The Tanzania Liquefied Natural Gas (LNG) project, a proposed $42 billion export terminal near Lindi, is being developed by a consortium of international energy companies and the Tanzanian government.

Key Stakeholders (2026 Status)

As of early 2026, the primary entities behind the project include:

• Joint Operators: Shell (UK) and Equinor (Norway) lead the development of the offshore blocks and the onshore terminal.
• International Partners: ExxonMobil (USA), Pavilion Energy (Singapore), and Medco Energi (Indonesia) hold significant interests in the project.
• Government of Tanzania: The state-run Tanzania Petroleum Development Corporation (TPDC) is a central partner and future equity holder.

Current Project Status (January 2026)

• Legal Framework: As of January 9, 2026, the Tanzanian Attorney General’s office is finalizing the Host Government Agreement (HGA) and Production Sharing Agreement (PSA), with a target completion date of late February 2026.
• Investment Decision: A Final Investment Decision (FID) is now anticipated later in 2026 following the conclusion of these legal and fiscal negotiations.
• Parallel Initiatives: Separately, TPDC is collaborating with firms like Energetech Tantel and Rosetta Energy Solutions to launch smaller, modular LNG facilities by 2026 to support domestic energy needs. 

What are the main points of contention in the Host Government Agreement negotiations for the Tanzania LNG project?

As of January 2026, the negotiations for the Host Government Agreement (HGA) for Tanzania’s $42 billion liquefied natural gas (LNG) project are in their final legal review stages. While technical issues have largely been resolved, several critical points of contention have historically delayed the signing.

1. Domestic Gas Allocation

A central point of negotiation has been the government’s demand for a “domestic market obligation.” Tanzanian authorities have requested that at least 3% to 10% of the gas produced be reserved for local utilization rather than export. This is intended to fuel domestic industries and power generation, but investors have expressed concerns regarding how this might impact the project’s overall commercial viability and export revenue.

2. Local Content and Insurance

The Tanzanian government has pushed for strict local content requirements, insisting that: 

• The international consortium (Shell, Equinor, and ExxonMobil) commit to using local labor and goods.
• The project must utilize Tanzanian-registered insurance companies for its operations.
  These demands are part of a broader strategy to ensure the project directly benefits the Lindi and Mtwara regions.

3. Fiscal Terms and Tax Incentives

Negotiators have been “haggling” over the fiscal regime, including: 

• Tax Incentives: The government and investors are discussing specific tax breaks and government incentives required to make the project “bankable” for international financiers.
• Contract Structure: There have been disagreements over the Production Sharing Agreement (PSA) and how revenue will be split between the state and the private companies.
• Equity Stakes: Discussions have also involved the size of the Tanzania Petroleum Development Corporation (TPDC)‘s equity stake and the government’s ability to fund that participation.

4. Regulatory Stability and Legal Review

Investors have expressed concerns over legal and regulatory consistency following proposed government changes to financial agreements originally initialed in 2023. As of early January 2026, the Attorney General is conducting a final legal review of the modified agreements to ensure they align with Tanzanian law before formal signing. 

What are the risks for investors in Tanzania’s LNG project?

Investors in the Tanzania Liquefied Natural Gas (LNG) project face a range of risks, primarily related to regulatory uncertainty, global market volatility, and local socio-political challenges. These risks have contributed to repeated delays in the project’s Final Investment Decision (FID).

Regulatory and Political Risks

• Policy Incoherence: The lack of a stable, predictable, and robust legal and tax framework is a major concern. Frequent changes to agreements have created uncertainty and damaged investor confidence in the past.
• Negotiation Delays: Protracted negotiations over the Host Government Agreement (HGA) and Production Sharing Agreement (PSA), specifically concerning revenue sharing and local content mandates, have significantly stalled the project’s progress.
• Government Demands: Disputes over the government’s required equity stake (which is relatively high at 25%) and demands for specific tax incentives present substantial commercial risks for international partners like Shell and Equinor.
• Asset Appropriation: There is a perceived risk of asset expropriation, a concern amplified by past government disputes with other mining companies in Tanzania.

Economic and Market Risks

• Capital Intensity and Long Timelines: The project requires a massive capital investment (estimated at $42 billion) and has a long development cycle, making it susceptible to long-term economic shifts.
• Global Price Volatility: LNG prices are often indexed to volatile global oil and gas prices. The project’s commercial viability requires a stable, long-term price (estimated breakeven price is higher than in competing regions like the US and Australia), which is a key financial risk.
• Competition: The project faces stiff competition from other global LNG suppliers and even a parallel project in neighboring Mozambique.
• Financing Challenges: Securing financing for such a large project is challenging, and political risk premiums can raise borrowing costs, potentially rendering the project financially unviable.

Operational and Social Risks

• Infrastructure Deficiencies: The project site in the Lindi region is remote, requiring significant investment in supporting infrastructure and technical capacity.
• Social and Environmental Concerns: The project is in an ecologically sensitive area, and environmental impact assessments (EIAs) have historically faced weak enforcement. There have also been past community protests related to land compensation and benefit-sharing, which pose a social license-to-operate risk.
• Security Threats: While more pronounced in Mozambique, the broader regional context includes security threats that could potentially spill over and impact the Tanzanian project’s operations and stability.

What incentives is Tanzania offering to mitigate investor risks in the LNG project?

To mitigate investor risks and move the Tanzania Liquefied Natural Gas (LNG) project forward, the Tanzanian government is primarily offering a combination of specific tax incentives and a more stable, legally sound regulatory framework that includes access to international arbitration for dispute settlement. 

Fiscal and Tax Incentives

The government is in active discussions with the international consortium (Shell, Equinor, and ExxonMobil) to provide a tailored incentive package within the Host Government Agreement (HGA). While the exact figures are still under negotiation, the existing legal framework (Tanzania Investment Act, Export Processing Zones Act, Special Economic Zones Act) allows for general incentives that the project might leverage if it meets the criteria, including:

• Ten-year tax holidays.
• Exemption from withholding tax on foreign-source loans and rent for ten years.
• Remission of VAT and duties on the importation of raw materials and capital goods.
• 100% capital allowance deduction for qualifying investments in infrastructure. 

Legal and Regulatory Mitigation

To address historical concerns about policy instability and asset appropriation, Tanzania has enacted reforms and provided assurances:

• Guarantees against nationalization and expropriation, with provisions for compensation if such events were to occur.
• Access to international arbitration for foreign investors to settle disputes with the government or the Tanzania Investment Centre (TIC).
• A new investment act (2022) intended to create a more predictable and favorable investment environment by clarifying timeframes for incentives and protecting existing certificates.

Market and Operational Support

• Guaranteed Domestic Market Share: While a point of contention, the government’s insistence on a domestic market obligation (reserving a percentage of gas for local use) provides a guaranteed, albeit local, off-take market, which could stabilize a portion of the project’s revenue stream.
• Pricing Clarity: Regulations are in place to establish transparent procedures for calculating and setting natural gas prices, which helps ensure a degree of fairness and predictability in future revenue streams. 

What are the current tax rates for the LNG project?

The specific tax rates for the Tanzania Liquefied Natural Gas (LNG) project have not been finalized, as they are part of ongoing negotiations for the Host Government Agreement (HGA) and Production Sharing Agreement (PSA). However, the general applicable tax rates in Tanzania’s petroleum sector provide an indication of the potential fiscal regime. 

Standard Applicable Tax Rates

The current general tax rates in Tanzania that would likely apply to the project include:

• Corporate Income Tax: A standard rate of 30% on taxable income for resident corporations or a permanent establishment (PE) of a non-resident corporation.
• Royalty: The Petroleum Act of 2015 caps royalties for natural gas production at 12.5% for onshore and shelf areas, and 7.5% for offshore areas, calculated on the gross revenue.
• Withholding Tax (WHT):
  • Dividends and Interest: Typically a 10% WHT applies.
  • Technical Services Fees: For non-resident technical service providers in the oil and gas sector, a 20% WHT may apply.
• Value Added Tax (VAT): The standard VAT rate is 18%, but exemptions for natural gas have been part of recent budget proposals.
• Loss Offset Limit: The amount of unrelieved losses from the extractive sector that can be utilized to offset current year profits is currently limited to 60%.

Status of Project-Specific Rates

The Tanzanian government and the international consortium (Shell, Equinor, and ExxonMobil) are discussing specific tax incentives to make the $42 billion project viable and attractive to investors. These specific, potentially preferential, rates will be detailed and legally established within the final HGA and PSA documents, which are currently undergoing final legal review and are expected to be signed later in 2026.

Author: Dr. Allan Anthony Rwabutaza.
Original Article Publication Date: 12:00 pm ET, Friday, January 9, 2026.