Navigating the bulk petroleum system in Tanzania

In this month’s legal update, we explore key legal aspects of operating in Tanzania’s bulk petroleum industry, touching on the regulatory framework, the Petroleum Bulk Procurement System (BPS), environmental considerations and associated penalties for non-compliance with regulatory requirements.

Background

The petroleum sector is undoubtedly one of the most highly regulated sectors in Tanzania due to its immense contribution to the national economy. In particular, the bulk petroleum industry plays a vital role in serving as a crucial supply chain for energy needs, industrial growth and transportation. As the demand for energy rises due to urbanization, industrialization, and population growth, navigating the complexities of Tanzania’s petroleum sector has become increasingly important to investors and stakeholders.

Key interpretations

The following key terms are applicable to this legal update:

“BPS pre-qualified supplier” means a company selected by the Petroleum Bulk Procurement Agency (PBPA) to supply petroleum products in bulk quantity under BPS;

“Bulk quantity” means a single lot of not less than 500 metric tonnes of a petroleum product;

“Environmental impact assessment (EIA)” means a systematic examination conducted to determine whether or not a programme, activity or project will have any adverse impacts on the environment;

“Oil Marketing Company (OMC(s))” means a company licenced by the Energy and Water Utilities Regulatory Authority (EWURA) to undertake petroleum product wholesale business; and

“Petroleum products” means the petroleum products to which BPS applies and specifically includes:

1. motor super premium;
2. automotive gasoil (AGO);
3. illuminating kerosene (IK);
4. heavy fuel oil (HFO);
5. jet fuel- A1;
6. liquefied petroleum gas (LPG); and
7. any other petroleum product as the Minister for Energy may declare.

Regulatory framework 

The petroleum sector is primarily governed by the Petroleum Act No. 21 of 2015 (the Petroleum Act). When it comes to bulk procurement of petroleum products, the Petroleum (Bulk Procurement System) Regulations, G.N. No. 198 of 2017 (as amended) (the BPS Regulations) specifically established the BPS which is a centralised system designed to ensure efficiency, transparency, and competitive pricing in the importation of petroleum products.

For purposes of overseeing the overall operations of bulk petroleum procurement, PBPA was established by the Executives Agency (The Petroleum Bulk Procurement Agency) (Establishment) Order of 2015. The PBPA is vested with the power and mandate to implement an efficient petroleum procurement system in accordance with the Petroleum Act.

Analysis of the BPS

As a general rule, all petroleum products imported in the Tanzanian market are required to undergo the bulk procurement process through BPS in accordance with the BPS Regulations. The Petroleum Act prohibits the importation of petroleum products for local use unless importation is conducted through efficient procurement in accordance with the BPS Regulations.

Being a strongly regulated system, BPS has two key participants which are:

1. BPS pre-qualified suppliers: these are both international and local entities entitled to participate in tenders for the supply of petroleum products. Tenders for the supply of petroleum products under BPS are floated to the pre-qualified suppliers only, as such participation in tenders is not open to the general public; and
    
2. OMCs: these are locally registered companies eligible to place orders of petroleum products through BPS. The requirements may be for local use or transit. The eligibility of an OMC to participate in the BPS is to have a valid petroleum wholesale licence issued by EWURA. It is important to note that financing of petroleum products under BPS is done by the OMCs for local products and the relevant consignee for the transit product.

OMCs, being locally registered companies can also qualify as BPS suppliers, however, not all BPS pre-qualified suppliers can qualify as OMCs, given that some of these are international entities. The relationship between PBPA, BPS pre-qualified suppliers and OMCs is governed contractually. This means that BPS pre-qualified suppliers and OMCs enter into independent agreements with PBPA which will provide the roles and obligations of each party to the agreement.

For BPS pre-qualified suppliers, an agreement with PBPA would normally stipulate the terms of the partnership including pricing, quality assurance and delivery logistics (among other things). For OMCs, such an agreement will:

1. guarantee that the OMCs will perform the obligations stipulated in the shipping and supply contracts, as applicable;
    
2. recognise the OMC’s responsibility of financing the fuel products imported under the BPS; and
    
3. recognise the role of PBPA in coordinating importation of fuel products through the BPS.

For the purpose of eligibility to import petroleum products in Tanzania, the BPS Regulations require OMCs to register with the BPS. Once registered OMCs are allowed to participate as suppliers of petroleum products through the BPS which involves the importation of petroleum products.

In practice, PBPA issues tenders with specifications on the required petroleum products. All petroleum products shall conform with the approved specifications in accordance with the Standards Act No. 2 of 2009 (as amended) and the quantity demand of OMCs as submitted to PBPA. Once a tender is issued, the BPS pre-qualified suppliers are then able to submit their bids based on the tender requirements. The successful bidder will sell its petroleum products to PBPA who will thereafter sell the petroleum products to the OMCs. In essence, PBPA is the customer and importer by virtue of purchasing the petroleum products from the BPS pre-qualified suppliers and importing the same in Tanzania. This means that there is no direct purchase of petroleum products in bulk quantity by OMCs from suppliers – it is only through the involvement of PBPA as the importer, that petroleum products can be brought to the Tanzanian market.

The BPS Regulations do not provide a specific sanction for petroleum procurement in violation of its provisions. However, the BPS Regulations do impose a general penalty of TZS 3,000,000 (approximately USD 1,100) on any person who is in violation of its provisions where a specific penalty is not provided. As such, this penalty would apply in an instance where petroleum products are not efficiently procured.  

Environmental considerations

From an environmental perspective, the bulk petroleum procurement sector, if not strictly monitored, could potentially lead to environmental contamination based on the nature of petroleum products. Therefore, despite the Petroleum Act being the main legislation, the Environmental Management Act, No. 20 of 2004, (as amended) (the EMA) poses a legal requirement on OMCs to conduct an EIA prior to establishing storage or distribution facilities. 

According to section 184 of the EMA, any person who fails or refuses to conduct an EIA in respect of a project for which an EIA is mandatory, commits an offence and upon conviction, shall be liable to a fine of not less than TZS 5,000,000 (approximately USD 1,800) but not exceeding TZS 1,000,000,000 (approximately USD 370,000) or to imprisonment for a term of not less than two years but not exceeding seven years. In some instances, both a fine and imprisonment may be imposed.

Conclusion

The future of the bulk petroleum industry in Tanzania remains promising, as the country continues to position itself as a key player in the East African energy market. Strategic investments in infrastructure could alleviate some of the existing bottlenecks and improve the efficiency of petroleum distribution.

The Government's commitment to creating a more investor-friendly environment through ongoing reforms and regulatory updates offers further opportunities for growth. Investors and operators who understand and navigate the regulatory landscape in compliance with the legal requirements are well-placed to benefit from these opportunities.