Zitto na Demokrasia

Zitto na Demokrasia

Posts Tagged ‘tanzania oil and gas sector

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

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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.

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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