Zitto na Demokrasia

Zitto na Demokrasia

From File: Tanzania without a Resource Curse #Tanzaniaoil&gas

with 5 comments

This is an article that I wrote last year on our oil and gas sector and questioning our preparedness, stressing importance of transparency and the way forward. Almost a year down the line we still have started a proper discussion on how to go forward with our oil and gas promises by the government havent been kept we still dont have a Natural Gas MasterPlan and no petroleum revenue management bill.

Its high time we did something.

Niliandika makala haya mwishoni mwa mwaka jana. Kufuatia mjadala unaoendelea kuhusu sekta ya mafuta na gesi na kuhusiana na mikataba ya utafutaji na uchimbaji wa Gesi na Mafuta. Vilevile kuhusiana na utayari wa Tanzania kuelekea Uchumi wa Gesi Asilia.

Nimeona nibandike makala hii hapa katika lengo la kukuja mjadala. Natumai huko baadaye tutakuwa na forum maalumu kuhusu sekta hii nyeti sana.

***********************

Tanzania without a Resource Curse

Zitto Kabwe

In his December 2011 letter to the Managing Director of the IMF, Tanzanian Minister for Finance confirmed the fact that in the near future the country will be a significant exporter of natural gas. The Minister wrote  ‘there appear to be good prospects that commercial quantities of natural gas will be confirmed, resulting in multi-billion dollar foreign direct investments in Tanzania’s natural gas sector(sic) over the next five years, and the start of correspondingly large export and budget revenue flows around the end of the current decade.’

This is the first official confirmation about the vast reserve of natural gas lying under waters of the Indian ocean south of Tanzania apart from ones in Songosongo and Mkuranga blocks. It is estimated that Tanzania will confirm increasing reserve to around 60tcf of natural gas from the current 43tcf. Mozambique, just south of Mtwara Region has already confirmed 30trcf of natural gas and the government of President Armando Guebuza is preparing itself for a Gas Eonomy. Tanzania is expected to receive an FDI of around USD 7bn from just one company (Ophir Energy and its partners British Gas) in the coming five years. Other multinational companies like PetroBras and a Norweigean StatOil are in drilling programmes in 2012 and expectedly more discoveries and potential FDIs will be announced. StatOil has since announced discoveries in its two wells drilled so farand has started to look for an area to build an LNG plant. Rushugi natural harbour in Kilwa district is a prefarable site. Thus, it is an obvious fact that Tanzania might start exporting Natural Gas by 2020, more than quadruple its exports earnings, double its GDP and move the country to a natural gas economy as fifty percent of its GDP will be originating from natural gas sub sector. Some talks in the Gas industry say that in the first year of LNG exports, total value of earnings would equal 40% of GDP. Is the country prepared?

The Minister for Finance assures the IMF that there are discussions in Tanzania on how to position the country to the best to take advantage of the potential resource wealth. True there are talks about this topic but not discussions. The government hasnt seriously initiated a multi stakeholders discussions on the eventuality of the the Gas Economy. There has been murmurings and issues being raised (though not seriously) in the precincts of Bunge. There has been a serious discussion though amongst young Legislators about this crucial issue, informally. It is high time now that the nation starts to talk, discuss and dialogue about the country’s vast natural gas reserve and its exploitation so that it benefits the country and its people once flows start.

Many people hope that discovery of massive natural gas reserves will make Tanzania rich and end poverty completely. That, it will be a catalyst for prosperity. Sometimes YES and many times NO as far as experience from many African countries are concerned. Scholars have written about the Resource Curse affecting many resource wealth countries and causing more poverty and even conflicts. Paul Collier, in his book The Bottom Billion – why the poorest Countries are failing and what Can Be Done About it, affirms that over time, countries with large resource discoveries can end up poorer. Several reasons explains the situation but a major one is the concept of Dutch Disease whereby natural resources exports crowd out other key economic activities that employs more people and with stronger linkages to the rest of the economy. To avoid the curse a country needs to prepare itself so well to address issues of contracts for exploitation of the resource, revenue management and curb rent seeking behaviour (which is rampant already in Tanzania due to foreign Aid and Gold exports).

The Finance Minister committed to IMF that the Natural Gas MasterPlan will be finished by June 2012. This is a right move and reasonable timeframe. However who is responsible for the drafting of the masterplan? Bureaucrats in the Ministry of Energy? A natural Gas MasterPlan explains about the planned use of the gas discovery – How much to use domestically for power generation, how much for fertilizer making, how much for home use and how much to export. Thus the masterplan must have opinions of various stakeholders and it must be aligned with a Power system masterplan as well as the over all National Development Vision. As this article is written, there is no open discussion about the masterplan and it is worrying if June deadline commited to the IMF (annoying that instead of government committing itself to the People through Bunge, it does to IMF) will be met. Deadline was passed, no plan, no policy, no new legislation. The ministry of Energy must start engaging stakeholders in the energy sector including legislators in the Energy and Mining Committee into completion of the Natural Gas MasterPlan.

It is expected that Petroleum revenue management bill will be enacted before large exploitation of the natural gas starts. Tanzania so far has very generous fiscal incentives to Oil exploration companies. But these incentives have been given in an ad hoc manner as there is no specific law to govern revenue streams from hydrocarbons. Moreover as the case with revenue from Gold mining and other minerals, proper use of funds is the most critical issue. Residents of the areas where mines are situated have been complaining about not getting and benefits from the mines. The Bomani Committee recommended for 20% of the royalty to be returned back to villages around mines. Petroleum revenue management bill must provide for the regions where Oil/Gas will be found to benefit from the resource. But also whether money shall be used for major development projects or business as usual. The Minister has rightly suggested for the future revenue generations fund as it is done in Norway and other countries. These are very critical issues to be discussed in the near future in order to ensure Tanzania benefits from the expected wealth. Tanzania must avoid a Nigeria situation where the country has exported Oil worth USD 250bn since 1970 but Nigerians are still poor and not much tangible things can be shown of the trillions Nairas.

Two important things must be considered in the anticipated Gas Economy. One is the Human Capital. Tanzania has very few experts on Hydrocarbons, hard stuff like Engineering and Geology as well as soft like Energy economists, Lawyers specialising on Petroleum and even sociologists. It is highly suggested that a Mtwara University be established with campuses in Mtwara and Lindi municipalities to train Tanzanians on these areas and more. Vocational training is of paramount importance to the middle and lower cadres in the sector. Otherwise Tanzania will find itself importing welders as experts. This has to be done now and not later.

Second is the reforms of the Tanzania Petroleum Development Corporation (TPDC). As it stands TPDC is now a regulator of upstream (although some argue it is the Commissioner for Energy) and a participant to the ventures with the free carried interest. It is highly suggested that a National Oil and Gas Company (Petroleum Corporation of Tanzania – PETROTAN) be established and actively participate in the sector as an investor with huge stakes. It must be highlighted here that PetroBras, Petronas and StatOil are state companies in their own countries. The role of a regulator shall be separated from role as participants/ investor in hydrocarbon companies. PETROTAN would have various subsidiaries in the midstream (like the Pipeline) and downstream (like outlets, Gas stations). These reforms should be done as early as practical to enable the country prepare well for the exploitation of the resource wealth from hydrocarbons.

In conclusion, Tanzania must from start institutionalize governance issues in the Oil and Gas by ensuring transparency in contracts as well as total commitment to Extractive Industry Transparency Initiative. The EITI bill must be brought to Parliament to ensure transparency and Accountability. These will lay a strong foundation for country to avoid a Resource Curse and ensure trust from citizens about their natural resources wealth, the trust that waned in mining sector.

Written by zittokabwe

September 20, 2012 at 6:31 PM

5 Responses

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  1. Whilst most developed countries rely broadly on taxation of their citizens and businesses for their incomes, most developing countries rely heavily on foreign aid and economic rents from their natural resources. The economic and political consequences of governments’ dependence on economic rents is said to be “bad governance” in these developing countries.

    Reliance on a single sector, such as mining, to the disadvantage of other major sectors may result into a resource curse whereby the country with abundant non-renewable resources faces stagnation and sometimes contraction in economic growth. The country becomes dependent on the price of commodities and its overall gross domestic product becomes volatile. In addition, resource curse results into government corruption, particularly where there is no proper framework established in the society for resource rights and distribution of income.

    No doubt that natural resources such as gas and minerals are potential drivers for development in Tanzania. With the increasing global demand for natural resources, partly due to the increasing demand from fast-growing emerging economies, this can potentially offer rapid development in terms of infrastructure and structural transformation particularly in resource-rich poor countries such as Tanzania.

    Riches from the gas and mining in Tanzania promise to be massive. However, the extraction of these natural resources can disappoint if they are not properly managed, leaving this resource-rich poor country underdeveloped. Recent studies show that the natural resource curse is looming in Tanzania. Whilst some countries such as Botswana appear to have worked out a path to relative prosperity, others such as the DRC have suffered from decades of poor governance, conflict and impoverishment. Tanzania appears to be on the downward spiral that typifies the conventional understanding of the resource curse.

    Proches Tairo

    September 21, 2012 at 2:00 AM

    • Never ever talk anything about Botswana. Botswana is the largest exporter of nickel in the world. But who benefits? Its the multinatinal companies orginating from South Africa, America, Britain etc. Indigenous Botswanees is so poor, in fact much poorer than we Tanzanians!

      eddie mtta

      October 20, 2012 at 12:41 AM

  2. Zitto, this is well said and with noble intentions and forewarning. There are a couple of items I would like to add to your treatize.

    Lets begin with the scope of a Natural Gas economy. I would like to propose two additional modern sub-sectors beyond fertilizers, power generation, domestic use and export. Green economy would point Tanzania towards the conversion of much of the national fleet into natural gas fuel. To the extent that this conversion is weaved into the national economy, significant multiplier effects exist – from engineering, transportation/piping, filling stations to safety. Fortunately, the bulk of the resources for this conversion can be sourced from existing and future global climate change mitigation and adaptation financing regimes such as the Clean Development Mechanism and its next of kin, The Green Fund, etc. The second sub-sector is the modern industrial product generally known as Super Absorbent Polymers (SAPs) whose products proliferate down stream industrial activities. A good SAP industry will cost about a billion dollars to set up, with the downstream industries generating a lot more wealth and employment.

    Secondly, the human resource development area needs to be liberalized. With a sector (mining and petroleum) we need more than one institution involved in skills development and research. Having a strong department at Mtwara University is a good idea but being cognizant of the length of time it takes to build a solid department, institute, college, I would rather diversify this objective and support the establishment of petroleum institute or schools of mining at three or so Universities, including the well established UDSM in order to take advantage of academic and research synergies that already exist. Besides, healthy competition is as good for academia and research as is for industry or commerce.

    My last but one point is more important but much more difficult to undertake. Transparency and revenue management may not be enough to reduce or minimize corruption in a sector that may spawn a trillion dollars in the next few decades from direct revenues and trillions more in multiplier effects. Big money attracts all sorts of shady characters from everywhere and the allure of instant wealth to Tanzanians may make transparency inadequate to stem corruption. What I am alluding to is a concomitant effort to train and nurture committed and nationalistic next generation of leaders who will oversee the use of these resources for public good. Good saplings are chosen and nurtured. Committed and patriotic leadership corp seldom happen spontaneously. This aspect is not a mining and petroleum sector issue, but if as a nation we continue wallowing in a culture of corruption and personal gain, this new cash cow can not be exempt from the plundering that the rest of the economy is subject to. Without a cadre of selfless leaders to midwife the country’s leap into natural resource-based affluence and modernity, the Resource Curse for Tanzania is as certain as day follows night.

    My last caution is seldom mentioned in discussions of this nature but I think Tanzania has to learn from the mistakes of our brothers and sisters elsewhere. We must develop a security and defense infrastructure (human, institutional and physical) that is commensurate to the security and defense challenges that arise from such levels of endowment. Our current security and defense posture is awfully inadequate for the expected economy and resultant society arising from such a resource windfall.

    Again, thanks for setting the ball rolling and I hope that we should discuss this topic with the seriousness it deserves, for our subsoil holds the potential for unimaginable prosperity or civil war – the choice is ours. I mean your generation’s.

    makundi

    makundi

    September 26, 2012 at 12:15 PM

  3. Well written! Well researched! Powerful!

    Babujee

    October 15, 2012 at 7:31 PM

  4. Very useful article the problem is that those who are concerned with this issues especially government and the minister of finance who commits himself to IMF do they get time to read these material and suggestions?

    Anosisye Kesale

    October 19, 2012 at 6:34 PM


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