Zanzibar Says Oil Revenue Deal with Tanzania to Spur Exploration

The Zanzibar government has reached a deal on the sharing of future oil and gas revenue with mainland Tanzania, overcoming a long-running dispute in a move that will spur exploration activities on the semi-autonomous archipelago.

Tanzanian President Jakaya Kikwete and his Zanzibar counterpart Ali Muhamed Shein struck a deal last week, allowing the Zanzibar government to commence preparations for legal and institutional arrangements to manage its oil and gas reserves, according to Seif Ali Iddi, Zanzibar's second vice president.

"The agreement has been reached between the two presidents; its only awaiting ratification from the union parliament" Mr. Iddi said.

The deal marks a major breakthrough for oil and gas companies operating in the region's fast-growing sector. The dispute has delayed a number of exploration activities, including a drilling program in four offshore blocks operated by Royal Dutch Shell PLC, which acquired the licenses in 2002.

According to Mr. Iddi, under the deal, oil and gas activities will be removed from union affairs and placed under the Zanzibar government which will be responsible for regulating the sector, including issuing new licenses.

Tanzania's energy and minerals ministry confirmed the tentative deal but added that details would be worked out by cabinet before the actual signing.

A flurry of new natural gas discoveries have pushed Tanzania's gas reserve estimates to up to 28.7 trillion cubic feet from 10 trillion cubic feet, attracting dozens of international oil and gas majors in the East African nation which is promising to become a regional energy hub.

Under the union deal between Zanzibar and Tanzania signed in 1964, oil and gas are under control of the union government, which is also in charge of national security, education and infrastructure.

Following recent discoveries however there has been pressure from Zanzibar politicians and activities to wrestle the control of the sector from the union government. The U.S. Geological Survey estimates that east Africa's coastal region holds up to 441 trillion cubic feet of natural gas.

Only last week, anti-riot police fought street battles with separatist protesters in Zanzibar who say that the union agreement doesn't favor the archipelago.

Copyright (c) 2012 Dow Jones & Company, Inc.


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