Tanzania's Magufuli on warpath with oil companies

Standoff over profit-sharing will affect the proposed $30 billion natural gas project.

A natural gas processing plant. Standoff in Tanzania over profit-sharing will affect the proposed $30 billion natural gas project. PHOTO | AFP 

IN SUMMARY

  • President Magufuli said the country is unable to generate electricity from its natural gas reserves because the companies have taken full control of the resources.
  • The companies involved in the LNG project are Shell, Ophir, Pavilion, Statoil and Exon Mobil.
  • Standoff over profit-sharing will affect the proposed $30 billion natural gas production project.

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Tanzania’s liquefied natural gas project suffered another setback this week after President John Magufuli accused the international oil and gas companies of seeking huge profits at the expense of the country’s development.

President Magufuli spoke in Musoma on Wednesday in the wake of the collapse of the host government’s negotiations with the international companies, which has left the $30 billion project in limbo.

He told a rally that the country was unable to generate electricity from its natural gas reserves because the companies have taken full control of the resources and asked Tanzanians to back the Stiegler’s Gorge hydro project, which has been facing opposition from environment activists and aid agencies.

President Magufuli accused the companies of demanding a high percentage of the proceeds from the LNG, and said that the government would continue with its plan to develop the Stiegler’s Gorge project, which is expected to generate 2,100MW.

“Donors are opposing the project, asking why we are not using natural gas. But the International Oil Companies (IOCs) have taken over the natural gas… They take a high percentage of the proceeds because they participated in discovering the gas. That is why the capacity of the pipeline the government built from southern Tanzania to Dar es Salaam is only 30 per cent. That is the game being played by the people who want to colonise us economically,” President Magufuli said.

He said that even if donors froze funding for the hydro project being developed on the River Rufiji, his government would implement it using its own revenues.

“In fact,” he said, “we already have the money for it!”

Recently, the Tanzania Petroleum Development Corporation (TPDC), which is charged with overseeing the implementation of the project, blamed the IOCs for failure work out on a commercial framework Agreement (CFA). A CFA is an accord between businesses, establishing the terms governing a contract.

The companies involved in the LNG project are Shell, Ophir, Pavilion, Statoil and Exon Mobil. The companies' original business plan was to generate gas for export to their existing markets, but the Magufuli administration wants a new business model that would see them export to the Southern African Development Community market.

Observers say that this will not only help deal with competition for the gas market from Mozambique, but also give Dar an upper hand in the region’s geopolitics.

Mozambique has more than 180 trillion cubic feet of gas reserves with the potential for this being doubled by 2030, compared with Tanzania’s 57 tcf. Mozambique has an 865km pipeline to South Africa.

TPDC acting director-general Kapuulya Musomba told The Citizen that although the process of establishing an LNG plant started over a year ago, it is yet to be finalised due to differences between the government and the IOCs over the commercial framework Agreement.

“The companies have failed to come to an agreement and, therefore, TPDC is sorting out the cause of the disagreements before we start the negotiations afresh,” he said.

Noting that an LNG plant is a costly project on which all the parties must come to an agreement before it takes off, Mr Musomba said: “If we rush matters, we could arrive at a poor decision that would adversely affect the project. We have no choice but to find common ground.”

The government has been dilly-dallying with the renewal of the operating licences for the IOCs, which expired early this year, letting them operate using provisional licences.

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