Why Tanzania officials are in no hurry to finalise gas deals

Tuesday January 1 2019

A gas plant in Ghana

A gas plant in Ghana. Equinor, a Norwegian company with interests in the sector has said it is ready to start talks with the Dar es Salaam administration on developing an LNG project based on a deepwater offshore discovery. FILE PHOTO | AFP 

BEATRICE MATERU
By BEATRICE MATERU
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The fear among Tanzanian government officials of repeating past mistakes in mining pacts has been cited as the main cause of delays in starting negotiations with companies seeking to extract liquefied natural gas in the south.

The companies and the government are yet to sign a commercial framework agreement, with Dar es Salaam saying it needs time to make the right decisions for the benefit of the country.

Officials are cautious not to bind the government to deals that may prove costly or loss-making in the future.

Energy Minister Dr Medard Kalemani said the government must be “content with the kind of agreements that we as a country are going into before signing the deal.”

Equinor, a Norwegian company with interests in the sector has said it is ready to start talks with the Dar es Salaam administration on developing an LNG project based on a deepwater offshore discovery.

The framework for the proposed $30 billion LNG plant is expected to outline and define all the attributes of the project, who is involved, the prices and all appropriate allocations.

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Gas firms say concrete investment decisions are on hold, awaiting the outcome of the negotiations between them and the government.

Equinor Tanzania has been given the green light to proceed with negotiations with the government for the development of Block 2 offshore Tanzania.

“The host government agreement (HGA) negotiations between Equinor and the government will set out the long-term framework for the LNG plant, which is not a part of the original production sharing agreement, but the decision to build the LNG plant has not yet been reached,” said senior vice president and country manager for Equinor Tanzania, Mette H. Ottøy.

“We have progressed our planning to a point where this is the next logical step and we are very happy that the government of Tanzania agrees with this.”

Terms of deal

Royal Dutch Shell Plc, which drilled 18 wells out of which 16 trillion cubic feet of natural gas has been discovered, said their focus now is the host government agreement, which will set out the legislative, regulatory and fiscal terms of the project.

Shell and Ophir Energy hold interests in Blocks 1 and 4, while Equinor holds Block 2 offshore Tanzania with a 65 per cent stake in partnership with ExxonMobil, which holds 35 per cent.

The national oil company, Tanzania Petroleum Development Corporation has an offer of 10 per cent stake.

Tanzania has been exploring for natural gas for more than 50 years, and started talks for further development in 2016.

“Even if we take 40 years to finalise, the agreements we ratify should benefit the country and its people. That’s the government’s stand,” said Dr Kalemani.

Tanzania is blessed with an abundance of natural deposits, minerals, oil and gas that could potentially transform the country’s economy if utilised effectively, but the sector has been clouded with uncertainties, suspicion and vague contracts that have prevented the country from developing at the speed it should have.

Shady deals

Since 2015, the extractives sector has seen a series of events ranging from amending laws to firing and charging of government officials involved in shady deals.

Three teams conducted investigations that indicted top government officials. President John Magufuli also dissolved the board of Tanzania Mineral Audit Agency sacked the chief executive Dominick Rwekaza, and asked that its staff be investigated.

At the same time, the private firm Tanzanite One paid the government an undisclosed amount in uncollected taxes plus a penalty and fenced off the mines to prevent revenue leakages through smuggling.

Two presidential teams on the gold and diamond sectors estimated Tanzania to have lost over $620 million in royalties of undeclared minerals.

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