On 2 November 2012, Tanzania’s Ministry of Energy and Minerals (MEM) published the first draft of the long awaited Natural Gas Policy. The release will be followed by a 21-day stakeholder consultation to be completed on 20 November 2012. |
These consultations are expected to include multilateral institutions like the World Bank, hte International Monetary Fund, the Africa Development Bank, bilateral partners, civil society organisations, academia, oil and gas companies, those directly affected by the oil and gas operations and the Tanzanian public. MEM is inviting comments through it website, although it plans to hold physical consultations with selected stakeholders. It is anticipated that the final policy will be published before the end of 2012.
As of June 2012, the country had discovered 33trn cubic feet of natural gas (equivalent to about 6bn barrels of oil), according to the document. Such significant reserves require a comprehensive plan for their utilisation and the policy is intended to act as a guide to the subsequent development of legislation, regulatory and institutional frameworks. Notably, it focuses on the midstream and downstream sectors of the natural gas industry, with the upstream to be catered for in the Petroleum Policy.
Competitive licensing: While previously exploration and production contracts in East Africa have so far been awarded opaquely usually at the minister’s discretion, the policy directs that the government move to a more competitive system: ‘Ensure competitiveness in the grant of petroleum licenses to promote productivity and maximise the country’s benefits from its natural gas resources unless under exceptional cases for national interest.’. Several parties had pushed for the postponement of a new licensing round of new blocks in September until the policy was released, but having no legal backing, even this directive may not be enough and the round may have to await the enactment of the Natural Gas Act.
Domestic use: The policy also gives first priority to the domestic market over exports. ‘The Government considers facilitating wide utilization of this indigenous resource domestically to minimize the use of foreign currency for importing petroleum products.’ The policy envisages domestic use in electricity production, industrial use, household use etc. Further, the policy also directs that the government consider regional markets when developing the natural gas infrastructure. For example, Tanzania and Kenya have already considered the idea of a gas pipeline to Mombasa for Kenya to develop a gas powered power plant in the coastal town.
Revenue management: The Policy suggests the establishment of a Natural Gas Revenue Fund that would be responsible for ‘collection, allocation and management of the natural gas revenue.’ The body is expected to effect revenue transfer to the government for strategic public expenditure and save part for future investment. Several countries have formed sovereign funds that ensure revenues from finite natural resources are shared with future generations.
Economic linkages and local content: The policy also encourages the gas industry be linked with other sectors of the economy, agriculture, transport, mineral, commercial and industry to avoid the so called Dutch disease. Additionally, the Policy’s drafters are keen to see the country benefit by gas companies procuring local goods and services, training and employment of local workforce and creation of support industries.
Regional co-ordination: The policy also opens the way for coordination in developing the gas industry with other countries: ‘The government shall promote cross border projects and investment to maximize benefits accruing from natural gas exploitation.’ Mozambique to the south has struck huge gas reserves while Kenya to the north has stepped up offshore exploration. All the three countries said to have similar geological makeup offshore and co-operation might reduce exploration costs.
Transparency and accountability: The Policy directs that relevant bodies should endeavour to make public all non-sensitive information on the natural gas industry to promote transparency and accountability and curb corruption tendencies. On the same, the policy recognises that Tanzania has joined the Extractive Industries Transparency Initiative (EITI). Tanzania is yet to fulfil all the requirements however and remains a candidate country, according to the EITI website.
PPP: The government is also looking at employing Public Private Partnerships (PPPs) in the natural gas industry and the policy advocates for a proper mechanism for risk sharing in natural gas PPPs investments to ensure mutual benefits for parties involved.
Legal and regulatory framework: The policy also mandates the government to develop the relevant legal and regulatory framework for the industry. This framework is expected to cater to the midstream to downstream activities (transportation, liquefaction, distribution, supply and trading of natural gas). The policy envisages a natural gas regulatory authority that will oversee tariff structure, rates and charges, quality and standards, healthy and safety issues among others.
TPCD: In Chapter 5, the policy directs a review of Tanzania Petroleum Development Corporation’s (TPDC) roles, functions and structure. Currently, TPDC carries out commercial and regulatory functions for the oil and gas industry, but the policy recognises the need for a separation of the commercial and regulation activities, calling these dual roles ‘not prudent industry practice.’ With the establishment of the regulatory authority, TPDCs role in the midstream and downstream gas industry will become of a more commercial nature, i.e. it will hold assets on behalf of the government, and aggregate and develop natural the gas market. However, it remains to be seen if the petroleum policy will also strip it of regulatory duties in the upstream sector of the oil and gas industry.Next Steps?
In an article carried by Daily News, several economists have called for the policy to be aligned with poverty reduction initiatives. There have been suggestions that the greatest value from the gas industry will be derived from investing in infrastructure, the improvement of which has a direct correlation with a general economic improvement and reduction in poverty levels. Tanzania is primarily an agricultural economy with a poor transport network, both in roads and rails, and an improvement in this area could help open up markets to farmers. Investments in the chronically ailing power sector, both in generation and transmission, would also help to foster more growth in manufacturing and other economic activities. So far, the government has embarked on building a gas pipeline to Dar es Salaam for the construction of two 390MW gas-powered power plants. However, it is worth bearing in mind that one of the above investment priorities are new: these have been on Tanzania’s agenda for years, and donors have lent copious financial support to them.
While the Policy provides an oversight of the gas industry it is expected to lay the foundation for the upcoming legislation and guidelines, in particular the Gas Utilisation Master Plan and the Natural Gas Act. These are expected to fill in the flesh to the Policy’s broad statements by providing specific legal details. Additionally, the country is also working on a Petroleum Policy and a Bill to regulate the upstream sector.