritius) ("PAEM"), have issued a notice of dispute in respect of an investment treaty claim under the Agreement on Promotion and Reciprocal Protection of Investment between the Government of the Republic of Mauritius and the Government of the United Republic of Tanzania (the "BIT") against the Government of Tanzania for breach of the BIT, alongside notifying a contractual dispute against the Government of Tanzania and Tanzanian Petroleum Development Corporation ("TPDC"), a petroleum corporation owned and controlled by the Government of Tanzania, for breaches of: (i) the Production Sharing Agreement between the Government of Tanzania, TPDC, and PAET (the "PSA"), and (ii) the Gas Agreement between the Government of Tanzania, TPDC, Songas Limited ("Songas") and PAET (the "GA"), for an amount in excess of $1.2 billion. All amounts set forth herein are in United States dollars ("$") unless otherwise stated.

PAET has had an active presence in the United Republic of Tanzania for over 20 years, with its operations commencing in Tanzania on October 11, 2001. Over that time period, the Company's operations have met all legal and regulatory requirements, complied with best practices relating to oil field management and created over 100 jobs in local communities. The Company has invested over $311 million in Tanzania, which is estimated to have saved over $8 billion dollars of value to consumers in fuel replacement, contributed over $725 million annually to Tanzania's gross domestic product, and contributed over $900 million in cashflows to the Government of Tanzania. Additionally, the Company has invested more than $6.6 million in Corporate Social Responsibility projects focused on health, education programs and facilities in Kilwa District and the wider Lindi Region. The Company has also invested widely in physical infrastructure and training, including investing almost $2 million to fund training for TPDC and Government of Tanzania staff to enhance their knowledge and skills in the oil and gas sector.

Map source: KeyFacts Energy

On October 11, 2001, Tanzania granted the Songo Songo Development License for the Songo Songo Field to TPDC, its state-owned and controlled petroleum company, to develop the Field for an initial term of twenty-five years, ending on October 10, 2026. The Government of Tanzania recognised that it needed to obtain foreign investment and technical assistance to develop the Field, and accordingly, the Government of Tanzania entered into a number of agreements with PAET, which included the PSA and GA.

On April 14, 2023, PAET formally requested that TPDC apply to the Minister of Energy of Tanzania for an extension of the License as set out in the PSA. As of the date hereof TPDC has not done so, providing no credible justification for its inaction. It has made clear that its failure to apply for an extension relates to its baseless/legally flawed position on the continuation of Protected Gas ("PG"). TPDC has also repeatedly made unsubstantiated allegations about purported breaches by PAET of the License terms, which PAET has robustly rebutted. These rebuttals have gone effectively unanswered, which is amongst the reasons the Company considers that it has no further option but to launch these legal actions, to safeguard shareholders.

TPDC assigned to Songas the exclusive right to explore for and develop Protected Gas ("PG") from certain specified blocks within the Field. PG was to be used primarily for the production of electricity from a power complex located at Ubungo near Dar es Salaam, which would be sold to the Tanzanian electricity utility, Tanzania Electric Supply Company Limited ("TANESCO"), a wholly-owned company of the Government of Tanzania, under a Power Purchase Agreement (the "PPA"). Under the terms of the GA, any entitlement to PG ceases on the ending of the initial term of the PPA, being July 31, 2024.

On April 15, 2024, contrary to the terms of the GA and PSA and in contravention of PAET's legitimate expectations, the Permanent Secretary of the Minister of Energy of Tanzania wrote to TPDC, copying PAET and Songas, directing TPDC to "ensure that Protected Gas continue to be produced to the end of the Development Licence on 10th October 2026". Consistent with that instruction, TPDC has taken the position that PG should continue notwithstanding the initial term of the PPA having ended on July 31, 2024, and despite the parties’ contractual agreement that PG would end on that date.

On July 8, 2024, PAET wrote to TPDC providing the commercial terms on which it would supply Additional Gas ("AG") to Songas, which was previously supplied as PG under the GA until July 31, 2024. On July 12, 2024, TPDC purported to reject those terms under clause 4.3(a) of the PSA. Similarly, on July 23, 2024, TPDC rejected the commercial terms of a new gas sales agreement ("GSA") between PAET and Tanzania Portland Cement PLC ("TPCPLC"), pursuant to which PAET would supply AG to TPCPLC, which was previously supplied as PG under the GA until July 31, 2024. The sole basis that TPDC gave for its rejections was its assertion that PG continued after July 31, 2024. PAET has appealed these decisions to the Ministry of Energy. However, given the position taken to date by the Government of Tanzania, PAET anticipates that the Ministry of Energy will also improperly reject the sale of gas by PAET on commercial terms.

On August 5, 2024, this was confirmed by a letter received by PAET from the Ministry of Energy, in which the Ministry of Energy demanded that PAET propose suitable wording for an "interim arrangement" to extend the provision of PG. The letter further states that if PAET fails to do so, the other parties will seek "alternative means" to operate the Field. PAET has interpreted this letter as a clear threat that if PAET does not tolerate TPDC and the Government of Tanzania's violation of its rights, the Government of Tanzania will expropriate PAET's rights in relation to the Field.

PAET continues to act in the best interests of its Tanzanian stakeholders and make natural gas available to Songas for power, so that the country can continue to benefit from a reliable power supply. The Company has consistently demonstrated its commitment to supporting the Tanzanian economy, following 20 years of continued investment in the country. However, as detailed in recent announcements, and as set out in the GA, the supply of PG ceased on July 31, 2024, with all gas now being produced from the Field, being designated by as AG. PAET's belief is that it is entitled to compensation at commercial rates for any such gas supplied as AG.

On August 7, 2024, PAET and PAEM issued a notice of dispute to the Government of Tanzania and TPDC for violations of the Mauritius-Tanzania BIT by the Government of Tanzania and the violations of the PSA and GA by TPDC and the Government of Tanzania (the "Notice of Dispute"). Although PAET and PAEM are not currently in the position to fully quantify the losses incurred as a result of such breaches, the Notice of Dispute approximates the amount of damages to be in excess of $1.2 billion. Under the Notice of Dispute PAET and PAEM seek further negotiations with the Government of Tanzania and TPDC, provided that if a resolution is not reached: (i) within six months from the date of the Notice of Dispute in respect of the Mauritius-Tanzania BIT; and (ii) within 45 days of the Notice of Dispute in respect of the PSA and GA, PAEM and PAET, respectively, will commence arbitral proceedings in accordance with the Mauritius-Tanzania BIT, PSA and GA.

KeyFacts Energy: Orca Tanzania country profile