Note: Data and models for this publication can be found here.

The authors of this paper examine Tunisia’s upstream petroleum fiscal regime, in consideration of the government’s stated policy priority of reversing a decade-long decline in reserves and production. Although the country’s “Jasmine Revolution” led to improved civic rights and the country is a strong regional performer on the Natural Resource Governance Institute’s (NRGI) Resource Governance Index, foreign investment has dropped since 2011, in part because of regulatory ambiguity and political instability.

Tunisia’s proven oil and gas reserves are very small, especially by regional standards. With limited geological prospects, the existing context is not conducive to oil and gas investment, especially for exploration. Tunisia offers different contractual arrangements and fiscal regimes: a concession-based system, which often involves joint ventures between the state-owned company, ETAP, and international oil companies and production sharing contracts. This paper analyses the various arrangements and fiscal instruments, focusing primarily on production sharing contracts, which have become the dominant contractual forms for foreign investors and do not require any public (ETAP) capital investment. The government of Tunisia publicly discloses all contracts and concessions.

Key messages

• Tunisia’s proven oil and gas reserves are very small, especially by regional standards. With limited geological prospects, the existing context is not conducive to oil and gas investment, especially for exploration.
• The fiscal terms offered by the Tunisian government on the basis of the petroleum law are not sufficiently competitive; comparable terms are more often found in countries with much better geological prospects.
• Tunisia’s production sharing contracts (PSCs) contain very different fiscal terms for different projects. As an alternative to PSCs, concession agreements could be more competitive if they did not require a significant equity position for the state-owned company (ETAP).
• If Tunisian government officials want to create a vibrant petroleum industry to support the local economy, reduce the country’s increasing dependence on imports, attract investment and boost exploration activity, they might consider the following recommendations:
  • Harmonize fiscal terms across new projects to create equal opportunities for investors and easier monitoring by the state and oversight actors.
  • Review the terms of PSCs to make the fiscal regime more progressive. For instance, officials could increase the cost recovery ceiling and adopt only R-factor based profit-oil splits. Any changes to PSC terms should not apply to existing agreements, unless contracted companies opt in to the new regime.
  • In the longer term, launch additional reforms to stabilize the institutional and regulatory framework, clarify the role of parliament, and improve the competitiveness of license allocations to further enhance Tunisia’s international competitiveness in the oil and gas sector.