Big gas finds in East Africa are putting existing government institutions under strain, especially in Tanzania where the medium term outlook for fiscal and regulatory policy is clouded with uncertainty.
The upcoming fourth licensing round for eight new deep-sea blocks has been postponed once already and may be postponed again. Tanzania Petroleum Development Co.’s (TPDC) future is unclear and new legislation governing the gas sector is being delayed.
The fourth licensing round, scheduled to launch in September, was originally slated for April 2011. It was cancelled to allow for the collection of more seismic data, though a source in TPDC suggested at the time it was in the hope of gas finds in active blocks.
Eight new blocks will be available in the fourth round. Four are adjacent to the successful Statoil and BG blocks and, in the current climate, are certain to generate interest.
However, the round is again under threat. Zitto Kabwe, chairman of the parliamentary committee overseeing TPDC, has called for the round to be postponed until firm legislation is in place. A postponement “would be better for the country. Our focus now is the exploration in the existing blocks”, Kabwe told Interfax.
If the fourth round goes ahead, sovereignty issues with the island of Zanzibar should not be an issue as none of the new blocks are contiguous to the islands. Claims awarded to Antrim Resources and Royal Dutch Shell are in limbo until the Tanzanian mainland and Zanzibar can agree on jurisdiction.
A new act on the agenda
Restructuring TPDC is now on the agenda. Two parliamentary committees, the Public Investments Committee – headed by Kabwe – and the Energy and Minerals Committee, recommended it in April.
Kabwe told Interfax that the recommendation has been accepted in principal but that it depends on new legislation. This should see the establishment of a regulator with a separate entity focusing on operations. Investment will be needed too, particularly in human resources. Until 2011, TPDC had only hired one driver, relying on central government approval of recruitment, according to Kabwe. It will be free to undertake its own recruitment after July.
The sector is governed by the Petroleum Act of 1980, but a new Gas Act has been in the works since at least 2009. Most recently, the previous deputy minister for energy and minerals, Adam Malima, promised that a bill would be tabled in the National Assembly’s sessions for April this year. That never happened. The Daily News reported this month that the clerk of the National Assembly said the bill is with the parliamentary draftsman.
Kabwe is not alone in being concerned by the delay to new legislation. Sospeter Muhongo, the new minister for energy and minerals, will prioritise the Gas Act, finalising a gas master plan and restructuring TPDC, industry analyst Subiro Mwapinga, of Africa Practice, told Interfax.
The earliest any bills can realistically be tabled is November, and only “if parliamentarians push”, Kabwe told Interfax. Standing orders require a bill to have three readings in separate sessions. At this stage, the earliest such a bill could be passed is July 2013.
Lessons from mining
Tanzania’s recent history of managing big natural resources projects has not been an easy one. A gold rush over the last 15 years was characterised by a lack of transparency in contracting at the outset, poor planning for logistics and infrastructure, and scant regard for local content. The result has been endless controversy, with mining companies’ problems ranging from civil unrest around mine sites to retrospective tax impositions.
Brian Cooksey, an independent researcher, said that if oil and gas companies want to mitigate political risk, they can learn from the mistakes made in mining. “Building symbolic schools and health centres just to tick the CSR [corporate social responsibility] box will not be enough to get communities onside,” he told Interfax. Oil and gas operators, he said, “would do well not to follow the examples of the big gold mining companies in terms of transparency and CSR”.
Improving transparency and including local content will be central to this. “What is needed is local economic development: business opportunities for local companies and training for school-leavers”, said Cooksey.
Kabwe concurred, recalling that until recently mines “imported tomatoes and meat from Kenya and South Africa. Laundry services were being done by Australian companies”. Both agree on ensuring that revenues and the production sharingagreements (PSAs) are open. Finally, the biggest challenge will be revenue management. The Ministry of Energy and Minerals has been looking at different models, including Ghana’s Revenue Management Act from last year. There is considerable excitement in Tanzania about recent discoveries but, without the right structures to manage the wealth, there may be, at best, disappointment over missed opportunities and, at worst, political corruption and economic mismanagement.
All of this will require additional legislation and the capacity to implement it. The big players, such as BG Group and Statoil, will be keen on compliance in all areas, being sensitive to reputational risk. But, Mwapinga said they will be concerned by the pace of reform. “The pace the companies are moving at is not the pace the government is moving at,” he told Interfax.
Tanzania’s gas sector is small. The Songo Songo field, operated by Pan African Energy Tanzania (PAT), produces a relatively modest supply for domestic consumption. However, even managing such a small operation has not been trouble free. TPDC has been operating with day-to-day interference from its parent ministry and limited capacity to carry out its mandate, according to the most recent Energy and Minerals Committee’s report.
PAT itself has had a rocky relationship with the government. Most recently, it was accused by the Energy and Mineral Committee of trying to sabotage Chinese financing for the planned Mtwara-Dar es Salaam pipeline, as well as misallocating costs to increase its share of cost gas under its PSA. Developments over the next year will be crucial to avoid much bigger headaches in years to come.
Source:http://interfaxenergy.com
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