By Mutayoba Arbogast 

A Toronto-listed company based in the British Virgin Islands, has ignited a major legal battle by filing a staggering $1.2 billion lawsuit against the United Rep

ublic of Tanzania and the Tanzania Petroleum Development Corporation (TPDC). 

This high-stakes dispute could drastically alter Tanzania’s energy sector.Orca, through its subsidiaries PanAfrican Energy Tanzania (PAET) and Pan African Energy Corporation Mauritius (PAEM), alleges serious breaches of contract and investment agreements. 

According to Orca’s press release, the conflict centers on alleged violations of the Mauritius-Tanzania Bilateral Investment Treaty (BIT), the Production Sharing Agreement (PSA), and the Gas Agreement (GA).Orca claims that TPDC’s rejection of PAET’s proposals for updated gas commercial terms and a new gas sales agreement, despite the expiration of certain PSA provisions, constitutes a breach of their contractual rights.

Dr. Bonipace Luhende, Tanzania’s Chief Government Legal Advisor, confirmed receipt of the dispute notice from Orca as required by ICSID protocols. “Both parties have a six-month window to resolve the issue. If not, legal proceedings will begin,” Luhende stated.

Energy Deputy Minister Judith Kapinga, when approached by reporters, mentioned that the government is in negotiations with Orca. She expressed hope for a resolution through dialogue, given the strong working relationship between the government and the company. “However, if necessary, we will go to court, though I don’t expect it to reach that point,” Kapinga said.

She noted that PAET’s contract is due to expire in 2026 and refrained from providing additional details due to ongoing negotiations, emphasizing the need for confidentiality.The dispute emerged after TPDC rejected PAET’s extension request for their license in April 2023. Despite PAET’s repeated appeals, TPDC failed to act due to legal disagreements concerning the continuation of the PSA, leading to a breakdown in talks.

On April 15, 2024, Tanzania’s Energy Ministry directed TPDC to continue gas production beyond the PSA’s deadline, contrary to existing agreements. PAET has contested this directive, fearing it threatens their rights over the gas block.

A letter from the Energy Ministry, dated August 5, 2024, asked PAET to propose terms for an interim arrangement to extend gas production. PAET interpreted this letter as a threat of asset seizure, prompting them to file a dispute notice on August 7, 2024.PAET, a significant player in Tanzania’s energy sector for over 20 years, claims to have invested over $311 million in the country and contributed more than $725 million to national revenue, along with $900 million in cash flow to the Tanzanian government.

The crux of the issue lies in the Songo Songo development license granted to TPDC in 2001. This agreement, which includes the PSA and GA, was meant for gas production until July 31, 2024, primarily for power generation at Ubungo in Dar es Salaam.Recent developments include Tanzania’s resolution of a long-standing dispute with Indiana Resources Limited over the Ntaka Hills Nickel Project, with the government agreeing to pay $90 million

Similarly, in October 2023, Tanzania settled a dispute with Canada’s Winshear Gold Corp by paying $30 million over a contested gold project in southwestern Tanzania.Analysts argue that the government’s pattern of costly legal disputes and flawed contracts could have far-reaching financial repercussions. 

The ongoing legal challenges highlight the need for greater transparency and accountability in investment agreements to avoid similar conflicts in the future. As Tanzania navigates these complex issues, the broader implications for its economic stability and investor relations remain a critical concern.

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